by Gary Schnitkey
original source FarmDocDaily
A new “Product Performance” section has been added to the 2017 Crop Insurance Decision Tool. By using this section, users can examine per acre premiums and payments from alternative crop insurance products from 1995 to 2015, thereby allowing users to gain a feel for the historical performance of crop insurance products. For corn, users will notice that the 2012 drought had large impacts on crop insurance performance.
From the 2017 Crop Insurance Decision Tool, users will select “product performance” from the menu and make the following selections (see Figure 1):
- State. Any state in the nation can be selected.
- County. Any county can be selected.
- Crop. Information is available for corn, soybeans, and wheat.
- Product. Data are available for Revenue Protection (RP), Yield Protection (YP), RP with the harvest price exclusion (RPwHPE), Area Revenue Protection (ARP), Area Yield Protection (AYP), and ARP with harvest price exclusion (ARPwHPE).
- Coverage level. Choices are each available coverage level (50 to 85% for RP) and an “all” selection.
Product Performance Output
Figure 2 shows output from selections in Figure 1. All data comes from Summary of Business, which is maintained by the Risk Management Agency (RMA). The 2017 Crop Insurance Decision Tool provides results from 1995 to 2015. Yearly performance rows will be blank if no use of the chosen product occurred during the year.
RP along with YP and RPwHPE came into existence in 2011. As a result, RP performance is reported from 2011 onward. Before 2011, Crop Revenue Coverage (CRC) and Revenue Assurance (RA) plans where in use. RP, CRC, and RA all are revenue insurances that allow guarantees to increase if harvest price is higher than projected price (RA had an option that excluded the guarantee increase, but this option was used rarely). Therefore, CRC and RA performance are reported for years prior to 2011.
The “product performance” section first reports acres insured using the selected combination. RP type products were first introduced in 1997 and 7,916 acres were insured in Logan County (see Figure 2). Use grew to 125,359 acres in 2014, decreasing slightly to 121,619 acres in 2015. RP is now the most used crop insurance product, having over 90% use in many counties (see farmdoc daily, January 4, 2017).
Next, the section reports premiums in three columns: total, subsidy, and farmer-paid premium. The subsidy represents the premium paid by the Federal government as specified by subsidy schedules written into statute. As its name implies, “farmer-paid premium” is paid by the farmer. Farmer-paid premium plus subsidy equals total premium. In Logan County, total premium was $40.56 per acre in 2015 (see Figure 2). Of the total premium, $19.79 per acre was subsidy and $20.77 per acre was farmer-paid premium.
Also given are per acre insurance payments. These are payments to farmers resulting from claims to crop insurance products. In 2015, insurance payments on RP products averaged $32.95 per acre.
The final two columns provide an evaluation of the crop insurance products. Insurance payments minus farmer-paid premium show insurance payments received from the products relative to farmer-paid premium. Positive values mean that insurance payments were larger than farmer-paid premium.
In high payment years, payments minus farmer-paid premium will be positive. For example, insurance payments were high in the 2012 drought year, resulting in payments minus farmer-paid premium of $302.26. In low loss years, payments minus farmer-paid premium will be negative. From 1997 to 2015, negative values occurred 13 out of 19 years. From 1995 to 2015, farmers received an average of $10.38 more in premium than in payments (see Figure 2). From 2006 to 2015, farmers received $22.55 per acre more in payments than they paid in premium (see Figure 2).
The loss ratio equals insurance payments divided by total premiums. In 2015, the loss ratio was .81. Loss ratios less than 1.0 mean that insurance payments were less than total premium. Conversely, loss ratios higher than 1.0 indicate that payments were greater than premium. Over time, RMA’s goal is to maintain a loss ratio near but below 1.0.
Past performance will not be entirely reflective of how the products will perform in the future. RMA makes adjustments to premiums over time. For example, continuing high payments on products will result in increasing premiums and vice versa. Moreover, RMA continually conducts studies of its rating procedures, which can cause premium changes. As a result, current premiums will vary from historical premiums even given identical conditions. As a result, future performance will not match historical performance.
Moreover, values are averages across many farms in a county. In 2015, average RP premium in Logan County were $20.77 per acre. Some farmers paid higher premiums depending on crop insurance choices and historical yields, and vice versa. The average RP payment in 2015 was $32.95 per acre. Again, payments vary across farms in the county. Some farmers did not receive payments in 2015 while other farms received payments much larger than $32.95 per acre.
Importance of 2012 in Illinois
The drought year of 2012 has a large impact on crop insurance performance. In 2012, the loss ratio for RP in Logan County was 5.84, much higher than the .89 average from 2006–2015 (see Figure 2). If 2012, had not occurred, the .89 average loss ratio for the 2006–2015 would have decreased to .46.
Payments minus farmer-paid premium averaged $22.55 per acre from 2006 to 2015. Without 2012 included, payments minus premium averaged -$8.53 per acre.
The drought has similar impacts on many Illinois counties. To illustrate, Panel A of Figure 3 shows average RP loss ratios for corn in each Illinois county for 2006 to 2015. The 2012 drought particularly impacted farms in southern and eastern Illinois, causing many counties to have loss ratios above 1.0. Panel B shows loss ratios for 2006–2015 with 2012 excluded. Without 2012, most counties had loss ratios well below 1.0.
These comparisons point out the importance of “extreme” years on overall crop insurance performance. Severe droughts like 2012 occur in the Midwest occasionally, with much debate concerning their frequency of droughts. The last drought of comparable magnitude to 2012 happened in 1988, 25 years previous to 2012, suggesting infrequent droughts. However, two additional, large yield shortfalls occurred in the 1980s: 1980 and 1983. Three severe events in a decade give a very different perspective on the frequency of droughts than the more recent history of the passing of 25 years. Which represents the future the best is an open question, with a blend of the 1980s experience and the recent more moderate losses likely to be the most appropriate answer.
The Product Performance section allows users to examine historical performance of crop insurance plans, thereby providing intuitions on the frequency of payments, the size of payments, and the net costs of the plans. While evaluating past performance is useful, future performance will not necessarily match historical performance as RMA is adjusting premiums over time. Moreover, the frequency of large-scale droughts has a large impact on insurance performance. Whether there are 0, 1, or 2 drought years in the next ten will dramatically influence crop insurance performance.
by Gary Schnitkey
Revenue Protection (RP) is the most used crop insurance plan for corn. Over time, RP use has grown to over 90% of corn acres insured in many counties in the corn belt (farmdoc daily, December 13, 2016). As illustrated by maps in this article, farmers in the corn belt typically select 80 and 85% coverage levels when using RP. Detailed statistics on a county basis are available from the “product use” section of the 2017 Crop Insurance Decision Tool). Overall, use suggests farmers prefer revenue insurances that allow guarantees to increase if harvest prices are above projected prices. Use of high coverage levels suggests farmers value protection offered by crop insurance.
According to 2016 Summary of Business statistics from the Risk Management Agency (RMA), RP use on corn acres is over 95% in most counties around the western corn-belt. For example, over 95% use predominates in North Dakota, South Dakota, Minnesota, Kansas, Iowa, and Missouri (see Figure 1).
Many counties in Illinois, Indiana, and Ohio have lower RP use than in the western corn-belt (see Figure 1). In these eastern corn-belt counties, higher use of Area Risk Protection (ARP) occurs. RP and ARP are similar in that both are revenue insurances whose guarantees increase if harvest prices are above the projected prices. ARP uses county yields in determining payments while RP uses farm yields. In eastern corn-belt counties, the sum of RP and ARP use often is above 90%.
Two counties illustrate RP and ARP use in the eastern corn-belt. Sangamon County is in west-central Illinois and has 66% of its corn acres insured using RP, 32% using ARP, with the sum of RP and ARP use being 98%. Noble County is in the northeast Indiana. In Noble County, RP use is 43%, ARP use is 51%, and the sum of RP and ARP use is 94%.
Some counties outside the corn belt have more use of Yield Protection (YP) insurance, a yield insurance. For example, higher YP use occurs along the Mississippi River in Mississippi, Arkansas, and Louisiana (see Figure 1). Take Bolivar County, Mississippi as an example. RP is used to insure 71% while YP is used on 29% of the acres. Besides the Mississippi Delta, more use of YP also occurs in:
Counties in the middle part of Michigan, Western New York counties, Texas panhandle counties (see Figure 1). By far, RP is the plan most used to insure corn. In some areas, predominately in the eastern corn belt, ARP has significant use, with RP and ARP being used on over 90% of corn acres. In areas outside the corn belt, RP use often is above 50% of acres, but YP has a higher percentage of acres than in the corn belt.
RP Coverage Levels
In most counties, RP’s coverage levels range from 50% to 85% coverage levels in 5% increment. Figure 2 shows a weighted average coverage level for RP products in 2016. To illustrate weighted average coverage level calculations, suppose a county has 60% RP acres insured using an 80% coverage level and 40% using an 85% coverage level. The weighted average coverage level for this county is 82% (.6 use x .80 coverage level + .4 use x .85 coverage level).
Average coverage levels for RP in corn is over 80% in southern Minnesota, the northern two-thirds of Iowa, Illinois, and Indiana, and western Ohio (see Figure 2). Counties around this core of the corn belt typically have average coverage levels between 75% and 80%. Average coverage levels then decrease to between 70% and 75% the further away from the central core of the corn belt.
County Level Detail
More detail on crop insurance use is available from the 2017 Crop Insurance Decision Tool, a Microsoft Excel spreadsheet available for download from farmdoc. In the “product use” section, users make a state, county, and crop selection. Then, product use details are given.
Figure 3 shows an example of output for corn in Sangamon County, Illinois. In 2016, 197,535 acres of corn were insured. Of the acres insured, 66.3% of acres insured using RP, 32.0% used ARP, and 1.0% used YP. RP with the harvest price exclusion (RPwHPE) and Area Yield Protection (AYP) had much smaller percentages of acres. Within RP use, 47.9% of acres were insured using an 85% coverage level, 14.7% at an 80% coverage level, and 3.7% at lower coverage levels.
Figure 3 shows these use statistics for 2016. Users can change the year to any year from 1995 onward. The product use section of the 2017 Crop Insurance Decision Tool also includes graphs detailing crop insurance use over time.
RMA offers different types of insurances including yield insurances, revenue insurances with harvest price exclusion, and revenue insurances with guarantee increase provisions. RP and ARP are both revenue insurances with guarantee increase provisions. High use of RP and ARP suggest that farmers prefer revenue insurances over yield insurances. Moreover, high use suggests that farmers value the guarantee increase associated with RP and ARP.
In the heart of the corn-belt, farmers typically purchase RP at high coverage levels. Weighted average coverage levels are above 80% in the center of the corn-belt, indicating that most acres are insured using either the 80% and 85% coverage levels. High coverage levels suggest that farmers desire risk protection offered by crop insurance.
Ethanol production in the United States ended the year on a record-setting note. It could mean an even bigger number for the corn-based fuel in 2017.
The U.S. ethanol industry ended 2016 on a high note. Ethanol production for the week ending Dec. 30 set a new ethanol production record with an average of 1.043 million barrels per day. The March futures price for corn moved higher last week to close at $3.58 in large part due to strength in the ethanol sector. Ethanol production and exports returned strong numbers over the first quarter of the marketing year. Currently, the World Agricultural Supply and Demand Estimates report forecast for corn consumption for ethanol production is 5.3 billion bushels. According to University of Illinois agricultural economist Todd Hubbs, when taking into account an increase in projected gasoline consumption in 2017 and robust ethanol export levels, the ability to surpass this projection is a strong possibility.
“Domestic ethanol consumption in 2017 will be influenced by domestic gasoline consumption, due to the ethanol blending requirement and the biofuels volume requirement associated with the Renewable Fuels Standard,” Hubbs says. “The EPA final rulemaking for the Renewable Fuels Standard for 2017 was released on Nov. 23 and is discussed in greater detail in the farmdoc daily article posted Nov. 30. In brief, the renewable fuels volume requirement is set at 19.28 billion gallons for 2017, which is up from the 18.11 billion gallons required in 2016.
“The conventional ethanol requirement is set at 15 billion gallons for 2017, 500 million gallons larger than 2016 and equal to the statutory requirement level,” Hubbs says. “If the gasoline consumption forecast used by the EPA is correct, the E10 blend wall will be 14.36 billion gallons in 2017. The EPA believes an ethanol supply of 14.56 billion gallons is reasonably attainable in 2017. Within the 14.56 billion gallons, E15 and E85 blends are expected to be 107 and 204 million gallons respectively. The ability to attain the E15 and E85 blend levels remains to be seen, but the increase in ethanol requirements provides support for greater corn usage in 2017.”
U.S. retail gasoline prices averaged $2.14 per gallon in 2016, which is 12 percent less than the price experienced in 2015 and is the lowest price since 2004. The December Energy Information Agency Short Term Energy Outlook projected an increase in gasoline prices for 2017 to $2.30 per gallon. Despite the projection of higher gasoline prices, gasoline consumption is forecast at 143.60 billion gallons in 2017, which is up from the 142.72 billion gallons consumed in 2016. Ethanol production is forecast to be 1 million barrels per day.
“If the EIA projection is correct, approximately 15.3 billion gallons of ethanol will be produced in 2017,” Hubbs says. “When considering the robust ethanol export trade currently in process, the U.S. ethanol industry is expected to produce a record level of ethanol in 2017.”
Ethanol export numbers are available from U.S. Census trade data for 2016 through November. U.S. exports of ethanol thus far are at 948 million gallons, which is up almost 27 percent from the similar period in 2015.
According to Hubbs, for 2016, the prospect of ethanol exports exceeding 1 billion gallons is not unreasonable.
Canada, China, and Brazil imported approximately 67 percent of the ethanol shipped from the U.S. through November. “The increase in ethanol exports is driven largely by increased volumes sent to China and Brazil,” Hubbs says. “China imported 179 million gallons through November, which far exceeds the 73.8 million gallons imported during the entirety of 2015. Brazil imported 224 million gallons through November, which is almost double from 2015. As we progress into 2017, the increases are expected to persist in Brazil because high sugar prices are expected to decrease ethanol production as mills allocate cane for sugar production in 2017. There is concern that China could raise ethanol tariffs and reduce ethanol imports in 2017 due to a possible trade dispute with the new administration.”
Hubbs says the implications for corn consumption during the 2016–17 marketing year can be seen in the USDA Grain Crushing and Co-Product Production report released on Jan. 3. Grain crushing for fuel alcohol is available through November. For the first three months of the marketing year, 1.34 billion bushels of corn has been processed for ethanol. This is up 3.2 percent from 2015 processing numbers.
“If corn used for ethanol production maintains this pace, 5.37 billion bushels will be processed in the marketing year,” Hubbs says. “Using EIA weekly ethanol production numbers, December ethanol production averaged over 1 million barrels per day. These production levels place corn use for ethanol production in a range of 455 to 460 million bushels for the month if corn use maintains the pace of the three previous months. With a conservative estimate of corn crush in December, total corn consumption for ethanol production through the first third of the marketing year would be above the current WASDE projection.
“Lower corn prices, strong ethanol exports, and greater blending requirements combine to make 2017 appear to be a strong year for corn consumption in ethanol production,” Hubbs concludes. “If the U.S. ethanol industry produced over 1 million barrels per day for the entire year, the ability to blend at requirement levels under an expanded gasoline consumption scenario and meet potential export market demand bodes well for corn use in the sector for 2017.”
The soybean crop in Brazil looks to be mostly in good condition, however, as you’ll hear in this interview by Todd Gleason some areas are under performing.
Kory Melby, Brazilian Ag Consulting Service - Goiania, Brazil
Jeff Brawn, Animal Biology - University of Illinois College of ACES NRES
The future of the red-capped manakin and other tropical birds in Panama looks bleak. A University of Illinois research project spanning more than three decades and simulating another five decades analyzes how changes in rainfall will affect bird populations. The results show that for 19 of the 20 species included in the study, there may be significantly fewer birds if conditions become dryer.
The last USDA Hogs and Pigs report issued in December estimated this year’s supply of pork will be larger than most analysts expect. Todd Gleason has more on how that will happen.
U.S. pork producers, in the last quarter of 2016 set a pigs per litter record,10.63. For the whole of the year, the new annual record is 10.5 pigs per litter. Every sow is having more pigs. Given these numbers, the industry will increase pork output by about three percent this year says Purdue University Extension Agricultural Economist Chris Hurt.
Quote Summary - And that will be to 25.7 billion pounds. This represents a 12 percent increase since 2014 when PED reduced production and contributed to record high hog prices. Pork production will rise by two percent in the first-half of 2017 and by about four percent in the last-half.
What does this mean for the price of hogs? With three percent higher production one might expect annual prices to be lower, however there are additional items to consider
First, retail prices did drop in 2016, but there is opportunity for those prices to come down more. Lower retail prices will stimulate the quantity of pork that consumers purchase. Secondly, USDA expects exports to expand by five percent which will move more of the increased production to foreign customers. Finally, with the addition of new processing capacity, the farm-to-wholesale margins are expected to drop. Lower margins at the processing stage may contribute to stronger bids to hog producers.
Live hog prices are expected to be about $48 in 2017, $2 higher than in 2016. Chris Hurt predicts prices will average $45 in the first quarter, the very-low $50s in the second and the third quarters, and then drop to $43 in the final quarter of 2017. A range of $2 higher or lower would be reasonable for price projections. He expects costs of production are expected to be around $50 on a live weight basis in both 2016 and 2017 based on current feed price expectations.
This means the industry operated at an estimated loss of about $12 per head in 2016 and is expected to have losses that average about $6 per head in 2017. Losses in the first quarter of 2017 are expected to be about $13 dollars per head. Modest profits may return in the second and third quarters. Then with a return to the largest losses of the year in the final quarter maybe around $18 per head.
Because the 2017 outlook is for weak returns the Purdue number cruncher says it is important hog farmers keep further expansion to a minimum. This will be difficult with new processing capacity coming in 2017 as those plants will want to stimulate some added production to fill their lines.
Christmas just isn’t Christmas without a real Christmas tree. The following are a few hints to help you select that perfect tree whether you purchase it from a neighborhood lot or a Christmas tree farm.
- Decide on where you will place the tree. Will it be seen from all sides or will some of it be up against a wall? Be sure to choose a spot away from heat sources, such as TVs, fireplaces, radiators and air ducts. Place the tree clear of doors.
- Measure the height and width of the space you have available in the room where the tree will be placed. There is nothing worse than bringing a tree indoors only to find it’s too tall. Take a tape measure with you to measure your chosen tree and bring a cord to tie your tree to the car.
- Remember that trees sold on retail lots in urban areas may have come from out of state and may have been exposed to drying winds in transit. They may have been cut weeks earlier.Buy trees early before the best trees have been sold and where trees are shaded.Ask the retailer whether his trees are delivered once at the beginning of the season or are they delivered at different times during the selling season.
- Choose a fresh tree. A fresh tree will have a healthy green appearance with few browning needles. Needles should be flexible and not fall off if you run a branch through your hand. Raise the tree a few inches off the ground and drop it on the butt end. Very few green needles should drop off the tree.. It is normal for a few inner brown needles to drop off.
- Remember to choose a tree that fits where it is to be displayed. For example if the tree is displayed in front of a large window, then all four sides should look as good as possible. If the tree is displayed against a wall, then a tree with three good sides would be okay. A tree with two good sides would work well in a corner. The more perfect a tree, the more expensive it is.
- Make sure the handle or base of the tree is straight and 6–8 inches long so it will fit easily into the stand.
- Do a little research on different Christmas tree types. Some Christmas tree varieties will hold needles longer than others.