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Todd E. Gleason, Farm Broadcaster
University of Illinois Extension
1301 W Gregory Drive, Rm69 MC710
Urbana, Illinois 61801
tgleason@illinois.edu or (217) 333-9697
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Coverage Levels on RP: Relationship to Premium Levels
Research from the University of Illinois shows farmers try to keep their annual crop insurance costs in a range below fifteen to twenty dollars an acre. Essentially, as you'll hear in this interview from Todd Gleason, they buy up the coverage until premiums reach this level.
by Gary Schnitkey, University of Illinois
In 2020, Revenue Protection (RP) was used on 93% of insured acres in Illinois, making it by far the most popular crop insurance product. Herein, we examine coverage levels while insuring with RP. Average coverage levels were high. Most farmers choose coverage levels such that premiums are between $15 and $23 per acre.
Coverage Levels in Illinois
The highest RP coverage level is 85%, with lower coverage levels available in 5% increments down to 50%. In 2020, 44% of RP corn acres in Illinois were insured at an 85% coverage level, 35% at an 80% coverage level, and 16% at a 75% coverage level (see Figure 1). These three higher coverage levels accounted for 95% of the acres insured by RP.
Average coverage levels were calculated to summarize information. For example, the coverage-level information in Figure 1 was used to arrive at an average coverage level for corn in Illinois. In 2020, the average coverage level was 81%, with weights provided by acres insured. As can be seen in Figure 1, the 81% is composed of 44% of acres insured using an 85% coverage level, 35% at an 80% coverage level, and so on. Average coverage levels over 80% imply that the majority of acres were insured with 80% and 85% coverage levels.
Average coverage levels in Illinois have increased since the introduction of revenue products in 1997, reaching their current level in 2013. The average coverage level since 2013 has been stable at 81%.
While stable over time, the average coverage level varies across the state (see Figure 2). In 2020, most counties in northern and central Illinois had average coverage levels above 80%. Most counties in southern Illinois had average coverage levels below 80%.
Relationships Between Average Coverage Levels and Premiums
Counties with higher coverage levels tend to have lower premiums than counties with lower coverage levels. To illustrate, Figure 2 shows farmer-paid premium for RP policies with 80% coverage levels. As can be seen in Figure 2, lower premiums occur in northern and central Illinois where average 80% premiums are usually between $7 and $14 per acre. Northern and central Illinois tend to have high coverage levels. On the other hand, many counties in southern Illinois had average premiums for 80% RP over $20 per acre. Southern Illinois tended to have lower average coverage levels.
The regional patterns suggest that farmers may make their coverage level choice to even out, or budget, their farmer-paid premium. Figure 4 shows average farmer-paid premium over all coverage level choices. The average premium in Figure 4 tend to even out over Illinois much more than the 80% premium shown in Figure 3.
To illustrate the budgeting process, take two counties that have their premiums colored orange in Figure 4. DeKalb County is in northern Illinois and had an average premium across all coverage levels of $12 per acre. The 80% average premium was $7 per acre. In DeKalb County, a higher proportion of farmers took 85% coverage levels, thereby raising the average premium above the 80% premium. The average coverage level in DeKalb County was 84%, meaning that the vast majority of farms take RP at a 85% coverage level (see Figure 1). On the other hand, Jefferson County in southern Illinois had an average premium across all coverage levels of $17 per acre. An 80% coverage level had an average premium of $21 per acre. More farmers in Jefferson bought lower coverage levels y resulting in an average coverage level of 75% (see Figure 1).
Academic literature has evaluated this phenomenon (Bulut). Most farmers will only spend a certain amount on crop insurance. Values in the above figures suggest that many farmers will not spend over $15 to $23 per acre on crop insurance. Of course, variation in spending exists across farmers.
Average Coverage Levels Across the Midwest
Average coverage levels across the Midwest States are shown in Figure 4 for corn. Higher average coverage levels are located in the heart of the corn belt, with lower coverage levels radiating out from the middle of the Corn Belt. The correlation coefficient between average coverage levels and average premiums is -0.61. While that correlation is high, other factors influence coverage levels choice across the Midwest.
Commentary
Many farmers have settled on using RP at high coverage levels as their crop insurance coverage. Many farmers appear to make coverage level choices so as to keep premium levels below $15 to $23 per acre. Product type and coverage levels have been stable over several years. Crop insurance choices in 2021 likely will be much the same as those made in 2020.
This year, a new endorsement is available called the Enhance Coverage Option (ECO). ECO will provide county revenue coverage above the underlying RP policy in a band from 90 or 95% down to 86%. One challenge this policy will face is premium costs. Aggregate statistics suggest that farmers place constraints on the amount they spend on crop insurance. Those constraints may prevent many farmers from buying the additional coverage. Purchases of ECO may be more likely in northern and central Illinois where premiums are lower.
farmdoc Daily article: Schnitkey, G., N. Paulson, C. Zulauf and K. Swanson. "Coverage Levels on RP: Relationship to Premium Levels." farmdoc daily (10):206, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, December 1, 2020.
Nafziger on Wind Storm Damage To Corn
ILLINOIS Extension Agronomist Emerson Nafziger discusses the August 10 wind storm and the potential impact on corn yield.
Fungicide Applications on Corn and Soybeans
Farmers will be urged to make fungicide applications on their crops this month. Todd Gleason discussed the issues related to both corn and soybean diseases with ILLINOIS Extension Plant Pathologist Nathan Kleczewski.
Illinois Grain Farm Incomes in 2020
by Gary Schnitkey, Ryan Batts, Krista Swanson, Nick Paulson, Jonathan Coppess - University of Illinois and Carl Zulauf, The Ohio State University
link to farmdoc Daily article
We project net incomes for a typical Illinois grain farm in 2020. Before the onset of COVID–19, 2020 net incomes were expected to be low without a turnaround in exports, likely resulting in pressures to continue Market Facilitation Program (MFP) payments. With COVID–19 at the forefront in 2020, the Coronavirus Food Assistance Program (CFAP) was implemented to provide relief to offset losses due to the virus and COVID–19 control measures. Even with CFAP payments and larger payments from commodity title programs, incomes are projected to be negative in 2020. More Federal aid could result in 2020 incomes being close to 2019 incomes. Looking ahead, the recent increases in Coronavirus outbreaks suggest this environment may not improve soon and could result in very low incomes in 2021.
Incomes in Historical Perspective
Figure 1 shows the average yearly net incomes on grain farms enrolled in Illinois Farm Business Farm Management (FBFM). Overall, incomes have been much lower since 2013 as compared to the period from 2006 to 2013. Incomes averaged $189,000 per farm for the years from 2006 to 2013. From 2014 to 2019, incomes have been over $100,000 less per farm, with a $78,000 yearly average. From 2006 to 2013, corn use in producing ethanol was growing, leading to higher corn prices. Soybean prices also were high, as the market signaled the need for soybean acres as soybean exports from the U.S. to China were increasing. Since 2013, corn use in ethanol has stabilized, leading to lower commodity prices. In 2018, exports of soybeans declined, further lowering commodity prices.
Average incomes were $147,000 in 2018 and $74,000 in 2019. Compared to other years since 2013, the years 2018 and 2019 were not particularly poor income years. However, much of the income in 2018 and 2019 resulted from the Market Facilitation Program (MFP), which was put in place to counter lower prices caused by trade disputes. MFP accounted for 13% of revenue in 2018 and 10% of 2019 revenue (see farmdoc daily, June 10, 2020). Without these payments, incomes would have been very low in both 2018 and 2019.
Approach Used to Estimated Historic Incomes
The incomes in Figure 1 are calculated by FBFM using a modified cost approach for a calendar year. Each year’s income statement attempts to match production with sales. In 2019, costs of 2019 grain production are given along with “revenue” from 2019 production. To match revenue with production, values are placed on a number of items for which the revenue has not been received. These items include:
- Grain inventory. Much of the grain produced in 2019 has not been sold as of the end of the year. The unpriced inventory is placed on the end-of-year balance sheet for 2019 at an estimated value.
- Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) payments for 2019. The ARC/PLC payment for 2019 is based on 2019 production but will be received in October 2020. These payments are not known on December 31, 2019 because the payments are based on a Market Year Average (MYA) prices, which run from September 2019 to August 2020 for corn and soybeans.
ARC/PLC payments likely will be higher than the December 31, 2019 receivable. Lower MYA prices will result in higher ARC/PLC payments than estimated on December 31, 2019.
To summarize, three items will take a larger role in 2020 income projections than usual:
- Unrealized loss on 2019 crop. Farmers who held 2019 grain inventory likely will have large losses on holding that crop into 2020. Marketing weights suggest that 60% of the corn crop and 46% of the soybean crop is held into the next year.
- Changes in 2019 ARC/PLC payments. Expectations of the size of these payments increased because of lower prices.
- Coronavirus Food Assistance Program (CFAP) payments (see farmdoc daily, May 22, 2020). CFAP provides partial compensation for losses on grains held unpriced on January 15, 2020.
Income projections for 2020 are made using output from the Farm Projections Tool, a Microsoft Excel spreadsheet that can be downloaded from the FAST section of farmdoc. Farmers can use this spreadsheet to make projections for their individual farms. Special adjustments are made to the output to account for the above three items, which are not accounted for by the program automatically.
In this article, the farm for which 2020 projections are made represents a typical farm in central Illinois:
- A 1,600 acre grain farm with 200 acres owned, 400 acres share-rented with a 50–50 share lease, and 1,000 acres are cash rented at $260 per acre.
- The farm is located in central Illinois and has non-land costs equal to those contained in central Illinois budgets for high-productivity farmland: $561 per acre for corn and $359 per acre for soybeans.
- Yields for 2020 are projected at trend-levels of 216 bushel per acre for corn and 68 bushels per acre for soybeans.
- The farm has $1,200,000 of debt.
Incomes are estimated for a pre-COVID scenario and a post-COVID scenario (see farmdoc daily, April 28, 2020 for a discussion of price scenarios). Prices used for the pre-COVID scenario are $3.90 per bushel for corn and $8.75 per bushel for soybeans. Under this scenario, net income is projected at $44,330, which is down from 2018 and 2019 levels. A $44,330 income would be at an insufficient level to maintain the financial position of most farms. Most farms would use working capital to provide for cash needs, resulting in reductions of working capital. Many farms would see net worth declines. This pre-COVID income estimate does not include any MFP payments. Due to low incomes, pressures likely would have built for a continuation of the MFP program into 2020, particularly without improvement in trade relations and growth in exports. Whether or not MFPs would have occurred in 2020 given the pre-COVID scenario is an open question.
Under the pre-COVID prices ($3.90 for corn, $8.75 for soybeans), ARC/PLC payments would not result for 2020 (payable in 2021), and the pre-COVID income statement in Table 1 does not include any ARC/PLC payments. Note that many Illinois farms would have received 2019 commodity title programs. These payments will be received in 2020 but should have appeared on the 2019 income statement, and been a receivable on the year-end 2019 balance sheet.
Post-COVID income is projected using 2020 cash prices of $3.20 per bushel for corn and $8.60 per bushel for soybeans. These prices are close to current bids for 2020 fall-delivery. As a result, crop revenue is reduced from $1,005,830 for the pre-COVID scenario to $890,960 for the post-COVID scenario, a decline of $114,870 (see Table 1). A number of other changes also are incorporated into revenue:
- Coronavirus Food Assistance Program (CFAP) payments are included at $29,187 (see farmdoc daily, May 22, 2020). These payments are in the process of being paid. Our estimates represent CFAP payments of 40% of 2019 production (208 bushels per acre for corn and 64 bushels per acre of soybeans).
- Marketing loss on 2019 crop. Grain held into 2020 likely was sold at lower values than that placed on year-end 2019 balance sheets. The -$43,680 loss is based on 40% of 2019 production being sold in 2020 at a loss of $.55 per bushel for corn and $.65 per bushel for soybeans.
- Increase in 2019 ARC/PLC payments. Lower Market Year Average (MYA) prices will result because of the lower, post-COVID prices, increasing ARC/PLC payments for 2019. This will show as a gain on 2020 income statements because 2019 ARC/PLC payments would have been under-estimated for 2019.
- 2020 ARC/PLC payments. These payments were unlikely in the pre-COVID scenario but are likely in the post-COVID scenario. The post-COVID scenario includes $43,000 of 2020 ARC/PLC payments. We estimate these payments at roughly $60 per base acre for corn and $0 per base acres for soybeans.
Commentary
A -$25,053 net income would be very low, and result in negative net incomes on most Illinois grain farms. However, the -$25,033 does not include other forms of assistance such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs administered through the Small Business Administration (SBA). Both are loan programs, not direct payments. However, PPP loans are forgivable provided used for qualifying business expenses (see farmdoc daily, April 14, 2020). Though EIDL loans are not forgivable, an emergency advance portion, for those who received it, did not have to be repaid (see farmdoc daily, May 12, 2020). A significant number of farms have enrolled in these programs, but likely not the majority of grain farms in Illinois. Moreover, any forgivable aid from these programs likely will not be enough to cause incomes to be positive.
Also not included in the -$25,033 is additional Federal aid currently being discussed in Congress and at the USDA. Given the above projections, additional aid at the levels of last year’s MFP program would be needed to bring incomes close to 2019 levels, with last year’s income levels not being at a particularly high level.
Of course, much could change projections. Favorable market news is possible, perhaps leading to higher prices. Surprises often occur in agriculture. Of course, more negative results are possible as well.
Much of 2020 income is dependent on Federal aid. More Federal aid could cause 2020 incomes to be near or above 2019 levels. More worrisome is 2021, which likely will have lower levels of Federal aid. Given recent setbacks in Coronavirus control, it seems reasonable to expect social distancing measures to be relatively long-lasting, quite possibly into next summer and beyond. If this is the case, ethanol demand could remain low, and the economy will not be in full recovery. Demand for crops could remain low going into 2021, and 2021 could be a very low-income year for Illinois grain farms.
Prevented Plant Impacts on 2019 Illinois Grain Farms Incomes
link to farmdoc Daily article
In 2019, spring weather was very wet, and many farmers in Illinois had prevented plant (PP) acres. Compared to 2018 incomes, 2019 incomes declined more for those farms that had a larger proportion of their acres in PP. While some have suggested that PP payments may overcompensate farmers, the income results presented in a new paper from the University of Illinois do not support the contention. Todd Gleason has this discussion with ag economist Gary Schnitkey.
Farms Included in Study
Table 1 shows 2018 and 2019 incomes on Illinois grain farms enrolled in Illinois Farm Business Farm Management (FBFM). To be included in Table 1, a farm had to meet the following criteria:
For all farms, tillable acres averaged 1,525 per acre, with a range of 500 acres to over 13,000 acres. Net farm income averaged $184,460 in 2018, declining by 51% to $89,866 in 2019 (see Panel A of Table 1)
Income Declines as Percent Prevented Plant Acres Increases
In Panel A, the 1,483 farms are divided into five categories based on the proportion of PP acres. In 2019, 73% of the farms had no PP acres. Even given the wetness of 2019, most Illinois grain farms planted all acres in 2019. Still, of the farms in this sample, a sizable proportion (26%) has some PP. Of those farms that had PP, 15% had less than 10% of their acres in PP. Percentage of farms then declines as the proportion of PP acres increased: 8% had between 11 and 30% of acres in PP, 2% had between 31% to 50%, and 4% had over 50%.
Incomes declines became more negative as the proportion of acres of PP increased, as shown in the last column in Panel A of Table 1. With no PP, the average income change was –45% from 2018 to 2019. The income change was
Incomes in Table 1 include all sources of revenue, including that from additional government payments offered in 2019 to counter incomes lost due to trade difficulties. Market Facilitation Program (MFP) payments are included in revenue (farmdocDaily, July 30, 2019). Also included is the 10% increase in PP payments.
Income Declines by Region in Illinois
Northern Illinois had more delayed planting than other areas of Illinois. Only 43% of the farms located in northern Illinois got all their acres planted, compared to 81% for central Illinois and 60% for southern Illinois. Over 10% of northern Illinois farms had over 30% of their acreage in PP (6% in 315 To 50% and 4% in over 50% categories) Income declines were larger in northern Illinois than in other parts of Illinois. The average income change in northern Illinois was –76%, compared to –45% for central Illinois and 53% for southern Illinois.
Commentary
The above results do not present an analysis of whether taking PP or planting was the correct decision. To conduct that PP/plant comparison, one would have to link up farms with the same growing conditions who made different PP/plant decisions and then see corresponding results. In this article, we compare incomes with different levels of PP. Given the reluctance of Illinois farmers to take PP, we assumed that most farmers who took PP had no alternative but to take PP. There has been some thought that PP payments may provide more than adequate compensation (see Brasher, https://www.agri-pulse.com/articles/12390-coverage-changes-could-limit-prevent-plant-payout ). In 2019, for example, the Risk Management Agency lowered the standard PP payment factor on corn from 60% of the guarantee to 55% (see Risk Management Agency, https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Prevented-Planting-Coverage-Factor-Changes-for–2019 ). As incomes decline with more PP, income results in this article do not support the contention that PP provides overcompensation. Of course, results could vary by across years.
In 2019, spring weather was very wet, and many farmers in Illinois had prevented plant (PP) acres. Compared to 2018 incomes, 2019 incomes declined more for those farms that had a larger proportion of their acres in PP. While some have suggested that PP payments may overcompensate farmers, the income results presented in a new paper from the University of Illinois do not support the contention. Todd Gleason has this discussion with ag economist Gary Schnitkey.
Farms Included in Study
Table 1 shows 2018 and 2019 incomes on Illinois grain farms enrolled in Illinois Farm Business Farm Management (FBFM). To be included in Table 1, a farm had to meet the following criteria:
- Receive the majority of their incomes from grain operations,
- Have over 500 acres, and
- Have records that were certified useable by Illinois FBFM staff in both 2018 and 2019.
For all farms, tillable acres averaged 1,525 per acre, with a range of 500 acres to over 13,000 acres. Net farm income averaged $184,460 in 2018, declining by 51% to $89,866 in 2019 (see Panel A of Table 1)
Income Declines as Percent Prevented Plant Acres Increases
In Panel A, the 1,483 farms are divided into five categories based on the proportion of PP acres. In 2019, 73% of the farms had no PP acres. Even given the wetness of 2019, most Illinois grain farms planted all acres in 2019. Still, of the farms in this sample, a sizable proportion (26%) has some PP. Of those farms that had PP, 15% had less than 10% of their acres in PP. Percentage of farms then declines as the proportion of PP acres increased: 8% had between 11 and 30% of acres in PP, 2% had between 31% to 50%, and 4% had over 50%.
Incomes declines became more negative as the proportion of acres of PP increased, as shown in the last column in Panel A of Table 1. With no PP, the average income change was –45% from 2018 to 2019. The income change was
- –53% when PP when less than 10%,
- 97% when 11% to 30% of acres were PP,
- –103% when 31% to 50% of acres were PP, and
- –112% when over 50% acres were PP.
Incomes in Table 1 include all sources of revenue, including that from additional government payments offered in 2019 to counter incomes lost due to trade difficulties. Market Facilitation Program (MFP) payments are included in revenue (farmdocDaily, July 30, 2019). Also included is the 10% increase in PP payments.
Income Declines by Region in Illinois
Northern Illinois had more delayed planting than other areas of Illinois. Only 43% of the farms located in northern Illinois got all their acres planted, compared to 81% for central Illinois and 60% for southern Illinois. Over 10% of northern Illinois farms had over 30% of their acreage in PP (6% in 315 To 50% and 4% in over 50% categories) Income declines were larger in northern Illinois than in other parts of Illinois. The average income change in northern Illinois was –76%, compared to –45% for central Illinois and 53% for southern Illinois.
Commentary
The above results do not present an analysis of whether taking PP or planting was the correct decision. To conduct that PP/plant comparison, one would have to link up farms with the same growing conditions who made different PP/plant decisions and then see corresponding results. In this article, we compare incomes with different levels of PP. Given the reluctance of Illinois farmers to take PP, we assumed that most farmers who took PP had no alternative but to take PP. There has been some thought that PP payments may provide more than adequate compensation (see Brasher, https://www.agri-pulse.com/articles/12390-coverage-changes-could-limit-prevent-plant-payout ). In 2019, for example, the Risk Management Agency lowered the standard PP payment factor on corn from 60% of the guarantee to 55% (see Risk Management Agency, https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Prevented-Planting-Coverage-Factor-Changes-for–2019 ). As incomes decline with more PP, income results in this article do not support the contention that PP provides overcompensation. Of course, results could vary by across years.
USDA Surprises Drive Corn Prices Higher
original farmdoc Daily article
by Todd Hubbs, ILLINOIS Extension
The Acreage and Grain Stocks reports, released on June 30, produced some surprises for the corn market. The drop in acreage spurred a rally in corn prices and injected some optimism into the corn outlook moving into the 2020 marketing year. The market turns to weather forecasts and the upcoming WASDE report for price formation over the short term.
Corn producers reported they planted or intended to plant 92.01 million acres of corn this year, 2.31 million more than planted in 2019. Corn planted acres came in 3.2 million acres lower than the average trade guess and 4.98 million acres smaller than March planting intentions. Compared to March planting intentions in major producing states, the June survey revealed lower corn acres in all states. In particular, the western Corn Belt saw substantial acreage reductions with North Dakota (800,000 acres), South Dakota (600,000), and Nebraska (700,000) leading the way. The eastern Corn Belt saw one million acres of corn dropped from March intentions with Illinois and Indiana at 400 thousand acres each. The five million acres drop in corn acres did not move into other principal crops and hints at expanded prevent plant acreage for corn this year.
Producer intentions to plant principal crop acreage show a 9.3 million acre increase from 2019. The USDA estimates that acreage planted to principal crops will total 311.9 million acres. The planned increase in total planted acreage from a year ago came from increases in feed grains and soybeans. Sorghum acreage came in 355,000 acres higher than a year ago at 5.62 million acres. Barley and oats increased by 76,000 and 324,000 acres, respectively. Soybean planting intentions indicated farmers plan to plant 83.8 million acres of soybeans, up 7.7 million acres from 2019. The soybean acreage came in at the low end of market expectations. An additional 2.24 million acres of corn remain unplanted at the time of the survey and brings into question whether those acres may end up in alternative crops or unplanted. The surprise in corn planted acreage led to a strong rally in corn prices. The market’s focus now turns to demand and weather.
While the Acreage report revealed a positive surprise for corn prices, the June 1 stocks report came in much higher than expected. June 1 corn stocks came in at 5.224 billion bushels, slightly higher than last year and about 273 million bushels larger than the average trade guess. The higher than expected stocks total revealed a lower level of feed use in the third quarter of the marketing year. Feed and residual use during the first three quarters of the marketing year sits at 4.729 billion bushels. To reach the projected 5.7 billion bushels of corn, the USDA projects for feed and residual during this marketing year, feed and residual use in the fourth quarter must equal 971 million bushels. Fourth quarter feed and residual use has not equaled that level since the 2005–06 marketing year. Based on current stocks estimate, it appears feed and residual use this year may not reach the projection of 5.7 billion bushels and may see the USDA lower the estimate in the next WASDE report on July 10.
A lower feed and residual amount points toward a larger carry out into the next marketing year. The potential for the current marketing year ending stocks eclipsing 2.2 billion bushels, while not sure, looks high. Ethanol production continues to recover from the weakness seen in April and May. Corn use for ethanol in the third quarter totaled 955 million bushels, down 387 million bushels from the third quarter of the last marketing year. For the week ending June 26, ethanol production came in at 900 thousand barrels a day, up almost 18 percent from a month ago. The recent uptick in Covid–19 cases and subsequent policies enacted around the country to fight the spread insert a considerable level of uncertainty into ethanol use projections. Corn use for ethanol may flatten out as the virus’s resurgence mitigates economic activity during the peak driving season and may carry over into the next marketing year. An expectation of USDA lowering corn use for ethanol by 50 million bushels in the next WASDE report seems reasonable.
Corn exports appear on track to hit the USDA estimate of 1.775 billion bushels for the current marketing year. Outstanding sales as of June 25 sit at 332 million bushels. Exports through June 25 for the marketing year total near 1.38 billion bushels. While the export pace sits slightly below the USDA estimate, some light Chinese buying and strong domestic prices in Brazil hold positives for corn exports. Higher corn prices and the potential for slow global growth may prevent an acceleration of exports as the calendar moves into the next marketing year.
A higher carry out, despite lower acreage, places an added emphasis on yield potential. Some dryness in major corn-producing areas looks feasible over the near term. The recent drought monitor showed areas in North Dakota, Illinois, and Indiana poised to come under stress if dryness continues. The overall impact on the crop is challenging to predict now. An extended dry period as the early-planted crop moves into pollination will push corn yields lower. The projection for harvested corn acres sits at 84 million acres, 2.7 million more than harvested in 2019. If USDA’s yield projection of 178.5 comes to fruition, corn production comes in near 15.0 billion bushels with the present acreage intentions, up around 1.37 billion bushels from 2019.
Corn prices already reflect lower acreage and weaker demand. Subsequent rallies in corn prices rely on the weather. The prospect of the market building a weather premium seems high over the next week given the current weather forecast.
by Todd Hubbs, ILLINOIS Extension
The Acreage and Grain Stocks reports, released on June 30, produced some surprises for the corn market. The drop in acreage spurred a rally in corn prices and injected some optimism into the corn outlook moving into the 2020 marketing year. The market turns to weather forecasts and the upcoming WASDE report for price formation over the short term.
Corn producers reported they planted or intended to plant 92.01 million acres of corn this year, 2.31 million more than planted in 2019. Corn planted acres came in 3.2 million acres lower than the average trade guess and 4.98 million acres smaller than March planting intentions. Compared to March planting intentions in major producing states, the June survey revealed lower corn acres in all states. In particular, the western Corn Belt saw substantial acreage reductions with North Dakota (800,000 acres), South Dakota (600,000), and Nebraska (700,000) leading the way. The eastern Corn Belt saw one million acres of corn dropped from March intentions with Illinois and Indiana at 400 thousand acres each. The five million acres drop in corn acres did not move into other principal crops and hints at expanded prevent plant acreage for corn this year.
Producer intentions to plant principal crop acreage show a 9.3 million acre increase from 2019. The USDA estimates that acreage planted to principal crops will total 311.9 million acres. The planned increase in total planted acreage from a year ago came from increases in feed grains and soybeans. Sorghum acreage came in 355,000 acres higher than a year ago at 5.62 million acres. Barley and oats increased by 76,000 and 324,000 acres, respectively. Soybean planting intentions indicated farmers plan to plant 83.8 million acres of soybeans, up 7.7 million acres from 2019. The soybean acreage came in at the low end of market expectations. An additional 2.24 million acres of corn remain unplanted at the time of the survey and brings into question whether those acres may end up in alternative crops or unplanted. The surprise in corn planted acreage led to a strong rally in corn prices. The market’s focus now turns to demand and weather.
While the Acreage report revealed a positive surprise for corn prices, the June 1 stocks report came in much higher than expected. June 1 corn stocks came in at 5.224 billion bushels, slightly higher than last year and about 273 million bushels larger than the average trade guess. The higher than expected stocks total revealed a lower level of feed use in the third quarter of the marketing year. Feed and residual use during the first three quarters of the marketing year sits at 4.729 billion bushels. To reach the projected 5.7 billion bushels of corn, the USDA projects for feed and residual during this marketing year, feed and residual use in the fourth quarter must equal 971 million bushels. Fourth quarter feed and residual use has not equaled that level since the 2005–06 marketing year. Based on current stocks estimate, it appears feed and residual use this year may not reach the projection of 5.7 billion bushels and may see the USDA lower the estimate in the next WASDE report on July 10.
A lower feed and residual amount points toward a larger carry out into the next marketing year. The potential for the current marketing year ending stocks eclipsing 2.2 billion bushels, while not sure, looks high. Ethanol production continues to recover from the weakness seen in April and May. Corn use for ethanol in the third quarter totaled 955 million bushels, down 387 million bushels from the third quarter of the last marketing year. For the week ending June 26, ethanol production came in at 900 thousand barrels a day, up almost 18 percent from a month ago. The recent uptick in Covid–19 cases and subsequent policies enacted around the country to fight the spread insert a considerable level of uncertainty into ethanol use projections. Corn use for ethanol may flatten out as the virus’s resurgence mitigates economic activity during the peak driving season and may carry over into the next marketing year. An expectation of USDA lowering corn use for ethanol by 50 million bushels in the next WASDE report seems reasonable.
Corn exports appear on track to hit the USDA estimate of 1.775 billion bushels for the current marketing year. Outstanding sales as of June 25 sit at 332 million bushels. Exports through June 25 for the marketing year total near 1.38 billion bushels. While the export pace sits slightly below the USDA estimate, some light Chinese buying and strong domestic prices in Brazil hold positives for corn exports. Higher corn prices and the potential for slow global growth may prevent an acceleration of exports as the calendar moves into the next marketing year.
A higher carry out, despite lower acreage, places an added emphasis on yield potential. Some dryness in major corn-producing areas looks feasible over the near term. The recent drought monitor showed areas in North Dakota, Illinois, and Indiana poised to come under stress if dryness continues. The overall impact on the crop is challenging to predict now. An extended dry period as the early-planted crop moves into pollination will push corn yields lower. The projection for harvested corn acres sits at 84 million acres, 2.7 million more than harvested in 2019. If USDA’s yield projection of 178.5 comes to fruition, corn production comes in near 15.0 billion bushels with the present acreage intentions, up around 1.37 billion bushels from 2019.
Corn prices already reflect lower acreage and weaker demand. Subsequent rallies in corn prices rely on the weather. The prospect of the market building a weather premium seems high over the next week given the current weather forecast.
ISAP | Conservation Practices, the Supply Chain, & Consumers
Margaret Henry, Director of Sustainable Agriculture - Pepsico
Ryan Sirolli, Global Row Crop Sustainability Director - Cargill
Companies along the food and fiber supply chain are thinking through how to incentivize clean water and conservation practices while providing for consumers’ wants and demands.
Ryan Sirolli, Global Row Crop Sustainability Director - Cargill
Companies along the food and fiber supply chain are thinking through how to incentivize clean water and conservation practices while providing for consumers’ wants and demands.
Expected Harvest Prices for Corn & Soybeans in 2020
farmdoc Daily Soybean article
farmdoc Daily Corn article
The farmdoc team at the University of Illinois has created a model projecting the average fall price for corn and soybean futures in October. University of Illinois Agricultural Economist Gary Schnitkey says, at USDA’s current projected yields, it puts December corn futures at $3.10 and November Soybean futures at $8.36.
Anticipating June 1 Corn Stocks
Next week (June 30th) USDA will release the quarterly grain stocks report for corn. These numbers have not been updated since March. It will reflect consumption patterns during the coronavirus pandemic.
The third-quarter grain stocks number is important because it gives the trade an actual tally of how much corn is left from the total available supply in the United States. Early this month USDA projected about 5.7 billion bushels of corn would be used this marketing year in the feed and residual category. This is the one that has the most scrunch room in it. University of Illinois Extension Agricultural Economist Todd Hubbs says if the June stocks report shows 4.89 billion bushels left in the bin, then things are on track, “It will be on track and you make actually see feed and residual move up a little bit if it is in that range. We typically see a fourth quarter feed and residual higher than what that would imply for the third quarter or the first three quarters’ feed and residual use. So, it is on track with the possibility of USDA raising feed and residual numbers.”
The feed and residual number, of course, isn’t the only consumption category for corn. Ethanol took a big hit during the first two months of the pandemic shut down as people stayed home and cars sat idle. The ethanol grind was down 26.7 percent in March and April. It was off in May, too, says Hubbs, “I assume that we will see the kind of convergence rate we’ve seen under the last couple of months of the lockdown. I have the (month of) May number at around 308 million bushels which puts total use for the quarter at around 969 million bushels. Which is way down from what we would normally do in the third quarter of the marketing year.”
The third primary consumption category is the export of corn. Hubbs expects it to be about 1.2 billion in total for the first 9 months of the marketing year. When you total it all up, the exports and the domestic usage, third quarter consumption looks to be right at three-billion-bushels. Hubbs says that number would put June 1 stocks at 4.89 and that figure is less than what was on hand last year at this time, “We would have slightly lower (stocks of corn), about 300 million bushels lower. We must remember we had much smaller crop in the previous year than we did in 2019. So, we will have fewer bushels in the bin, but we won’t be using as many bushels as we did in the last marketing year.”
USDA will update the grain stocks report next Tuesday, June 30th at 11am central time.
Dicamba | Too Hot to Spray
Farmers and retailers have been under pressure this season to get herbicides applied to soybeans and it has caused a lot of headaches. A Ninth Circuit Court of Appeals ruling caused a five-day pause in the application of three of the four available dicamba products. In Illinois, unlike other states, that pause was upheld and then the state tried to remedy the situation by adding five days to the application window - which now closes June 25th. Mostly it is going to be too hot spray during that time frame. Another regulation prohibits application on days warmer than 85 degrees says University of Illinois Extension Weed Scientist Aaron Hager, “Looking at the long term forecast from the National Weather Service, it looks like the next five days will be a no-spray situation. We’ve high temperatures well in excess of 85 degrees for today, Friday, Saturday, Sunday, and on into Monday. So, of the seven days we have left, it looks like on the extended forecast there may be only about two days.”
Regulations require the forecast to be checked within 24 hours of the intended application says the ILLINOIS Extension Weed Scientist, “The forecast can change over time but it looks like, at least for the next several days, we are going to have to leave the Dicamba sprayers parked.”
That’s for the Dicamba resistant soybeans. Other soybeans just look awful. There have been herbicide products for decades that burn the leaves of soybeans and then they grow out of it but this year’s damage is, well, in a word serve. Again, here’s ILLINOIS’ Aaron Hager, “A couple of possible reasons why that could be the case. 1) The environmental conditions, obviously, when these were applied. If they are applied under very warm air temperatures under bright sunshine we tend to see more soybean response compared with applications that happen under cooler and perhaps cloudy skies.”
The other possible explanation lies in the practice of adding a residual herbicide into the post-application herbicide mix. Hager says some of the residual herbicides could be acting in the tank mix like an additional crop oil. This would lead to a more rapid uptake of the herbicide and a consequently quick and extensive development of the burning leaf symptoms.
Returning to Dicamba soybeans. Illinois farmers unable to make applications by June 25th will need to use alternative products; Glyphosate, PPO inhibitors, or both. The problem is that waterhemp is likely to be resistant to one of the two, and maybe both. If that is the case, Aaron Hager says there are no good chemical options for the field.
Dicamba & the National Family Farm Coalition
Dicamba herbicide products designed for use with GMO cotton and soybean have been pulled from the marketplace, or at least are in the process of being pulled. This is the result of a lawsuit filed by plaintiffs including the National Family Farm Coalition. Todd Gleason talked with the president of NFFC about the reasons why the farmer organization felt compelled to go to court to keep Dicamba, in this latest form, off the market.
Trying to Reason with History and Policy in a Time of Crisis
On May 15, 1862, Abraham Lincoln signed into law an act of Congress establishing “at the seat of Government of the United States a Department of Agriculture.” Two and one-half years later, in what was to be his last annual message to the Congress, Lincoln said: "The Agricultural Department, under the supervision of its present energetic and faithful head, is rapidly commending itself to the great and vital interest it was created to advance. It is precisely the people’s Department, in which they feel more directly concerned that in any other. I commend it to the continued attention and fostering care of Congress.
Concluding Thoughts
by Jonathan Coppess, Univesity of Illinois
There are more than 40 million Americans who have lost their jobs and more than 100,000 Americans have died in just a few months. The brutal killing of George Floyd adds another tragedy to a list already too extensive. With so much pain ripping through America today, the policy decisions by the Trump Administration in the food and agriculture sector are concerning. Too little has been done to assist those who need food in a pandemic and too much on trying to curtail access to food aid. These are decisions likely to produce long-lasting, deep reverberations in the body politic with consequences difficult to foresee. Farmers are struggling and payments can provide some help but the decision to prioritize payments over food is not likely to be well-received by the many waiting in long lines at food banks, struggling just to feed their families. Worse still the obvious greed of the few pushing to capture ever larger payments, especially when considered with the historical examples reviewed herein. This difficult legacy haunts every discussion about farm policy, never more so than now.
Concerns are not the equivalent of criticism for its own sake but rather a call for policies and decisions that better reflect needs and values. The failure to make real, incremental progress too often builds to a breaking point, causing vast harm and greater costs. Few words in American history are more haunting on this point than those of President Abraham Lincoln in his second inaugural address. Among them his warning to a war-weary citizenry that the fighting could continue “until all the wealth piled by the bond-man’s two hundred and fifty years of unrequited toil shall be sunk, and until every drop of blood drawn with the lash, shall be paid by another drawn with the sword” (Lincoln, April 10, 1865). For those willing to learn, the brief record highlighted here provides a starting point from which to draw important lessons.
CFAP Calculations, Payment Rates, & Explanation
University of Illinois ag policy specialist Jonathan Coppess and ILLINOIS Extension Farm Broadcaster Todd Gleason discuss the USDA CFAP coronavirus direct payment announcement.
CFAP payments for corn and soybeans max out at 1/2 of total production and are subject to other payment limitations. The calculation compares 1/2-of-total-production to 100% of total-unpriced-inventory on January 15th. The smaller of those two numbers is multiplied by the payment rate to attain the full CFAP payment. FSA will provide a spreadsheet for the calculation and other related paperwork starting May 26, 2020.
$0.33.5 for corn
$0.47.5 for soybeans
CFAP funds will be distributed in two checks. The first will be 80% of the full amount. The second will be up-to-the remaining 20% depending on available funding. It could be prorated to a smaller amount.
This payment rate schedule was developed by University of Illinois Ag Economist Gary Schnitkey. The payment schedule is not Illinois specific or an all-inclusive commodities list. See farmers.gov for USDA CFAP details.
Discovering How Cover Crop Termination Impacts Insect Populations
Researchers at the University of Illinois were in the field this week counting insects in cereal rye used as a cover crop ahead of corn. It's all part of the work ILLINOIS Extension Entomologist Nick Seiter is doing with cover crops.
This University of Illinois cover crop research is funded in part by Illinois NREC. The Nutrient Research Education Council was created by state statute in 2012 and funded by a 75-cent per ton assessment on bulk fertilizer.
This University of Illinois cover crop research is funded in part by Illinois NREC. The Nutrient Research Education Council was created by state statute in 2012 and funded by a 75-cent per ton assessment on bulk fertilizer.
Corn, Soybeans, COVID-19, & the Farm Safety Net
It sure looks like COVID–19 is going to do some serious damage to the nation’s corn and soybean farmers. A new study from the University of Illinois estimates the damage at about eight billion dollars. This was the case on May the 5th.
That eight billion is a decline of nine percent across the nation and ILLINOIS Extension Ag Economist Gary Schnitkey says it does not include losses that have already piled up for corn and soybeans still in the bin from last year, "If you look at the 2019 crop, obviously there are losses on the 2019 crop from the sales value, we were looking forward at the 2020 crop and getting a feel for the losses on the 2020 crop."
That loss Gary Schnitkey is talking about is the difference between what farmers were expecting to make pre-COVID–19 and what they are likely to make post-COVID–19 on the 2020 corn and soybean harvest, "So we took the futures prices on that date to reflect what harvest prices would look like, projected forward the market-year-average based on that harvest price, and came up with estimates of losses given those futures prices today (May 5, 2020). We kept the trend-line yields the same, so the calculations would only show the (COVID–19) price decline as what’s happened to revenue."
The farmdoc Daily article shows these projected lost revenues by crop, but notes that, conceptually, this does not work in practice because commodity programs make payments on base acres combined not actual planted acres. Still, it provides an important guidepost. The per acre revenue difference for corn from February to May is $107 per acre. Again these are national averages and do not include any government payments. For soybeans, it is $36 per acre.
Combined the total nationwide loss from February to May is about $12 billion for the 2020 corn and soybean growing season. A projected PLC payment for corn covers about one-third of that loss says one of the articles co-authors, Ohio State University Ag Economist emeritus Carl Zulauf, "The eight-billion-dollar estimate in the article is after we’ve taken out our estimate of the PLC payment. The PLC payment right now is only for corn at the average. We do two estimates. One for a low price and one for an average price relationship. But the PLC payment at the average price relationship is covering about one-third of the total cost. So, in other words, it is around twelve-billion, but if you net it out you get to the eight-billion-dollars."
The eight-billion-dollar loss uses a basis calculation related directly to crop insurance. Stay with me here. It is the Market-Year-Average Cash Price minus the Crop Insurance Harvest Price. That’s 8 under for corn and 2 under for soybeans. If you use a wider basis under a low price scenario, say where there is a burdensome ending stocks number, those are 28 under for corn and 43 under for soybeans. In that case revenue loss is over $10 billion.
You may read the article summarizing the impact of COVID–19 on a corn and soybean farm on the farmDOC daily website.
That eight billion is a decline of nine percent across the nation and ILLINOIS Extension Ag Economist Gary Schnitkey says it does not include losses that have already piled up for corn and soybeans still in the bin from last year, "If you look at the 2019 crop, obviously there are losses on the 2019 crop from the sales value, we were looking forward at the 2020 crop and getting a feel for the losses on the 2020 crop."
That loss Gary Schnitkey is talking about is the difference between what farmers were expecting to make pre-COVID–19 and what they are likely to make post-COVID–19 on the 2020 corn and soybean harvest, "So we took the futures prices on that date to reflect what harvest prices would look like, projected forward the market-year-average based on that harvest price, and came up with estimates of losses given those futures prices today (May 5, 2020). We kept the trend-line yields the same, so the calculations would only show the (COVID–19) price decline as what’s happened to revenue."
The farmdoc Daily article shows these projected lost revenues by crop, but notes that, conceptually, this does not work in practice because commodity programs make payments on base acres combined not actual planted acres. Still, it provides an important guidepost. The per acre revenue difference for corn from February to May is $107 per acre. Again these are national averages and do not include any government payments. For soybeans, it is $36 per acre.
Combined the total nationwide loss from February to May is about $12 billion for the 2020 corn and soybean growing season. A projected PLC payment for corn covers about one-third of that loss says one of the articles co-authors, Ohio State University Ag Economist emeritus Carl Zulauf, "The eight-billion-dollar estimate in the article is after we’ve taken out our estimate of the PLC payment. The PLC payment right now is only for corn at the average. We do two estimates. One for a low price and one for an average price relationship. But the PLC payment at the average price relationship is covering about one-third of the total cost. So, in other words, it is around twelve-billion, but if you net it out you get to the eight-billion-dollars."
The eight-billion-dollar loss uses a basis calculation related directly to crop insurance. Stay with me here. It is the Market-Year-Average Cash Price minus the Crop Insurance Harvest Price. That’s 8 under for corn and 2 under for soybeans. If you use a wider basis under a low price scenario, say where there is a burdensome ending stocks number, those are 28 under for corn and 43 under for soybeans. In that case revenue loss is over $10 billion.
You may read the article summarizing the impact of COVID–19 on a corn and soybean farm on the farmDOC daily website.