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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:
  • 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.
A total of 1,483 farms meet these criteria, with results for all farms given in Panel A.
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.
On average, net incomes in 2019 were negative when over 31% of acres where PP: -$3,832 per farm when PP was between 31% to 50%, and -$12,638 when PP was over 50% of tillable acres.
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.

Projected Net Incomes on Illinois Grain Farms in 2019 and 2020



by Gary Schnitkey, ILLINOIS Extension

Due to lower corn and soybean yields, 2019 net farm incomes on Illinois grain farms are projected to decline more than $80,000 per farm from 2018 levels. The low yields are partially offset by higher corn and soybean prices and higher MFP payments in 2019 as compared to 2018. Incomes in 2020 are projected to be negative if yields are at trend levels and Market Facilitation Program (MFP) payments do not occur.

Historic Net Incomes on Illinois Grain Farms
Figure 1 shows average yearly net incomes on grain farms enrolled in Illinois Farm Business Farm Management (FBFM). These net incomes are averages across all grain farms in Illinois. Size, tenure relationships, and financial structures vary across these farms. Many farms are below 1,000 tillable acres, and some farms have over 8,000 acres. Over time, the size of farms has grown. In 2018, the average number of tillable acres was around 1,500 acres.



As can be seen in Figure 1, there are three distinct periods of net income. Between 1996 and 2005, net income averaged $55,000 per farm. This period was characterized by relatively low corn and soybean prices, resulting in low incomes. Income during this period reached a low of $11,000 in 1998, a year in which government programs were instituted to provide price and income support to grain farms.

From 2006 to 2013, incomes were much higher, averaging $189,000 per farm. Corn and soybean prices were higher than the other two periods due to increased use of corn in ethanol production, growing export demand for soybeans, and yield shortfalls occurring in several years. The prime example of a yield shortfall was 2012, a year of intense drought over much of the eastern and lower corn-belt. While yields were low in 2012, corn and soybean prices reach all-time highs. High prices, along with proceeds from crop insurance products, resulted in a record income of $298,000 per farm.

Prices have been lower since 2013, with corn prices generally being below $4.00 per bushel and soybean prices being below $10.00 per bushel. From 2013 to 2018, net incomes have averaged $79,000 per farm, about $110,000 less per farm than the 2006–2012 period. Incomes during the 2013–2018 period have been $24,000 higher than the 1996–2006 period, but have been much more variable. Incomes have varied from $500 per farm in 2015 up to $147,000 in 2018.

Compared to 2013 through 2017, incomes were much higher in 2018. In 2018, soybean prices fell partially due to U.S. trade disputes with China and other countries. In 2018, central Illinois farms on high-productivity farmland averaged $8.85 per bushel of soybeans, down from the $9.81 per bushel average from 2014 to 2018 (see Table 1). Two factors countered this price decline resulting in higher 2018 incomes:
  1. Yields were exceptional. While yields have been high since 2014, 2018 yields were truly outstanding. On central Illinois farms, corn yields averaged 237 bushels per acre in 2018, 16 bushels per acre higher than the 221 bushel average from 2014 to 2017. Soybean yields averaged 74 bushels per acre, 8 bushels higher than the 67 bushel average from 2014 to 2017.
  2. Market Facilitation Program (MFP) payments. In 2019, MFP payments in central Illinois averaged $122 per acre for soybeans and $1 per acre for corn. Without these payments, 2018 incomes would have been below the 2013–2017 average.


Projected 2019 Incomes
The average net income in Illinois will be below $60,000 per farm, much lower than in 2018, with possibilities for incomes approaching 2015 levels on many farms. Most of the decline in net income is associated with lower gross revenue, as opposed to a significant change in expenses. On central Illinois high-productivity farmland, gross revenue averaged $819 per acre in 2018, given that 50% of the acres were in corn and 50% were in soybeans (see Table 1). Average gross revenue is projected at $761 per acre in 2019, $58 lower than in 2018. Factors impacting revenue from 2018 to 2019 are:
  1. Lower yields. In central Illinois, corn yields are projected at 205 bushels per acre in 2019, down by 32 bushels per acre from 2018 levels. Soybeans yields are projected at 58 bushels per acre, down by 16 bushels per acre from the 74 bushel average in 2018. Lower yields are the major reason for lower incomes.
  2. Prices are projected to be higher in 2019 as compared to 2018. Projections are made with a $3.90 corn price in 2019, compared to a $3.60 price in 2018. Soybean prices are projected at $9.00 for 2019, compared to $8.85 in 2018. Higher prices partially offset lower yields, resulting in higher incomes.
  3. MFP payments are projected at $82 per acre for both corn and soybeans in 2019. MFP payments will average about $20 per acre higher in 2019 as compared to 2018 on Illinois grain farms. Without MFP payments, average income on Illinois grain farms would be negative in 2019.
The $58 per acre decline in gross revenue from 2018 results in a net income that is $87,000 lower per farm ($58 per acre times 1,500 acres) in 2019. This leads to an estimate of net income for central Illinois farms of $60,000 ($147,000 income in 2018 minus $87,000 less income). Central Illinois likely will have some of the highest yields in the state, and therefore higher incomes than other areas. In northern Illinois, for example, yields are projected at 185 bushels per acre for corn, resulting in much lower income projections for northern Illinois. As a result, average incomes on Illinois farms likely will be below $50,000 per farm when averaged across Illinois.

Projected 2020 Incomes
Current projections would place revenue lower in 2020 as compared to 2019. In central Illinois, for example, average gross revenue is projected at $695 per acre in 2020, a decrease of $66 per acre from 2019 projected levels of $761 per acre (see Table 1). These projections are based on:
  1. A return to trend yields, which are higher than 2019 yields. Projections use a 211 bushel per acre yield for corn and 63 bushels per acre for soybeans.
  2. Stable prices of $3.90 per bushel for corn and $9.00 per bushel for soybeans.
  3. No MFP payments.
  4. No commodity title payments from Agricultural Risk Coverage or Price Loss Coverage.
These values would result in a negative average net income for 2020. Many factors could result in higher incomes, with two of the more likely factors being:
  1. A return to above-average yields. From 2014 to 2018, yields averaged 225 bushels per acre for corn and 68 bushels per acre for soybeans. These higher yields would result in average gross revenue of $745 per acre, still below the $761 projection for 2019. While higher yields are quite possible, those higher yields could be associated with price declines from projected levels. The impact of potentially lower prices are not considered in the projections, and would partially offset the impacts of higher yields.
  2. A continuation of the Market Facilitation Program. Another payment of $82 per acre will bring gross revenue near 2019 levels if yields return to trend levels.
Summary
Lower yields will contribute too much lower incomes on Illinois grain farms in 2019. A continuation of low incomes is projected into 2020. Without a continuation of the MFP program in 2020, incomes on Illinois farms will be negative if prices do not increase given that trend yields occur.
Soybean prices have fallen since the trade dispute began in 2018. Currently, soybean prices are near $9.00. Note that this $9 price results with considerably lower soybean acres in 2019, and much lower yields. In the current supply and demand environment, a return to more normal acres and above-trend yields likely would push prices below $9.00 per bushel. Farmers have not felt the full impact of lower prices because MFP payments have supported income in 2018 and 2019. If prices do not increase or yields are not exceptional, farms may have negative incomes without MFP payments in 2020.

Acknowledgements
The author would like to acknowledge that data used in this study comes from the local Farm Business Farm Management (FBFM) Associations across the State of Illinois. Without their cooperation, information as comprehensive and accurate as this would not be available for educational purposes. FBFM, which consists of 5,500 plus farmers and 60 professional field staff, is a not-for-profit organization available to all farm operators in Illinois. FBFM field staff provide on-farm counsel along with recordkeeping, farm financial management, business entity planning and income tax management. For more information, please contact the State FBFM Office located at the University of Illinois Department of Agricultural and Consumer Economics at 217–333–5511 or visit the FBFM website at www.fbfm.org.

Have Soybean Prices Put in a Low


The price of soybeans may have put in a seasonal low but there are a lot of factors at play. Todd Gleason has more on what farmers should do with University of Illinois Agricultural economist Todd Hubbs.

September 16, 2019
by Todd Hubbs, University of Illinois

Last week’s price rally in the soybean market relied on the prospects of easing trade tensions with China. The potential for soybean prices to maintain recent momentum depends on developments in trade negotiations and production prospects for both the U.S. and South America.



USDA’s September soybean production forecast came in at 3.633 billion bushels, down 47 million bushels from the August forecast. Yield per harvested acre fell by 0.6 bushels per acre to 47.9 from the August forecast of 48.5. Compared to the August forecast, yield prospects for the top ten states in soybean acreage increased in Missouri and Kansas. Yield prospects declined in Illinois, Iowa, Minnesota, Indiana, and South Dakota. North Dakota, Nebraska, and Ohio saw no change in expected yield from August.



The crop production report showed the lowest pod count for the 11-states in the objective yield survey since 2012. At 1,561 pods per 18-square feet, this year’s pod count led to an implied pod weight near 0.35 grams per pod. A pod weight at this level is the highest in a decade and led to speculation about potential lower pod weights in this late-planted crop. Over the last five years, pod counts increased from the September forecast to the final yield estimate. Pod weights over the same period fell in four out of the five years.

In conjunction with the lower production forecast, total supply for the 2019–20 marketing year dropped an additional 65 million bushels, to 4.658 billion bushels, on lower beginning stocks. Soybean crush and export estimates for the 2018–19 marketing year increased by 20 and 45 million bushels, respectively. The USDA left the 2019–20 soybean export forecast 1.775 billion bushels and the crush forecast at 2.115 billion bushels. Ending stocks for the 2019–20 marketing year fell to 640 million bushels, down 115 million bushels from the August projection. While expectations of strong crush levels remains in place for the next marketing year, the prospects of maintaining higher soybean prices fall on exports or production issues. The recent thaw in trade negotiations between China and the U.S. came as a rare positive development this year and prompted the rally in prices last week.



Soybean exports for 2018–19 came in down approximately 390 million bushels from the previous marketing year. Exports to China, using export sales data on accumulated exports, fell 544 million bushels from the previous marketing year and 835 million bushels from the 2016–17 marketing year. At around 490 million bushels, U.S. soybean exports to China have not been this low since the 2006–07 marketing year. The recent announcement of lower tariffs on soybeans and pork look to support soybean prices, but clarity on the level of tariff reductions and a guarantee of following through by Chinese buyers remain lacking. For the current marketing year through September 5, outstanding sales and accumulated exports total 39.3 million bushels. Recent reports place Chinese purchases in the range of 29.5 million bushels (804 thousand metric tons). Additional purchases may total between 37 – 110 million bushels. This amount of buying remains a long way from the levels of export needed to support prices in the long-term but provides a positive development on the trade front.

New agreements with Argentina and Russia on meal imports combined with an expanded emphasis to rebuilding the hog herd decimated by African swine fever point towards China preparing for an extended fight in the trade war. Additionally, Chinese soybean production sits at a forecast level of 628 million bushels, up 8 percent from last year. The lull in the trade fight may allow China to backfill soybeans and pork to alleviate domestic pressures and settle in for a protracted battle. While Chinese buying of South American soybeans may cool in the near term, the potential for U.S. soybean exports to remain at reduced levels from pre-trade war totals in the 2019–20 marketing year continues as a high probability. Soybean production prospects in South America will continue to be crucial over the next few months, particularly if the trade war rekindles.

The forecast of South American production for the 2019–20 marketing year came in at 7.03 billion bushels, up 2.4 percent from last year’s estimate. The projected size of the Brazilian soybean crop increased by 220 million bushels to a production level of 4.52 billion bushels. The soybean production forecast for Argentina decreased 84 million bushels from last year’s estimate to 2.032 billion bushels. Some early season dryness in southern Brazil and Argentina merits monitoring. A continuation of the current dryness may delay planting in some areas. However, it remains too early to forecast any definitive change in soybean production in those regions.

If production issues do not materialize, the status of the trade war will be paramount. Current U.S. crop prospects point to maintaining some of the recent price gains. A failure of trade negotiations in October may push prices back to ranges seen in early September. Marketing soybeans on price rallies associated with trade negotiations and weather may be prudent. The uncertainty related to production levels and trade remains exceptionally high.

June Acreage Report Heightens Uncertainty

by Todd Hubbs, University of Illinois Extension
link to farmdocDaily article and video

On June 28, the USDA released the Acreage and Grain Stocks reports. While the Grain Stocks report provided support for both corn and soybeans, the Acreage report indicated higher than expected corn acres and lower than expected soybean acres. The acreage numbers injected a substantial amount of uncertainty into both markets that appears set to stay in place throughout the summer.


The 2019 June USDA Acreage Report rocked the corn market. University of Illinois Agricultural Economist Todd Hubbs explores those numbers in this interview with ILLINOIS Extension Farm Broadcaster Todd Gleason.

A dramatic drop in principal crop acreage provided one of the many surprises in the Acreage report released on Friday. Driven by much lower soybean and wheat acreage, total principal crop acreage came in at 309.3 million acres, down 6.1 million acres from the March Prospective Planting report. Principal crop acreage estimates decreased by 10.3 million acres from 2018 totals. Significant increases over last year’s acreage occurred in corn (2.57 million acres) and barley acreage (314,000 acres). The vast majority of crops witnessed acreage decreases from last year. Soybean acreage led the way with a 9.2 million acre decrease. Wheat acreage came in down 2.19 million acres.

An extraordinary year for corn production took another unexpected turn on Friday. Corn producers reported they intended to plant 91.7 million acres of corn this year. Corn planted acres came in 1.1 million acres lower than March planting intentions, but well above expectations due to delayed planting. When compared to March planting intentions in major producing states, the June survey revealed higher corn acres in Kentucky (220,000 acres), Kansas (200,000 acres), and Nebraska (300,000 acres). Acreage lower than March intentions in South Dakota (1.2 million acres) and North Dakota (350,000 acres) offset gains seen in other areas of the western Corn Belt. Surprisingly, the major producing states in the eastern Corn Belt saw slight to no changes from the March intentions.

The USDA reported 16.7 percent of the corn acreage (15.3 million acres) remained unplanted as of the survey period and indicated an intention to re-interview 13 of the 18 major corn-producing states in July for the August production report. The prospect of considerable prevented planting acreage in the eastern Corn Belt places the 91.7 million acres reported in the June report in question. The shift out of soybeans and most feed grains may indicate an expansion of the base corn acreage intended for planting in 2019. A lack of clarity about prevented planting acreage reported in the June survey window remains a concern and points toward further downward revisions in the August Crop Production report.

The corn stocks report provided some positive news for corn use. June 1 corn stocks came in at 5.2 billion bushels, nearly 103 million bushels lower than last year and 130 million bushels smaller than the average trade guess. Estimation of total disappearance during the quarter is 3.41 billion bushels. Estimated third quarter feed and residual use come in at 1.13 million bushels. Estimates of feed and residual use during the first three quarters of the marketing year sits at 4.615 billion bushels. To reach the projected 5.3 billion bushels of corn projected for feed and residual this marketing year, feed and residual use in the fourth quarter must equal 685 million bushels. Based on current stocks estimate, it appears feed and residual use this year is on track to hit the current USDA projection.

Soybean producers intended to plant 80 million acres of soybeans. The soybean acreage intentions came in below market expectations. Soybean planted acres fell by 4.6 million acres from the March planting intentions. At the time of the survey in early June, producers indicated that 41.2 percent of the intended soybean acreage (33 million acres) remained unplanted. Soybean acreage came in lower than last year’s totals in every state that reported in the June survey. The most substantial adjustments came in South Dakota (1.25 million acres), North Dakota (1 million acres), Iowa (900,000 acres), and Minnesota (900,000 acres). The substantial drop in soybean acreage may indicate issues with planting, but the large totals left to plant place the soybean acreage estimate in question as well. USDA plans to re-interview 14 of the 18 major soybean-producing states in July.

The June 1 soybean stocks estimate indicated a record 1.79 billion bushels, up 571 million bushels from last year. The stocks estimate came in 71 million bushels below market expectations. To meet the current USDA projection for soybean ending stocks, 720 million bushels of use is necessary for the fourth quarter. Despite the continued uncertainty in trade negotiations and record stocks, June 1 soybean stocks are neutral for soybean prices as soybean consumption maintains a pace to meet USDA projections for the marketing year.

Corn futures prices saw a dramatic drop with the release of the Acreage report. Soybean prices drove higher on the lower supply expected under reduced acreage. Uncertainty regarding corn and soybean acreage looks to continue through the August production report. If the corn acreage total ends up at the reported level in the June Acreage report, the prospect for corn yield moves to the forefront of supply expectations this year. By re-interviewing many major producing states for both corn and soybean acreage, USDA may be signaling revisions to come.

Farmers Unlikely to Make Big Acreage Switch to Corn

The scuttlebutt in the trade, even in the numbers released by USDA at its February Agricultural Outlook Forum, is that the economics will push farmers to plant a lot more corn acres this year.

Ag Economist Gary Schnitkey has updated budgets for corn and soybeans across the state. He knows USDA increased its expectation for corn acres around the nation by about 3 million acres but says he does not expect a big shift to corn in Illinois, “What we find is that corn is projected to be more profitable than soybeans. This is the first year in a while that has happened. However, our budgets do not suggest shifting to more corn production. Particularly corn-after-corn is less profitable than soybeans. So, it is status quo for the central Illinois area with a 50/50 corn/soybean rotation being more profitable for 2019.”

This holds for northern and central Illinois. Southern Illinois still has a regionalized economic bias to plant soybeans. Soybeans make more money there says Schnitkey, “However, the big thing right now is the upcoming USDA Prospective Plantings report and whether we will see shifts from soybean to corn which some people are expecting. These budgets would say in the heart of the corn belt, or in the corn belt in general, that you won’t see shifts from soybeans to corn. So, you have to see those shifts from someplace else and there are limited opportunities there.”

USDA in its February Outlook meeting projected U.S. farmers would plant about three percent more corn acres this season than last and almost five percent fewer soybean acres. The agency will release an official estimate of acreage March 29th.

Corn Acreage in 2019

read farmdocDaily article

The number of acres of corn planted this spring will be a key factor in determining where the price of corn goes. University of Illinois Agricultural Economist Todd Hubbs took up the issue in this week’s farmdocDaily article.




He starts with a historical graph. It shows the principal crop acres in the United States and how those have changed since 1997. Both corn and soybean acreage have increased. Combined they’re up about 10 percent over the past two decades.



Illinois’ Todd Hubbs uses that history to help put the number or corn and soybeans acres into perspective, “When we look at the harvest month corn to soybean futures price ratio this year it has been about 2.37. There is a definite signal in this graph from about 2006 to 2018 that if you are above 2.4 in that ratio, there will be less corn acreage. If you are below 2.3 there will be more corn acreage. We are today sitting right in between those. We’ve seen problems with fieldwork in large parts of the corn belt. We’ve seen fertilizer and other input costs go up on corn. So, the idea that we are going to see a massive increase in corn acreage could happen, but under the current price structure we might not see the kind of corn acreage we think we are going to see.”



Hubbs says he used the 2019–20 futures prices to forward calculate a seasons average cash price for new crop corn. His calculation points to $3.81 per bushel. He then figured a stocks-to-use ratio that would fit that number, “I think an 11% stocks to use ratio in 2019–2020 would give us $3.81. If consumption is constant at 14.8 billion bushels from this marketing year to the next, that would put corn acreage around 91.7 million at a national trend line yield of 174.6 bushels to the acre.”

Finally, Hubbs says there isn’t a lot of weather premium priced into new crop corn futures. He also says there isn’t much of premium built in for a possible trade deal with China. Hubbs thinks that may be just as bullish for corn as it is for soybeans. Right now he thinks the 2.37 soybean/corn ratio feels high if the expectation is for a substantial increase in corn acreage.

SCO: An Insurance Option Available to More Farmers


Supplemental Coverage Option (SCO) was introduced in the 2014 Farm Bill but was limited to acres where Price Loss Coverage (PLC) was the commodity title program choice. More farmers likely will be choosing PLC for the 2019 and 2020 marketing years, leading to more acres being eligible for SCO. SCO may be attractive to those farmers who find the costs of Revenue Protection (RP) at an 85% coverage level too high. Farmers interested in SCO should discuss eligibility options with crop insurance agents.

by Gary Schnitkey

SCO Background
SCO is available to farmers who choose PLC for receiving commodity title payments. SCO is not available when Agricultural Risk Coverage (ARC) is chosen (farmdoc daily, June 16, 2015). ARC was selected on over 90% of the base acres in corn and soybeans under the 2014 Farm Bill. As a result, SCO was not an option for most Midwest farmers. Similar to the 2014 Farm Bill, the 2018 Farm Bill again gives a choice between PLC and ARC. More farmers likely will choose PLC for 2019 and 2020, increasing the acres eligible for SCO.
SCO provides protection in a band from 86% down to the coverage level of an underlying COMBO product. If, for example, a farmer selects a 75% Revenue Protection (RP) product, SCO could be purchased from 86% to the 75% RP coverage level (see farmdoc daily, December 17, 2014; April 24, 2014).

The SCO band of coverage is based on county revenue given that the underlying Combo product is RP. That is, county revenue must fall below 86% of expected revenue before SCO makes a payment. As a result, the RP-SCO combination provides mixed coverage: Farm-level coverage is provided from the RP coverage level downward while county-level coverage is provided between 86% to the coverage level of the RP product.

The primary disadvantage of the RP-SCO combination is that the county-level coverage may not match losses on a farm. Sometimes a farm may have a loss while SCO will not trigger a payment. Conversely, it is possible for the farm not have a loss while the county-based SCO product triggers a payment.

Premiums under RP-SCO Combinations
The primary advantage of using SCO is lower farmer-paid premium. The costs of a RP-SCO combination usually will be lower than an 85% RP product when RP is purchased at less than 85% in the RP-SCO combination. Compared to RP 85%, the RP-SCO premium usually is lower for two reasons. First, county yields typically are less variable than farm yields, resulting in fewer payments for a county product than for a farm-level product at the same coverage level. Lower payments then result in a lower premium. Second, the premium assistance under SCO often is higher than for RP. SCO has a subsidy rate of 65%. For a product with an expected payment of \(1, the SCO farmer-paid premium will be about $.35 (\).35 = $1 expected payment x (1 – .65 subsidy rate)). The 65% subsidy rate is higher than all subsidy levels for basic and optional units when the coverage level is above 50% (see Table 1). The 65% SCO subsidy level also is higher than the subsidy level at an 85% coverage level given enterprise units.



Table 2 shows examples of RP-SCO combinations for Sangamon and Saline Counties in Illinois. Sangamon County is a relatively low risk county while Saline County has higher risk. Premiums are shown for corn (Panels A and B) and soybeans (Panels C and D). Relationships of premiums are the same for both counties and crops.



Take corn in Sangamon County as an example. An RP 85% product has a farmer-paid premium of $21.35 per acre (see Panel A of Table 2). SCO for an RP with an 85% coverage level has a $.79 premium. For an 85% RP coverage level, the RP-SCO combination has a $22.14 per acre premium. An RP-SCO combination with an 80% RP coverage leave has a $14.02 per acre premium, with $11.03 premium from RP 80% and $2.99 from SCO from 86% to 80%. RP-SCO combinations have lower farmer-paid premium as the RP coverage level is decreased. A $22.14 combined premium result for an 85% coverage level, $14.02 premium results for an 80% coverage level, a $9.43 premium results for a 75% coverage level, and so on.

Who Should Consider SCO Farmers purchasing RP at 85% coverage levels likely will not find SCO an attractive alternative. The SCO band from 86% to 85% coverage will provide little additional coverage. Any reduction of RP coverage level with an SCO band results in a crop insurance payment structure that is less correlated with losses on the insurance unit.

Farmers purchasing lower coverage levels could find SCO useful, particularly if the lower coverage level is selected so as to result in a lower farmer-paid premium. The farmer-paid premium for RP approximately doubles from the 75% coverage level to 80% coverage level. For example, soybean RP premium in Sangamon County goes from $2.93 per acre at a 75% coverage level to $5.78 at an 80% coverage level. Premiums again double from the 80% coverage level to the 85% coverage level. For soybeans in Sangamon County, RP premiums increase from $5.78 at an 80% coverage level to $11.68 at an 85% coverage level. A farmer currently at a 75% coverage level could include SCO for $2.53 additional premium, with the $5.46 premium for the RP-SCO combination being less than for a stand-alone RP 80% premium ($5.78) and RP 85% premium ($11.68). The addition of SCO to a RP 75% coverage level would improve coverage, providing county-level coverage above the 75% coverage level of the RP.

USDA Reports Provide Little Support for Corn and Soybeans

by Todd Hubbs, University of Illinois

The USDA finally released a set of highly anticipated reports on Friday. The results projected lower ending stocks for corn and soybeans during this marketing year. Despite lower ending stock forecasts, the results disappointed and produced a somewhat bearish outlook. The following discussion recaps developments in corn and soybean crop fundamentals coming out of the reports and price implications moving forward.



Corn ending stock projections for the 2018–19 marketing year came in at 1.735 billion bushels, down 46 million bushels from the December forecast. Reduced corn production in 2018 drove ending stocks lower despite a 165 million bushel reduction in total use during the marketing year. Corn production is down 1.4 percent from the November forecast at 14.4 billion bushels. The harvested acreage estimate of 81.7 million acres is down from the November forecast of 81.8 million acres. Average corn yield of 176.4 bushels per acre is 2.5 bushels lower than the November forecast. December 1 corn stocks came in at 11.952 billion bushels. Total disappearance came in near 4.62 billion bushels during the first quarter of the marketing year, up from last year’s first quarter use by approximately 280 million bushels. Despite the lower domestic supply numbers and stronger first quarter use, lower consumption forecasts in key categories provide little support for corn prices.

The WASDE report forecast for U.S. corn during 2018–19 lowered corn use projections for feed and residual use, ethanol crush, and other food and industrial uses. At 5.375 billion bushels, the projection for corn feed use and residual moved lower by 125 million bushels. The ethanol use forecast decreased by 25 million bushels to 5.575 billion bushels. The lower ethanol use reflected the slowing ethanol production levels over the last month. Food, seed, and industrial use other than ethanol saw the consumption forecast lowered 15 million bushels on reduced corn use for high fructose corn syrup, glucose, and dextrose. Corn export forecasts maintained the 2.45 billion bushels forecast in December. The potential for increased corn usage seems increasingly dependent on continued economic growth and the resolution of the current trade impasse.

World ending stocks for corn increased by almost 40 million bushels from December forecasts. The increase focused on stronger production in key growing areas. In particular, Argentine corn production forecasts totaled 1.81 billion bushels, up from last year’s 1.26 billion bushels. Brazil’s corn production forecast stayed at 3.72 billion bushels this year. In total, Brazil and Argentina production forecasts exceed 2017–18 production estimates by 1.04 billion bushels. Projections of corn exports from Argentina and Brazil sit at an additional 492 million bushels each above last marketing year. Given the increase in South American production, the evolution of crop conditions in the region bears monitoring as we move into 2019.

The forecast for soybean ending stocks fell to 910 million bushels. Despite the 45 million bushel reduction to ending stocks, the current projection remains record high. Soybean production came in 56 million bushels lower than the November forecast at 4.54 billion. The harvested acreage estimate of 88.1 million acres is down from the November forecast of 88.3 million acres. Average soybean yield of 51.6 bushels per acre is 0.5 bushels lower than the November forecast. While the expected reduction in soybean production materialized, consumption continues to exhibit strong crush levels and weak exports this marketing year.

The WASDE report increased the soybean crush forecast by 10 million bushels to 2.09 billion bushels. The change in the crush projection reflects strong crush numbers through January. Soybean exports saw the forecast lowered by 25 million bushels to 1.875 billion bushels. Considerable uncertainty remains in export potential in 2019 as the sporadic nature of trade talks with China unfold. Total use fell by 15 million bushels on weaker export projections to 4.092 billion bushels. The consumption for this marketing year holds the potential for deterioration if the trade war escalates and increased competition out of South America materializes.

World production forecasts for the marketing year decreased by 301million bushels to 13.26 billion bushels on the smaller U.S. and Brazilian crops. The Brazilian soybean production forecast decreased by 183.72 million bushels over the December forecast to 4.3 billion bushels. Reports out of Brazil indicate this number may fall further before the final crop estimate is complete. The Argentinian soybean production forecast fell slightly to 2.02 billion bushels on reduced acreage. The Brazilian soybean export forecast dropped by 55 million bushels reflecting the decreased crop production levels. Forecasts for Brazil and Argentina soybean exports sit at 3.15 billion bushels over the marketing year, up from last marketing year’s estimate of 2.88 billion bushels.

While the ending stock projections for both crops fell, the USDA maintained price projections for the marketing year at the December mid-point ranges for corn and soybeans at $3.60 and $8.60 respectively. Barring a resolution to the trade issues with China or a significant deterioration in the South American crop, soybean prices are untenable at current levels. Corn prices appear set to remain flat and range bound until the March Prospective Planting reports provide an initial indication of crop acreage in 2019.

Corn and Soybean Acreage Prospects for 2019


As US farmers finish the fall harvest, considerable speculation will occur over the next few months about the acreage decisions they’ll make for 2019. Todd Gleason discusses how current market conditions support an acreage increase next year for corn and a reduction for soybeans with University of Illinois agricultural economist Todd Hubbs.

farmdocDaily article
by Todd Hubbs, University of Illinois

Prospects for 2019 crop acreage levels begin with expectations about planted acreage for principal crops. In 2018, acreage planted in principal field crops expanded to 322 million acres, up 2.9 million acres from the previous year. A large share of increased acreage came from an expansion of spring wheat acreage by 2.18 million acres, cotton acreage by 1.4 million acres, and hay acreage by 1.28 million acres. Corn and soybean acreage decreased by 1.03 and .997 million acres respectively. Illinois increased planted acreage by 188,000 acres like most of the primary Corn Belt states. A significant exception came in South Dakota which lowered acreage by 343,000 acres, driven mostly by lower corn acreage. In conjunction with the increase in principal crop planted acreage, prevent plant acreage is small thus far in 2018. The Farm Service Agency reports 1.88 million acres of prevented plantings as of October 1, down from 2.59 and 3.4 million acres in 2016 and 2017 respectively.

As we move into 2019, the prospects of large adjustments to crop acreage increasingly focuses on soybean acreage. Acreage adjustments in many major growing areas may be in the form of crop adjustments instead of acreage losses. The current price environment across principal crops points to constant or modest changes in total planted acreage in 2019 and holds the potential for less overall soybean and corn acres.

Since the inception of the Renewable Fuels Standard and growth in Chinese soybean imports, a noticeable shift in principal crop acreage created increases in corn and soybean acreage at the expense of wheat and small grains. Corn and soybean acreage increased from 158.3 million acres in 2006 to 178.3 in 2018 with a peak acreage of 180.3 million in 2017. Over the same period, wheat acreage declined from 57.3 million acres to 47.8 million projected in 2018. The low for wheat acres came in 2017 at 46.02 million acres. Similarly, small grain acres fell from 18 million acres to 14.88 million with a low of 14.5 in 2017. These acreage adjustments stand out when analyzing the data from the three western Corn Belt states of North Dakota, South Dakota, and Kansas.

In 2006, the states mentioned above planted 20.54 million acres of corn and soybeans. Since that year, corn and soybean acreage grew by over eleven million acres with a peak year of 32.52 million acres in 2017. In 2018, 31.15 million acres of corn and soybeans were planted in those states. Conversely, wheat acres contracted dramatically in those states continuing a long run trend. In 2006, the three states planted 21.9 million acres of wheat. Since that year, wheat acreage fell by over four million acres with a low year of 16.2 million acres in 2017. In 2018, 17.3 million wheat acres were planted in those states.

Narrowing profitability margins appear to be shifting away from the expansion of corn and soybean acreage and back to wheat, small grains, and cotton in many areas. Current projections by industry analysts place 2019 corn acreage in a range from 90 to 93.7 million acres. Soybean acreage projections come in between 82.3 and 87.5 million acres. In essence, if the current margins continue, we may be at the beginning stages of unwinding the acreage shifts seen over the last decade. In 2018, corn and soybean acreage in total reversed a three-year trend of increased planted acres. While soybean and corn acreage decreased in 2018, many crops saw planted acreage increases. In particular, spring wheat, cotton, barley, rye, oats, and hay recorded increases. In the main corn producing states during 2018, Missouri, Michigan, Nebraska, and Ohio increased corn acreage over 2017 planting decisions. None of those states increased corn acreage by more than 100,000 acres. Decreases in soybean planted acreage came from North Dakota, Kansas, Arkansas, Minnesota, and Missouri. As we move into 2019, corn and soybean acreage shifts depend on the evolution of corn and soybean prices between now and planting.

Expectations about corn and soybean acreage will continue to evolve. Preliminary surveys of farmer’s planting intentions indicate an intention to decrease soybean acreage and increase corn acreage. Using current market prices, projections for corn and soybean acreage place 2019 corn acreage at 91.1 million acres and soybean acreage at 85.7 million acres. Data availability on acreage begins with the USDA’s Winter Wheat Seedings report in January to be followed by the March Prospective Plantings report.

Reviewing Prices and Market Facilitation Payments

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As the trade conflict with China continues, prices for many agricultural commodities remain relatively low. Illinois corn and soybean prices dipped to new lows in September, coinciding with the latest rounds of tariffs.



The difference between selling an entire crop at spring forward bid prices compared to the September average cash prices makes a substantial difference in income on an average central Illinois grain farm.



University of Illinois Agricultural Economist Gary Schnitkey reviews how this plays out on a 1700 acre corn and soybean farm in Illinois this year, and what the prospects look like for next year.

2019 Crop Budgets Suggest Dismal Corn and Soybean Returns

Even with cost-cutting and savings measures, University of Illinois Agricultural Economist Gary Schnitkey says, for the moment, it seems unlikely farmers will have positive returns on rented farmland in 2019. Todd Gleason has more…

Cash Rents and the 2019 Growing Season

Professional farm managers in the state of Illinois have completed a cash rent survey. Todd Gleason reports it is a fairly go indicator of where cash rents in the state can be expected to go. He talked with University of Illinois Agricultural Economist Gary Schnitkey about the results.