Crop Insurance Today Second Quarter 2019 - 15

Table 3 Volatility Factors
CROPS
Wheat, Winter ($/bu)
Wheat, Spring ($/bu)
Corn ($/bu)
Soybeans ($/bu)
Upland Cotton ($/lb)
Rice ($/cwt)

Historical
Price
Volatility1

19682018

0.19
0.22
0.2
0.18
0.23
0.23

VOLATILITY FACTOR2

2012 2013 2014 2015 2016 2017 2018 2019
0.26
0.19
0.22
0.18
0.19
0.14

0.24
0.15
0.2
0.17
0.17
0.11

0.19
0.14
0.19
0.13
0.15
0.1

0.17
0.15
0.21
0.16
0.16

0.22
0.15
0.17
0.12
0.14
0.15

3

0.18
0.13
0.19
0.16
0.15
0.17

0.16
0.13
0.15
0.14
0.14
0.12

0.19
0.14
0.15
0.12
0.14
0.11

% CHANGE
2017-18
2018-19

-11.10
0.00
-21.10
-12.50
-6.70
-29.40

18.80
7.70
0.00
-14.30
0.00
-8.30

1
Historical volatility values are obtained by fitting log-normal distribution to the time series of the ratio of the harvest price to the base price from 1968 to 2018. For each year in that time period, the harvest
and base prices are calculated by using relevant futures prices in that year. Source: Barchart.com
2
Revenue Protection as of April 16, 2019.
3
Due to insufficient futures price data, revenue insurance was not available in 2015
Source: Various RMA Manager's Bulletins

es. For example, the marketing year average corn
price reported in the latest World Agricultural
Supply and Demand Estimates (WASDE) report
was unchanged for the past two years, at $3.36
per bushel with a mid-point estimate of $3.55 for
2018/19. Over the same period, the average farm
price for soybeans has declined from $9.47 per
bushel to a mid-point estimate of $8.60. Overall
the index for crop prices received stands at 86.8 for
2018, up very slightly from 86.2 the previous year.
For livestock, the uptick in prices in 2017d
reflected in the index were not sustainable as
overall prices fell in 2018 with the current index
at 94.2 down from a peak of 128.7 in 2014. For
example, prices for steers, 65-80 percent choice,
averaged $117 per cwt, live basis in 2018, down
from $122 in 2017. Prices for sows, grade 1-2,
300 to 399 lbs. averaged $38 per cwt., live basis in
2018 down from $43 for the previous year.
Pork and beef producers, like other crop producers, continue to suffer from the retaliatory
tariffs placed on U.S. exports to China, Mexico,
and Canada. For example, the increase in tariffs
on U.S. beef imports to China from 12 to 37 percent stifles trade just when opportunities for the
sale of grain-fed finished beef market had gained
access after being banned for 13 years. For pork
producers, the impacts are of concern as Mexico
and China are established and growing markets,
accounting for 40 percent of total U.S. pork exports. A recent study by Iowa State University
estimates that Mexico's 20 percent tariff on U.S.
pork reduced live hog prices in 2018 by $12 per
head, while China's tariff resulted in an $8 per
head decrease. Removal of the Chinese tariffs
and a return to duty free access to the Mexican
market are likely needed to see an improvement
in pork prices in 2019.
The production of milk in the United States

Figure 13. Prices for 2018
Figure 11 Prices forRP
2018
RPRP-HPE
and RP-HPE
Plans
Insurance
and
Plans
of of
Insurance
Base
Harvest

$/Bushel
12.00

10.16

10.00

4.00

3.96
3.68

4.87
5.07

6.31
5.95

Base
Harvest

14.00

11.90

12.00

8.60

8.00
6.00

$ / Lb. or $/cwt

10.30

10.00
8.00
6.00
4.00

2.00

2.00

0.00
r
Co

n

at
at
ns
he
he
ea
W
W
yb
r
o
g
e
S
r in
int
Sp
W

0.75

0.00
l
Up

d
an

0.77

n
tto
Co

ce
Ri

Data as of April 16, 2019
Data as of April 16, 2019
Source:
Actuarial
Information
Source:
RMARMA
Actuarial
Information
Browser

was 218 billion pounds in 2018, up one percent
from 2017. Production per cow continues to
increase, up 235 pounds, offsetting a reduction
in average number of milk cows per farm and
accounting for the increase in production. The
dairy industry continues to struggle with the
simple average all-milk price at $16.20 per cwt
in 2018, down from $17.70 in 2017. Tighter margins continue to weigh on the industry. Based
on a U.S. feed cost average of $5.71 for 2018,
the price above feed cost margin of $10.49 per
cwt. is down 17 percent from the 2017 average
of $12.67.
[The information sources for this section were:
USDA, Quick Stats https://quickstats.nass.usda.
gov, and USDA, OCE, WASDE, https://usda.gov/
oce/commodity/wasde; Milk Production U.S.D.A.,
NASS, ISSN: 1949-1557, Livestock, Dairy, and
Poultry Outlook, U.S.D.A., ERS, March 2019,

Dairy Outlook, Penn State University Extension
https://extension.psu.edu/dairy-outlook-february-2019 ]

Crop Insurance Market
Developments

The projected base prices used to establish the
value of the crop and the insured liability for the
Revenue Protection and Yield Protection forms
of insurance policies are shown in Table 2, starting from 2012 and ending with the 2019 crop.
Projected base prices are the average of futures
prices during the discovery month that precedes
the sales closing date for the policy.
Base prices are influenced by various factors,
including remaining stocks of the crop, planting
intentions in the United States, increasing yields,
changes in demand for the crop, availability of
alternatives, and growing conditions in other
CROPINSURANCE TODAY®

15


http://www.Barchart.com https://extension.psu.edu/dairy-outlook-february-2019 https://extension.psu.edu/dairy-outlook-february-2019 https://quickstats.nass.usda https://www.usda.gov/oce/commodity/wasde https://www.usda.gov/oce/commodity/wasde

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