Crop Insurance Today Second Quarter 2020 - 13

stood at $3.60 per bushel, virtually unchanged
from the previous year.
U.S. soybean stocks are expected to decline
significantly from the previous year due to poor
weather conditions from planting through harvest. As a result, 2019 production declined almost
20 percent from the previous year. Declining production was linked to a decrease in planted and
harvested acreage, both down 14 percent from
2018 and a six percent decline in yields from
the previous year. On the demand side, total use
remained almost unchanged, increasing only
slightly, less than one percent from the previous
year. The lower total supply, along with virtually
the same level of use, resulted in a drawdown of
existing stocks. This left ending stocks at 480 million bushels, down 47 percent from 2018. Given
the lower stock levels, combined with the stable
use pattern, U.S. soybeans ended 2019 with a
stocks-to-use ratio of 12 percent, down from 23
percent in 2018. Despite the substantial reduction in stocks-to-use, the crop insurance price
projection of $8.65 per bushel, while up from
2018, remained below 2017 levels as a sluggish
recovery in exports to China continues to place
downward pressure on price expectations.
COTTON
Global cotton production was projected to be
about 122 million bales in 2019, up 2.5 percent
from the previous year, and was attributable to
larger crops in Pakistan and the United States.
The main drivers of market conditions for cotton
in 2019 were on the demand side with a decrease
in global consumption. The outlook continues to
be downgraded as analysts factor in the impacts
of the COVID-19 virus on the cotton industry
around the world. The most recent USDA-FAS
outlook at this writing (April 2020) reports a 6.4
percent reduction in global cotton consumption,
the largest single monthly forecast adjustment recorded in the USDA database.
PRICES RECEIVED AND PRICES PAID
A sense of economic conditions in 2019,
across all of production agriculture, can be gained
by examining the index of prices received and
prices paid by producers in the livestock and crop
sectors (Figure 7). The index of prices received by
producers of both crops and livestock continue to
fall short of the peak period of the mid-2000's.
Livestock producers faced sharply declining
prices from 2014 to 2016. Prices moved slightly
upward in 2017 and have remained more stable

Table 2

Insured Acres by Major Crop1
	
2017	 2018	
CROP

2019	

				
	37,245	 38,725	 38,704	
Wheat
	78,908	 78,157	 86,777	
Corn
	4,141	 4,191	 4,073	
Sorghum
	79,884	 78,861	 71,159	
Soybeans
	11,739	 13,184	 13,090	
Upland Cotton
Pasture, Range & Forage 	74,936	 98,289	 140,210	
	286,854	 311,407	 354,013	
Total (Above Crops)
	311,743	 335,165	 379,323	
Total (All Crops)
NASS Planted Acres (Field Crops) 	318,340	 319,305	 302,626	

	

CHANGE

2018/19	
-21	
8,620	
-118	
-7,703	
-94	
41,921	
42,605	
44,158	
-16,679	

% CHANGE

2018/19
-0.1
11.0
-2.8
-9.8
-0.7
42.7
13.7
13.2
-5.2

Data as of April 13, 2020 In (000) acres.
Source: RMA Summary of Business, NASS Quick Stats

1

over the last four years, closing out 2019 at 96 percent of the 2011 baseline period. However, on the
expense side of the ledger, the index prices paid
continues to be greater than prices received. After falling precipitously in 2016, expenses have
been edging up again over the last three years.
The prices paid index for livestock producers ended the year at 109 percent, compared to the 2011
baseline, as lower grain input prices were offset by
higher prices for hay and forage, complete feeds,
concentrates and supplements.
Crop producers experienced a modest uptick in prices in 2019, after six years of declining to stagnant prices. The overall crop prices
received index finished the year at 88.5 percent
relative to the 2011 baseline, up 1.7 percent
from 2018. Like their livestock counterparts,
crop producers' expenses were up again in
2019, an approximately one percent increase
from the previous year and averaging 111.3
percent of the 2011 baseline. In general, the input price increase was linked to higher costs for
crop protection chemicals that offset reductions
in prices for fertilizer and fuels.
FINANCIAL CONSIDERATIONS
Agricultural producers worked within an
environment of declining to stagnant revenues
and seemingly ever-increasing costs in 2019. Not
surprisingly, farm financial conditions in 2019
reflected increasing signs of stress. If we focus on
two common measures of financial wellbeing and
liquidity -- the ratio of current assets to current
liabilities and working capital to gross revenue
-- the evidence supports current headwinds and
potential for troubled times ahead. For U.S. agriculture, the ratio of current assets to current liabilities has been on the decline since 2012 when it
was recorded to be 2.87, versus 1.51 in 2019, close

to the border line for a healthy business.
The second measure, working capital to gross
revenue, provides an idea of funds available to
meet short-term financial obligations. A recent
article from the Center for Commercial Agriculture at Purdue University reports that working
capital ratios below 0.20 signal a farm may have
trouble repaying loans.4 In 2019, the working
capital to gross revenue ratio for U.S. agriculture was reported to be 0.14. This ratio has also
been on the decline since 2012, when it stood at
0.37. Although liquidity measures suggest potential problems, U.S. agriculture continues to have
a solid foundation as the current debt to assets
value remains relatively low at 13.45 largely due
to strong farmland values supported by sustained
low interest rates. U.S. agriculture's debt to asset
position has increased steadily for the last seven
years yet remains far below the troubled times
of the mid-1980s when it stood at 22.19. The financial characteristics of U.S. agriculture in 2019
suggest an economy that is vulnerable, and not
without a difficult road ahead with a highly uncertain future.
[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; USDA, ERS, Farm
Income and Wealth Statistics]

Federal Crop Insurance
Experience

The number of insured acres for the major
crops from 2017 through 2019 are shown in Table 2. Soybean acres declined in 2019, but these
were offset by an increase in corn acreage. The
overall increase in acres insured was driven by
the expansion of Pasture, Rangeland, and Forage

4

Langemeier, M. and A. Featherstone. "Examining Trends in Liquidity for a Sample of Kansas Farms." Center for Commercial Agriculture,
Purdue University, November 15, 2019.
CROPINSURANCE TODAY®

13


https://quickstats.nass.usda.gov https://usda.gov/oce/commodity/wasde https://quickstats.nass.usda.gov https://usda.gov/oce/commodity/wasde

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