Crop Insurance Today May 2015 - (Page 12)

Table 2. Major Revenue Policy Base Prices1 % CHANGE 2008 2009 2010 2011 2012 2013 2014 2015 2013-14 2014-15 Wheat, Winter ($/bu) (KS) 5.88 8.77 5.42 7.14 8.62 8.78 7.02 6.3 -20.0 -10.3 Wheat, Spring ($/bu) (ND) 11.11 6.20 5.43 9.89 7.84 8.44 6.51 5.85 -22.9 -10.1 Corn ($/bu) (IL) 5.40 4.04 3.99 6.01 5.68 5.65 4.62 4.15 -18.2 -10.2 Soybeans ($/bu) (IL) 13.36 8.80 9.23 13.49 12.55 12.87 11.36 9.37 -11.7 -14.3 Upland Cotton ($/lb) (MS) 0.77 0.55 0.72 1.15 0.94 0.81 0.78 0.63 -3.7 -19.2 RICE ($/cwt) (AR, 2011-15, Long Grain) 14.40 13.10 14.00 16.10 14.70 15.70 13.90 2 -11.5 -11.5 Revenue Protection for 2011-15 and Revenue Assurance for prior years. 2 Due to insufficient futures price data, revenue insurance is not available in 2015. Source: Various RMA Manager's Bulletins 1 the largest U.S. market, has reduced imports from 20 million bales in 2012, to 14 million in 2013, to about 7 million expected in 2014. Projected prices for revenue policies, known as base prices, are shown in Table 2. Base prices are futures prices averaged during a discovery month that precedes the sales closing date. Thus, they are heavily influenced by market conditions in both the crop year of the discovery month and the upcoming crop year. Declining wheat farm prices in 2013 and 2014 and rising carryover contributed to lower winter and spring wheat base prices in 2014 and 2015. Corn and soybean base prices in 2014 and 2015 reflect the back-to-back years of rising production and stocks following the 2012 drought, and these 2015 base prices are at 5-year lows. For cotton, the large drop in production and stocks in 2013 strengthened farm prices for 2013/14 and helped maintain the base price for 2014. However, the very large U.S. cotton crop in 2014, partly due to a surge in harvested relative to planted acres as a result of very low abandonment, drove the 2015 farm and base prices down. The rice base price in 2014 reflected the early-season expectation of a large increase in long-grain rice production in the mid-South. That increase did occur, with 2014 long-grain production rising 23 percent, while medium/ short grain production was about unchanged. Large production is expected to raise longgrain rice carryover at the end of 2014/15 by nearly a third, and that has reduced USDA's expected farm price for long-grain rice by 20 percent to $12.30 per cwt in 2014/15. However, futures price data in early 2015 was insufficient to establish a base price for 2015, thus revenue insurance is not available. The projected price used for yield policies was set at $11.20 per cwt for Arkansas long grain rice. Figure 11 shows the futures price for corn Figure 11. Weekly Corn Futures Prices Last Year of the December Contract, 2010-2014 $/Bu. 9 8 2010 2011 7 6 2012 2013 5 2014 4 3 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 Week 12 MAY2015 over the last year of the contract for December delivery. Corn is frequently tracked as an indicator of general conditions, as it heavily influences the prices of other crops and livestock, and corn has the highest crop insurance liability and premium among all crops. During 2010, corn yield was below trend, exports were very strong and stocks were falling sharply, pushing futures price to a high of near $6.00 per bushel in the second half of the year. That increase led to the record-high base price of $6.01 per bushel for the 2011 corn crop. Weather concerns led to another below-trend yield in 2011 and further supply tightening, which continued to push futures to near $8.00 per bushel in late summer 2011. After that, prices tailed off as a more normal crop was anticipated in 2012 with the expectation of much larger planted acreage, and the 2012 base price settled at $5.68 per bushel. However, after a good start, the 2012 drought set in and futures prices soared to a peak of $8.49 by early August. Prices declined in the second half of 2012 as demand contracted under the high prices and foreign grain production was strong. Prices still finished 2012 near $7.00 per bushel. Futures prices trended down in early 2013 resulting in $5.65 base price but then fell sharply as a near-trend corn yield of 159 bushels per acre with 95 million planted acres resulted in record-high production and higher stocks. For 2014, USDA projected another record-high crop of nearly 14 billion bushels and another drop in farm prices. That sentiment led to the 2014 base price of $4.62 per bushel. Production turned out to be 14.2 billion and farm prices are expected to average $3.70 for the 2014 crop year. The volatility factor is used to estimate premium rates for revenue plans of insurance. The volatility factor is derived from the futures market's forward-looking measure of

Crop Insurance Today May 2015

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