Department of Economics

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Where are we with todays economics and crop
insurance?
Chad Hart chart_at_iastate.edu 515-294-9911 2008
Fall Agronomy In-Service Training Ames,
Iowa September 18, 2008
Department of Economics
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Production Value
Source USDA-ERS
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Purchased Inputs
Source USDA-ERS
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Net Farm Income
Source USDA-ERS
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Nominal vs. Real
Source USDA-ERS
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Historical Iowa Corn Production Costs
Source Duffy and Smith, http//www.extension.ias
tate.edu/agdm/crops/pdf/a1-21.pdf
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Historical Iowa Soybean Production Costs
Source Duffy and Smith, http//www.extension.ias
tate.edu/agdm/crops/pdf/a1-21.pdf
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Iowa Corn Prices vs. Costs
Source USDA-NASS and Duffy and Smith,
http//www.extension.iastate.edu/agdm/crops/pdf/a
1-21.pdf
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Iowa Soybean Prices vs. Costs
Source USDA-NASS and Duffy and Smith,
http//www.extension.iastate.edu/agdm/crops/pdf/a
1-21.pdf
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Iowa Corn after Soybeans Estimated Costs per
Acre, Jan. 2008
Source Duffy and Smith, http//www.extension.ias
tate.edu/agdm/crops/pdf/a1-20.pdf
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Iowa Herbicide Tolerant Soybeans after Corn
Estimated Costs per Acre, Jan. 2008
Source Duffy and Smith, http//www.extension.ias
tate.edu/agdm/crops/pdf/a1-20.pdf
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Urea Prices
Source http//www.fertilizerworks.com/html/market
/ TheMarket.pdf
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DAP Prices
Source http//www.fertilizerworks.com/html/market
/ TheMarket.pdf
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Ammonia Prices
Source http//www.fertilizerworks.com/html/market
/ TheMarket.pdf
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Crude Oil Prices
Source DOE Energy Information Administration
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Crude Oil Prices
Source DOE Energy Information Administration
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Crop Costs for Central Illinois
Source Schnitkey, July 2008
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Rough Estimates for 2009 Iowa Corn
December 2009 Corn Futures 5.855 (9/17/08)
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Rough Estimates for 2009 Iowa Soybeans
November 2009 Soybean Futures 11.12 (9/17/08)
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Iowa Corn Prices vs. Costs
Average Net Return per Bushel (1972-2007) -0.07
Source USDA-NASS and Duffy and Smith,
http//www.extension.iastate.edu/agdm/crops/pdf/a
1-21.pdf
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Iowa Soybean Prices vs. Costs
Average Net Return per Bushel (1972-2007) 0.31
Source USDA-NASS and Duffy and Smith,
http//www.extension.iastate.edu/agdm/crops/pdf/a
1-21.pdf
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Net Return Outlook
With costs racing to catch to prices weve seen
over the past couple of years, net returns are
tightening So far, the outlook for 2009 looks
better than the historical average But with the
volatility weve seen across many markets, things
can change quickly
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Crop Insurance
One of many risk management strategies Traditional
ly set up to protect farmers in times of low crop
yields Also offers coverage for low
prices Available on over 100 commodities
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Historical Crop Insurance Participation
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Why Crops Fail
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Crop Insurance Subsidies
Coverage Level Subsidy 50 -
55 67 55 - 65 64 65 -
75 59 75 - 80 55 80 - 85 48 ?
85 38
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Types of Crop Insurance
Individual Yield (APH) Area Yield
(GRP) Individual Revenue (CRC, IP, RA) Area Yield
- Individual Revenue Combination (GRIP)
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Individual Yield Insurance (APH)

• Farmer chooses percentage of expected yield to
  insure
• Expected yield measured by average yield
• Price at which the crop is valued is set up front
  and does not change
• In 2008, 1.36 million acres of Iowa corn and 1.09
  million acres of Iowa soybeans were covered with
  an APH policy

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Individual Revenue Insurance(CRC, IP, RA)

• Farmer chooses percentage of expected revenue to
  insure
• Expected revenue measured by average yield
  times initial crop price
• Price at which the crop is valued can move with
  price changes in the market
• Final value of the crop determined by average
  futures prices over harvest period

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Individual Revenue Insurance(CRC, IP, RA)
CRC and RA have a harvest price option If the
harvest price is greater than the planting price,
then the harvest price is used in all
calculations In 2008, 9.58 million acres of Iowa
corn and 7.17 million acres of Iowa soybeans were
covered with individual revenue policies
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Iowa Crop Insurance Figures
Average producer-paid crop insurance premium in
Iowa - Corn 22.74/acre - Soybeans
17.57/acre Most typical coverage - Both crops
75 RA
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Iowa Crop Insurance Figures
Average crop insurance liability in Iowa - Corn
640.14/acre - Soybeans 459.77/acre Total Iowa
crop insurance producer-paid premiums - 2007
279 million - 2008 421 million
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Iowa Crop Insurance Premiums Prices
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Iowa Crop Insurance Premiums Prices
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Average Producer-Paid Premiums
For RA, APH and CRC graphs would look similar
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Insurance Price Settings for 2009
For revenue products, usually set by the Feb.
average on harvest-time futures (Nov. for
soybeans, Dec. for corn) For APH, price is based
on USDA estimates for season-average price
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Farm Bill Twist
Starting in 2009, farmers will need to
participate fully in crop insurance and
non-insured crop assistance programs to qualify
for the federal governments new disaster
assistance program (SURE) SURE guarantees and
payments are tied to crop insurance decisions
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• Thanks for your time!
• Any questions?