Will Crop Insurance Prices Impact Planting Intentions?

DR. AARON SMITH

KNOXVILLE, TENNESSEE

Projected crop insurance prices were set this week. The projected prices for corn, soybean, cotton, and wheat are all down compared to 2023. Corn price was set at $4.66/bu, down $1.25/bu; soybeans at $11.55/bu, down
$2.21/bu; cotton at $0.83/lb, down $0.01/lb; and wheat (set in the fall) at $6.61/bu, down $1.79/bu. The decrease in projected prices dramatically changes the risk profile faced by Tennessee producers for the 2024 crop year. For example, in 2023 the projected corn price of $5.91/bu, combined with a 175 bushel/acre APH and 75% buyup, would provide a revenue guarantee of $775.69/acre for the insured unit or assuming actual yield equal to APH yield, price protection at $4.43/bu. In 2024, the revenue guarantee would be $611.63/acre ($4.66/bu x 175 bu/acre x 75%) or price protection of $3.50/bu, assuming actual yield equal to APH yield. In 2023 the price protection provided by crop insurance was close to the projected breakeven price for many producers. In 2024 the price protection from crop insurance will be well below most producers breakeven. 

Will crop insurance prices impact planting intentions? Price ratios are one factor that may influence producer planting decisions. The soybean-to-corn projected crop insurance price ratio is 2.48, up 0.15 compared to last year. This means all else being equal more soybean acres should be planted relative to corn year-over-year. Similarly, the cotton-to-soybean crop insurance price ratio is 0.072, up 0.011 year over year, indicating a potential increase in cotton plantings over soybeans. 

The USDA Outlook conference projected cotton planted acres up 770,000 compared to last year, soybeans up 3.9 million acres, and corn down 3.6 million acres. The current USDA projections are based on models that take into account numerous economic factors. The first producer survey based planted acreage estimates will be provided at the end of the month when the USDA will release the Prospective Plantings report. The report may provide valuable information in potential changes to US planted acres in 2024. 

Corn

Across Tennessee, average corn basis (cash price-nearby futures price) strengthened or remained unchanged at West, North-west, West-Central, and Mississippi River elevators and barge points and weakened at North-Central elevators and barge points. Overall, basis for the week ranged from 65 under to 5 over, with an average of 22 under the May futures at elevators and barge points. Ethanol production for the week ending February 23 was 1.078 million barrels per day, down 6,000 from the previous week. Ethanol stocks were 26.022 million barrels, up 0.520 million barrels compared to last week. Corn net sales reported by exporters for February 16-22 were net sales of 42.6 million bushels for the 2023/24 marketing year and 6.5 million bushels for the 2024/25 marketing year. Exports for the same period were up 19% compared to last week at 47.9 million bushels. Corn export sales and commitments were 71% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31) compared to the previous 5-year average of 78%. Cash prices for March delivery ranged from $3.62 to $4.34 at elevators and barge points. May 2024 corn futures closed at $4.24, up 11 cents since last Friday. For the week May 2024 corn futures traded between $4.08 and $4.32. May/Jul and May/Dec future spreads were 12 and 35 cents. July 2024 corn futures closed at $4.36, up 10 cents since last Friday. 

December 2024 corn futures closed at $4.59, up 10 cents since last Friday. Downside price protection could be obtained by purchasing a $4.60 December 2024 Put Option costing 36 cents establishing a $4.24 futures floor. 

Soybeans

Across Tennessee the average soybean basis strengthened or remained unchanged at Northwest, West-Central, and North- Central elevators and barge points and weakened at West and Mississippi River elevators and barge points. Basis ranged from 39 under to 17 over the May futures contract, with an average basis at the end of the week of 5 under. Soybean net weekly sales reported by exporters were net sales of 5.9 million bushels for the 2023/24 marketing year. Exports for the same period were down 8% compared to last week at 40.5 million bushels. Soybean export sales and commitments were 83% of the USDA estimated total annual exports for the 2023/24 marketing year (September 1 to August 31), compared to the previous 5-year average of 88%. May 2024 soybean futures closed at $11.51, up 10 cents since last Friday. For the week May 2024 soybean futures traded between $11.28 and $11.61. Cash soybean prices for March at elevators and barge points ranged from $11.26 to $11.61. May 2024 soybean-to-corn price ratio was 2.71 at the end of the week. May/Jul and May/Nov future spreads were 10 and -12 cents. July 2024 soybean futures closed at $11.61, up 10 cents since last Friday. 

November 2024 soybean futures closed at $11.39, up 9 cents since last Friday. Downside price protection could be achieved by purchasing an $11.40 November 2024 Put Option which would cost 72 cents and set a $10.68 futures floor. Nov/Dec soybean- to-corn price ratio was 2.48 at the end of the week. 

Cotton

North Delta upland cotton spot price quotes for February 29 were 96.82 cents/lb (41-4-34) and 98.82 cents/lb (31-3-35). Adjusted World Price (AWP) increased 2.35 cents to 77.47 cents. Cotton net weekly sales reported by exporters were 40,000 bales for the 2023/24 marketing year and 13,400 bales for the 2024/25 marketing year. Exports for the same period were up 5% compared to last week at 267,100 bales. Upland cotton export sales were 91% of the USDA estimated total annual exports for the 2023/24 marketing year (August 1 to July 31), compared to the previous 5-year average of 93%. May 2024 cotton futures closed at 95.57 cents, up 2.08 cents since last Friday. For the week, May 2024 cotton futures traded between 92.5 and 103.8 cents. May/Jul and May/Dec cotton futures spreads were -1.8 cents and -12.62 cents. July 2024 cotton futures closed at 93.77 cents, up 1.15 cents since last Friday. 

December 2024 cotton futures closed at 82.95 cents, down 0.44 cents since last Friday. Downside price protection could be obtained by purchasing an 83 cent December 2024 Put Option costing 5.09 cents establishing a 77.91 cent futures floor. 

Wheat

Wheat net weekly sales reported by exporters were net sales of 12.0 million bushels for the 2023/24 marketing year and 0.2 million bushels for the 2024/25 marketing year. Exports for the same period were up 44% compared to last week at 19.8 million bushels. Wheat export sales were 92% of the USDA estimated total annual exports for the 2023/24 marketing year (June 1 to May 31), compared to the previous 5-year average of 94%. Wheat cash prices at elevators and barge points ranged from $5.67 to $6.06. May 2024 wheat futures closed at $5.57, down 12 cents since last Friday. May 2024 wheat futures traded between $5.55 and $5.89 this week. May wheat-to-corn price ratio was 1.31. May/Jul and May/Sep future spreads were 4 and 12 cents. 

July 2024 wheat futures closed at $5.61, down 9 cents since last Friday. Downside price protection could be obtained by purchasing a $5.70 July 2024 Put Option costing 41 cents establishing a $5.29 futures floor. New crop wheat cash prices at elevators and barge points ranged from $5.47 to $5.77. September 2024 wheat futures closed at $5.69, down 8 cents since last Friday. ∆

DR. AARON SMITH: University of Tennessee