Revenue Protection Insurance Favors Corn For 2019
Photo by Matt Barton, UK agricultural communications.
PRINCETON, KY.
Revenue protection insurance will favor corn over soybeans for the first time in two years, said Todd Davis, agricultural economist in the University of Kentucky College of Agriculture, Food and Environment.
The safety net, also known as the crop insurance price guarantee, is established at the end of each February and based on futures prices for the December corn and November soybean contracts. The 2019 prices are $4 per bushel for corn and $9.54 per bushel for soybeans. These prices reflect a $0.04 increase in corn and a $0.62 decrease in soybeans compared to the 2018 price guarantees for both crops. The deadline to purchase revenue protection insurance is March 15.
“While revenue protection insurance will not cover all of the projected variable costs plus cash rent for either crop, producers are likely to lose $14 and $28 per acre on corn and soybeans, respectively, at the 85 percent coverage level,” Davis said.
Davis used an example farm’s actual production history yield of 185 bushels per acre for corn and 55 bushels per acre for soybeans, average total input costs and average cash rent prices in the estimated calculation. He said the risk protection provided by the insurance will vary based on each farm’s cost structure, actual input prices and cash rents paid, yields and the cost of the insurance.
More risk protection coverage comes at a cost, however.
At 75 percent coverage level, producers would take losses of $46 per acre of corn and $63 per acre for soybeans. At the 80 percent coverage level, producers would lose $14 per acre with corn and $41 per acre with soybeans.
“As managers consider the coverage levels purchased for 2019, they must first take stock of their farm’s financial strength and the availability of working capital to absorb a loss,” Davis said. “If working capital is limited, grain managers may want to consider increasing their coverage levels to protect their ability to cash flow this fall if there is a yield loss or price drop.”
Davis encouraged grain producers who plan to sell their crops at harvest time to lock in a price for their grain before harvest.
“If we have large corn and soybean crops in 2019, they will contribute to lower prices this fall and create profitability and cash flow challenges,” he said. ∆