1. Risk Environment for Agriculture
Ag. Credit School
Ames, Iowa
June 2, 2015
Chad Hart
Associate Professor/Crop Markets Specialist 1 1

2. Iowa Corn Prices vs. Costs

3. Iowa Soybean Prices vs. Costs

4. Iowa Corn Costs Overall 75% increase 88% 26% 88% 46%
Source: AgDM A1-21

5. Iowa Soybean Costs Overall 69% increase 88% 14% 56% 72%
Source: AgDM A1-21

6. Crop Prices for the Next Decade
Source: USDA-ERS

7. GDP Growth
Source: USDA-ERS

8. U.S. Crude Oil Prices
Source: USDA-ERS

9. World Corn Markets
Source: USDA 9 9

10. Crop Insurance One of many risk management strategies
Traditionally set up to protect farmers in times of low crop yields
Now offers coverage for low prices
Available on over 100 commodities

11. Causes of Loss for Iowa Corn, 1948-2010

12. Causes of Loss for Iowa Soy, 1955-2010

13. Corn Acres Insured in 2014
87% of all
corn acres
are insured

14. Soy Acres Insured in 2014
88% of all
soybean acres
are insured

15. 2014 Corn and Soy Coverage Levels

16. PLC: Corn Payment Potential
Reference Price = $3.70 per bushel
Payment Yield = 150 bushels per acre
Marketing Year Price ($/bu)
PLC Payment Rate ($/bu)
PLC Payment ($/base acre)
$3.10
$0.60
$76.50
$3.20
$0.50
$63.75
$3.30
$0.40
$51.00
$3.40
$0.30
$38.25
$3.50
$0.20
$25.50
$3.60
$0.10
$12.75
$3.70
$0.00
For PLC, the payment rate is the difference between the reference price and the maximum of either the marketing year average price or the loan rate (if the difference is negative, then the payment rate is zero). Take the payment rate times the payment (or base) yield times 85% to get the PLC payment per base acre.
Notes: PLC payments are made on 85% of base acres.

17. ARC-CO: 2014 Corn Revenue Guarantee
Year
Yield
MYA Price
ARC Price
2009
157.0
$3.55
$3.70
2010
186.0
$5.18
2011
187.0
$6.22
2012
163.0
$6.89
2013
156.0
$4.46
Oly. Ave.
168.7
$5.29
Here’s the 5 years of price and yield data for Hardin County, Iowa corn. The red numbers are the high and low ones that are not used in the Olympic average (remember the Olympic average throws out the high and low). Also, the price used in the average can not be below the reference price specified in the farm bill (in this case, $3.70 for corn). So as the black circle above shows, the price in 2009 was replaced by the reference price. So the 5-year Olympic average yield is bushels per acre. The 5-year Olympic average price is $5.29 per bushel. Combine the two to get the benchmark revenue of $ per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $ per acre.
Benchmark Revenue = $ per acre
ARC Revenue Guarantee = $ per acre
Notes: Revenue Guarantee equals 86% of Benchmark.

18. Supplemental Coverage Option (SCO)RP
RPHPE YP
For example, if a producer currently buys 80% RP, then SCO covers county losses between 80-86%. If the producer moves their crop insurance down to 70% RP (click to trigger the animation), then SCO coverage expands to 70-86% for the county.

19. PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not
The choice depends on where you expect prices and yields to be over the next 5 years. There are price/yield combinations where PLC pays and ARC does not. There are also price/yield combinations where ARC pays and PLC does not.

20. Thank you for your time. Any questions. My web site: http://www. econ
Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: