Grain Market Viewpoint

Pricing Corn vs. Insurance

Lots of questions as of late in regards to pricing bushels with such a good Spring insurance guarantee in place.  Just remember the $5.65 Spring revenue price guarantee is NOT our floor.  Below are a few examples: Each scenario is figured off a 180 bushel aph and a revenue insurance price of $5.65. (All numbers rounded to the nearest penny.)

Producer (A) has a 180aph with 85% coverage: 180aph x 85% = 153 bushel guarantee; or 153 bushels x $5.65 revenue guarantee = $864.45 per acre. If you produce your 180 bushel aph, then $864.45 per acre divided by your 180 yield = $4.80 per bushel. Meaning prices have to go below $4.80 for you to collect a payment.  If you produce more than you aph, say 190 bushels, then you will have a $4.55 floor; produce 200 bushels and your floor is $4.32.

Producer (B) has a 180aph with 80% coverage: 180aph x 80% = 144 bushel guarantee; or 144 bushels x $5.65 revenue guarantee = $813.60 per acre. If you produce your 180 bushel aph, then $813.60 per acre divided by your 180 yield = $4.52 per bushel.  If you produce more than you aph, say 190 bushels, then you will have a $4.28 floor; produce 200 bushels and your floor is $4.07.

Producer (C) has a 180aph with 75% coverage: 180aph x 75% = 135 bushel guarantee; or 135 bushels x $5.65 revenue guarantee = $762.75 per acre. If you produce your 180 bushel aph, then $762.75 per acre divided by your 180 yield = $4.24 per bushel. If you produce more than you aph, say 190 bushels, then you will have a $4.01 floor; produce 200 bushels and your floor is $3.81.

Make sure you talk over the specifics with your crop insurance agent. I just want everyone to know and understand you do NOT have $5.65 floor in place. As you can see a lot will hinge on your total production and percent of coverage. From where I sit, if you have 85% coverage and the crop isn't looking so hot I would be apprehensive to price any additional bushels at this time. From my math I see very little additional downside risk with DEC13 prices trading at sub-$5.00 levels. On the other hand for those with less coverage and a good crop, you are looking at an entirely different scenario, and may have another $1.00 of downside exposure. Moral of the story, it might be tougher than you think to collect on this so called revenue insurance "guarantee," unless you have some serious crop failures. Don't fall asleep at the wheel thinking you are covered. Make sure you are talking over specifics with your individual advisors.

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Kevin is a leading expert in Agricultural marketing and analysis, he also produces an award-winning and world-recognized daily industry Ag wire called "The Van Trump Report." With over 20...
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