Net farm incomes could be considerably lower than projected above. To gain a feel for downside risks, worst case incomes are determined given the following:

  • Revenue Protection (RP) at the 80% coverage level is purchased for both corn and soybeans. Lower coverage levels would result in lower worst-case incomes.
  • Trend Adjusted Actual Production History (TA-APH) yields are 180 bu. for corn and 50 bu. for soybeans.
  • Projected prices used to set crop insurance guarantee are set at $6.10 for corn and $12.70 for soybeans. These projected prices will be determined at the end of February and have a critical importance in limiting downside revenue. Lower projected prices will lower worst-case net farm income scenarios.
  • Costs are assumed to remain constant and lower incomes result from lower revenues.

Given the above, the worst-case income is $43,000. A number of price-yield combinations can results in this $43,000 income. Holding yields constant at 187 bu./acre for corn and 54 bu. for soybean, the $43,000 worst case income would result with a $4.40 corn price and $9.10 soybean price.

Again, projected price used for crop insurance have a large impact on worst-case incomes. Worst-case incomes for lower projected prices are:

  • -$5,000 for projected prices of $5.70 for corn and $12.10 for soybeans
  • -$64,000 for projected prices of $5.20 for corn and $11.40 for soybeans

Worst-case income also depends on coverage level selected. For a $6.10 projected corn price and $12.70 projected soybean price, worst-case incomes for different coverage levels are:

  • $92,000 for an 85% coverage level (both corn and soybeans)
  • $43,000 for an 80% coverage level
  • -$5,000 for a 75% coverage level
  • -$53,000 for a 70% coverage level
  • -$101,000 for a 65% coverage level

Amount of land cash rented and cash rent level also impacts worst-case incomes. Impacts of rental arrangements on projected incomes will be examined in a future post at farmdocDaily.

 

Summary

Current price projections at harvest time in 2013 place prices at $5.80 for corn and $12.40 for soybeans. These prices likely would result in above average 2013 net farm income. These projected 2013 income also would be considerably above income projected using long-run prices. Overall, 2013 currently is projected as a good income year for crop farms. Worst-case incomes will be influenced by projected prices and coverage level choices. Likely projected prices will provide significant downside risk protection given that relatively high crop insurance coverage levels are selected.

 

Read the article at farmdocDaily.