Harvest Price Option Triggers for Soybeans, Corn and Cotton

John Newton, Ph.D., American Farm Bureau Federation

Reviewing 2020 Crop Insurance Prices and Coverage

Adverse weather prior to and during harvest and the strong pace of export sales have pushed harvest prices for soybeans, corn and cotton crop insurance policies higher than the spring prices discovered earlier this year, according to recently released data from USDA’s Risk Management Agency. This is the first year since the drought year of 2012 that the harvest price option has been triggered for corn, while it is the first time since 2016 this option has been triggered for soybeans and cotton. Today’s article reviews 2020 crop insurance coverage and prices.

Crop Insurance Coverage During 2020

During 2020, nearly 76 million acres of soybeans, more than 84 million acres of corn, and nearly 12 million acres of cotton were covered by crop insurance, accounting for approximately 91% of soybean acres, 93% of corn acres and 97% of cotton acres planted in the U.S., respectively. In total, more than $6 billion in premiums were paid to cover nearly $75 billion in liabilities under crop insurance.

The most popular insurance election by growers is the revenue protection policy with the harvest price option. More than 69 million acres of soybeans, 77 million acres of corn and more than 10 million acres of cotton were covered by these policies.

Harvest Price Option Triggers

Harvest price option policies have an indemnity function that utilizes the maximum of the spring or harvest price to determine if a farm has suffered a loss and may assist growers by indemnifying at the replacement value of the crop (if the harvest price is greater than the spring price).

Spring prices for corn, soybeans and cotton are determined by averaging the new-crop futures contract settlement prices (December for corn and cotton, November for soybeans) during the month-long February price discovery period. Harvest prices are determined by averaging the same new-crop futures during the month-long October price discovery period.

The spring prices announced in March 2020 were $9.17 per bushel, $3.88 per bushel and 68 cents per pound for soybeans, corn and cotton, respectively. At the beginning of November, USDA’s Risk Management Agency announced the harvest prices for soybeans, corn and cotton at $10.55 per bushel, $3.99 per bushel and 69 cents per pound, respectively. For soybeans and corn, 2020’s harvest price is the highest since 2013. For cotton, the harvest price is above 2018, but below 2018’s 77 cents per pound.

For soybeans, the harvest price was $1.38 per bushel, or 15%, above the spring price. For corn, the harvest price was 11 cents per bushel, or 3%, above the spring price. For cotton, the harvest price was 1 cent per pound above the spring price. Spring and harvest prices are presented in the following figure.

Expand Image

Summary

Adverse growing conditions prior to and during harvest and strong export commitments for soybeans and corn pushed crop insurance harvest prices are above the spring prices. The harvest prices for soybeans, corn and cotton at $10.55 per bushel, $3.99 per bushel and 69 cents per pound, respectively. For those who suffered a revenue or yield decline this crop year, the higher harvest prices allow for crop insurance to indemnify at the replacement value of the crop.





Be the first to comment

Leave a Reply

Your email address will not be published.


*