CROP INSURANCE UPDATE 2015 Spring Edition

February 2015

2015 Outlook What a difference a few years make. In 2013 prices were holding strong as the market attempted to ration the drought-shortened supply of grain produced in the US. Demand for grains were trimmed slightly (mainly export) as high prices did their job. This was followed in 2014 by record corn and soybean production. The net result was the most bearish item to price, increasing stocks. When ending stocks are increasing, price does not have to increase. After seeing prices drop 20 to 40% in 2013 and another 5 to 10% in 2014, the outlook for 2015 has a lot of crop budgets showing red. It is also giving producers little to be excited about as we approach Feb. The beginning of Feb price discovery period has started with Mpls wheat at $5.75, corn at $4.01, and soybeans at $9.45. A far cry from the levels seen the past few years. But with that being said, all of the grains have seen tremendous pressure the past 6 weeks and all are poised for a short term recovery. Wheat staged a decent recovery toward the end of 2014 and appeared to be looking at having a decent start to 2015. That changed in the middle of December as old crop wheat demand remained stagnant due to a strong US dollar (at 10 year highs) as well as from improving weather conditions for much of the Southern Plains. Not even a lower planted winter wheat acreage report was enough to help wheat (5% reduction from 2014). Wheat did see some supportive news as both December and January’s crop progress report showed a crop that was declining in ratings. The combination of lower acreage and declining conditions should help support wheat, at least through the spring as the market tries to buy spring wheat acreage. The fundamental outlook for corn has been showing small signs of improving since Oct. USDA has decreased corn ending stocks in the past few reports by either reducing production or by increasing demand, or a combination of both. The result has been a small reduction in corn ending stocks, now estimated at 1.8 BB (from 2.3 BB). Combine this with the expectation of lower 2015 planted corn acreage (3 to 5 million which could amount to 500 to 800 MB lower production) and you have a market that really does not have to see much of a price decline. It might be that corn has to push higher just to continue to secure acreage. It does not hurt that the livestock industry is expanding, which should help expand corn feed demand. That being said, corn doesn’t need to rally much either. Look for corn’s range to be a little tighter than the past few years. The market that has the darkest outlook would have to be soybeans. After virtually running out of soybeans in 2013, producers responded by producing a record soybean crop in 2014 and propelled soybean ending stocks from a dismal 92 MB to 410 MB. Soybean export demand has been at a record breaking pace with shipments almost running at par with sales. This has shown just how strong the export demand has been as well as how much the soybeans are needed. Soybeans negative tone comes from expectations that 2015 acres will increase 3 to 4 million. This could add an additional 135 to 180 MB to soybean’s ending stocks estimate, putting stocks closer to 550 MB. 2015 is going to have its challenges and there will very likely be opportunity to price at decent levels. The biggest obstacle will be weather. Production will be very dependent on what Mother Nature throws at us. Could there be another drought? Dry conditions are a concern as most of the West Coast continues to be in the grips of a drought. On top of that, the dry conditions in the Southern Plains seem to be expanding north and east. Current weather patterns are showing moisture patterns that are by passing the major growing region of the Northern Plains. The spring outlook does not appear to be robust, but there are enough issues that could affect 2015 production so it is going to be an important year to make the right decision on crop insurance. Right now it is a good bet that the spring revenue prices will fall below cost of production, but producers need to look at what coverage best fits your operation and your risk tolerance.

Supplemental Coverage Option (SCO) SCO will be available starting in crop year 2015 for barley, corn, soybeans and wheat in selected counties. This is an endorsement that sits on top of your existing RP policy. It covers the gap from where your RP coverage ends up to 86%. SCO is subsidized at 65% of the gross premium.

Beginning Farmer and Rancher Benefits A beginning farmer and rancher (BFR) is someone who has actively operated and managed a farm or ranch, with insurable interest in any crop or livestock, for less than 5 crop years. An insured may exclude crop years from consideration if the insurable interest in the crop occurred: 

While the BFR was under the age of 18.

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While the BFR was in post-secondary studies.

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While the BFR was on active duty in the U.S. military.

BFR Benefits: 

Exemption from paying the administrative fee ($300/crop for CAT, $30/crop for additional coverage).

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An additional 10 percentage points of premium subsidy. For example, the subsidy for 75% RP enterprise unit coverage is 77%. A BFR would receive a subsidy of 87%.

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The Yield Adjustment (YA) option will use 80% of the T-yield instead of the current 60% of T-yield.

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Allows the use of yield history from another farming operation in which the BFR shared decision making or physical involvement.

A BFR application must be completed by March 15. If the policy is a spousal policy, each spouse will need to complete a separate BFR application. Evidence must be provided for years being excluded, such as a driver’s license, college transcripts or military records.

SCO is an area type of coverage. If the overall county has a loss, you will have a claim. If you have an individual loss but the county does well you will not receive a payment. You cannot purchase SCO if you elect ARC at FSA for the same farm number/crop.

Native Sod Insurability Changes Important

Native sod is acreage that has never been tilled or the insured cannot prove the ground has ever been tilled for the production of an annual crop.

Dates to

New procedures apply for crop year 2015:

Remember

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To native sod acreage tilled for production of an annual crop after February 7, 2014, in all counties in Iowa, Minnesota, Montana, Nebraska, North Dakota and South Dakota.

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For native sod acreage greater than 5 acres.

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Until the native sod acreage has 4 crop years of planting and;

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To native sod acreage, regardless of whether the acreage is later transferred to a different person during the first four crop years.

March 15– Sales Closing Deadline April 29– Production Reporting Deadline July 15—Acreage Reporting Deadline September 1—Billing Date

The following reduction of benefits will apply the first 4 years an annual crop is planted on native sod: 

The crop insurance guarantee will be determined using 65% of the T-yield. Production must be reported but will NOT be used in the APH for the first 4 years.

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Premium subsidy will be 50 percentage points less than the premium subsidy that would usually apply. For example, 75% RP coverage with EU has a subsidy of 77%. The native sod ground would only receive of subsidy of 27%.

October 1– Interest Attaches

Beginning the 5th year, actual yields from acceptable production records will be used to establish an APH database. Note that you can choose not to insure native sod the first year. But you are require to insure it after year one. The only way to avoid the reductions listed above is to either plant the native sod to a minor crop you don’t insure or to forage. Forage seeding and forage production are exempt from these rules. There are no changes to land coming out of CRP. In year one the land receives 100% of the T-yield. In year two and beyond normal APH rules apply.

Conservation Compliance Starting with the 2016 crop year, producers must comply with conservation compliance requirements or they will be ineligible for the premium subsidy for federal crop insurance. Producers out of compliance can have crop insurance, but they will pay full, unsubsidized premium. For example, 75% RP with enterprise units is subsidized at 77%.

Contact Us

An AD-1026 form must be on file at FSA by June 1, 2015 to be eligible for the 2016 crop year premium subsidies. Unless specific exemptions apply, a producer must:

Fargo, ND 58103

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Be in compliance with a NRCS-approved conservation plan for all highly erodible land;

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Not plant or produce an agricultural commodity on a wetland converted after February 7, 2014; and

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Not have converted a wetland after February 7, 2014, to make possible the production of an agricultural commodity.

Progressive Ag 417 38th St SW

800-450-1404 701-277-9210 Fax: 701-277-9248 www.progressiveag.com

Actuarial Changes Corn—NI Grain Corn added in Adams, ND and Perkins, SD. Dry Beans—Enterprise Units now available. Cranberry type added to ND counties Pembina and Walsh. Tebo type added to ND counties Barnes, Steele and Walsh. BTS (Black) type added to MN counties of Big Stone, Douglas, Lac Qui Parle, Morrison, Todd and Wadena. Dry Peas—Enterprise Units now available. Potatoes—Contract pricing now available for certified organic potatoes. Added Processing Quality (PR) option to 17 ND counties. T-yields changed significantly for MN and WI—see the list under “News” on our website. Soybeans—Coverage now available in ND counties Divide, Grant and Stark. Sugar Beets—Insurability statement added for MN and ND: Insurance will not attach on acreage in any crop year following discovery of root aphids unless planted to a root aphid tolerant variety approved by the contracting sugar beet company.

Coverage Levels By Practice

Enterprise Units by Practice

Coverage levels may now be elected separately by practice. For example, IRR corn could be insured at 65% RP, while the NI corn could be insured at 75% RP.

Enterprise units also may now be chosen by practice. If you choose EU at sales closing, all acres of the crop will be one enterprise unit. If you choose EP at sales closing, you will have one enterprise unit for the IRR land and a separate enterprise unit for the NI land.

Both practices must have the same plan of coverage (both must be RP or both must be YP). You cannot choose CAT for one practice and buy-up for the other practice. While you may rarely have an IRR bushel loss, please note that lowering your IRR coverage level could take you out of consideration for a revenue only loss.

Each practice must qualify on their own for enterprise units: Each practice must be in a minimum of 2 sections and have a minimum of 20 acres or 20% of the crop acres in those two sections. You cannot choose optional units for one practice and enterprise units for the other practice. Also, please note that the size of the enterprise discount is based on the number of acres you plant. If you choose EP, the enterprise discount will be based on the total acres for that practice.

Yield Exclusion Yield exclusion (YE) is a new option for the 2015 crop year for corn, soybeans, wheat, barley, canola and sunflowers in selected counties. With this option, eligible actual yields may be excluded from the APH database. Yields can be removed if the county yield is at least 50% below the average of the previous 10 consecutive crop years. 2014 yields cannot be excluded for the 2015 crop year (there will always be a lag year). Yields from 1994 and prior are not eligible for exclusion. Listings of the yields eligible for YE are available at: www.rma.usda.gov/news/currentissues/aph/. You must elect the “YE” option on your application by March 15 and all qualifying yields will be removed. You will then have until April 29 to request that any excluded yields be added back to the database. A crop year that has been determined eligible for exclusion will also be eligible for exclusion in contiguous counties. So it is quite possible that choosing “YE” will remove good yields from your database. If you choose the “YE” option, you must review your entire APH before April 29. Also note that excluded yields will affect the trend adjustment calculations. When a yield is excluded it is NOT considered for TA purposes. To qualify for TA, you must have at least one yield in the four most recent crop years. To qualify for 100% of the trend adjustment the APH must have four or more actual yields out of the previous 12 years.

2015 APH Price Elections

2015 RP & YP Base Price Estimates

The following are APH plan price elections as of February 2, 2015. RMA may release additional price elections before March 15.

The following are RP and YP base price estimates through February 6, 2015. Official base prices will be released in early March. Dry bean and dry pea estimated prices are not available at this time. Price estimates will be updated every Friday on our website.

Crop

2015 Price

2014 Price

Crop

2015 Price Est. 2014 Price

 Great Northern

$0.30

$0.32

Barley

$3.49

$4.03

 Light Red Kidney

$0.40

$0.40

Canola

$0.159

$0.184

 Pink

$0.26

$0.31

Corn

$4.13

$4.62

Flax

$9.30

$12.70

Dry Beans:

Hybrid Seed Corn

$3.74

$4.65

 Black

$0.30

Oats

$2.60

$2.70

 Dark Red Kidney

$0.53

 Navy

$0.34

 ND and MN

$7.75

$7.95

 Pinto

$0.30

 MO

$11.60

$10.25

Dry Peas:

 WI

$8.80

$9.20

 Lentils

$0.17

 Sm. Green & Yellow

$0.12

 MN

$260.00

$250.00

Soybeans

 WI

$220.00

$190.00

Sunflowers:

Sugar Beets

$44.00

$40.00

Dry Beans:

Potato:

Snap Beans:

Sweet Corn:

$9.58

$11.36

 Confection

$0.263

$0.274

 Oil

$0.167

$0.209

 MN

Max contract $171

Wheat:

 WI

Max contract $157

 Durum

$6.36

$7.25

 Spring

$5.89

$6.51

YP vs. RP vs. RPHPE Reminder 

Yield Protection (YP) - The guarantee is based on the spring price. There is no harvest price. Production to count is multiplied by the spring price. You must have a bushel loss on YP to receive a loss payment.

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Revenue Protection (RP) - The guarantee is based on the higher of the spring price or harvest price. The production to count is multiplied by the harvest price.

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Revenue Protection with the Harvest Price Exclusion (RPHPE) - The guarantee is based on the spring price. Production to count is multiplied by the harvest price. If you choose RPHPE coverage in a year where the harvest price is higher than the spring price, you may have a bushel loss and still not receive a claim payment due to the higher harvest price.