Spring Corn Crop Insurance Price not as Attractive as 2023
What’s happened….
By late February 2023, it became apparent that the average price of December corn during February would provide a historically high spring price used to determine the level of insurance coverage for corn producers. During February, December futures averaged $5.91. In part, this may be why corn acres increased by 4 million from 2022. With a high spring price, utilizing insurance and paying additional premium for more coverage made sense. It wouldn’t take a vivid imagination to anticipate that a big crop could drop futures to $5. In fact, the fall price (average of December futures in October) was $4.88.
This year, however, is a different story. The average price for December corn futures during February was $4.66. Farmers, when weighing their decisions whether to buy additional coverage, will probably not spend more dollars to protect a low February price. Expecting less acres was anticipated and proved true when, on March 28, the Prospective Plantings report indicated farmers will plant 90 million acres, down from 94.6 in 2023.
Why is this important….
Due to a low spring insurance price, using crop insurance as a lone marketing tool may not be in your best interest. To illustrate, let’s assume you have a normal yield in 2024. At 90% coverage, your price floor is near $4.20. Last year, at 90% coverage, the same comparison set a price floor of just under $5.32, a much more attractive price than is offered this year.
From a big picture perspective, however, this means it is important that farmers consider other marketing tools. Examples of such are forward contracting, hedge-to-arrive contracts, purchased puts, or a combination of purchased puts and sold calls.
What can you do?
Strong rally potential for corn prices (much above $5.00) without a weather market seems unlikely. Expected carryout (leftover supply on August 30, the end of the marketing year) near 2.4 billion bushels will be considered an adequate supply, which implies downside price risk. It was just a few weeks ago when the March 2024 corn futures contract was trading under $4.00. If projected supplies are larger than a year ago, a retest of $4.00 by harvest could be expected.
All the uncertainty that goes with producing crops lies yet ahead, suggesting price rallies can occur. If they do, shift risk using the right tool for your operation and risk tolerance. Take time to review marketing alternatives. Have focused conversations with your market advisor and implement strategies that work best for your farm operation.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
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Bryan Doherty