Crop Insurance Decisions for 2015

Abstract

The Risk Management Agency (RMA) has now concluded its price discovery period used to determined final prices and volatility factors for federally sponsored corn and soybean crop insurance products for 2015. For the majority of the Cornbelt, the approved Projected Price (PP) for corn is $4.15 and the volatility factor is .21. For soybeans, the Projected Price is $9.73 with a volatility factor of .16. For comparison, the 2014 prices and (volatility factors) were $4.62 (.19) and $11.36 (.13) for corn and soybeans respectively. The Projected Prices are used to determine the guarantee revenue indexes based on futures prices, and do not reflect local basis. The Projected Price for corn is determined by averaging the closing December futures price during the trading days of February, and for soybeans by averaging the November Futures closing prices during February. The volatility factors are determined by an average of the most recent five trading days' implied volatility estimates, scaled for the interval of time from now until the middle of October -the month during which average prices are used to determine Harvest Prices. For both corn and soybeans, the projected prices are lower than in 2014 which in turn were lower than 2013. The volatility factor summarizes the market’s estimates of the likelihood for price movements of various magnitudes, and has corresponding impacts on premiums paid for Revenue and Harvest Price related products. At the beginning of the insurance period this year, Projected Prices for soybeans are more than a dime below current futures prices while the Projected Price for corn is near current futures market prices. When actual futures prices are below the projected price, there is a somewhat increased likelihood for experiencing an insured revenue shortfall, and when actual futures prices are higher than the projected price, there is an increased likelihood that products with the harvest price option embedded will have an increase in guarantee value.