Every year, the USDA Risk Management Agency calculates crop insurance guarantees for the upcoming season based on futures prices during the month of February. Applying the same pricing formulas, Gro has taken an early look at the calculations so far this month.
Gro forecasts US crop insurance guarantees will surpass last year’s high levels. The guarantees also will lend greater support nationally for planting soybeans over corn, although many other factors also figure in farmers’ planting decisions.
Crop insurance is a key risk-management tool for farmers. When the insurance guarantee price is combined with a farmer’s yield history, the farmer can determine the level of revenue protection available during the upcoming crop year. This also allows growers to determine the profitability of one crop over another.
Crop insurance guarantees are calculated using two sets of figures. First is the spring projected base price, which is the average of futures closing prices during February. This can later be revised by the fall harvest price, which uses the same futures prices averaged during the following October.
The 2022 spring projected base price as of Feb. 23 is 588.6 cents per bushel for corn and 1432.4 cents/bushel for soybeans. These figures, which could change as the month closes out, represent a 28% and 20% increase from last year’s corn and soybean base prices, respectively, and are the highest values since 2011 for corn, and quite possibly a new base price high for soybeans.
The ratio between the soy and corn base prices (known as the S X/C Z ratio or the November soybeans/December corn ratio) is one of the many economic indicators farmers watch when deciding to plant one crop versus another. Using the Feb. 23 projected basis price, the soy/corn ratio currently stands at 2.43, below last year’s 2.59 reading at the end of February.
Based on historical trends, a soy/corn ratio of 2.33 is the switching point, with values above that level favoring soybeans and below that level favoring corn. But the absolute level of prices can be just as important, as high prices could prompt increased seedings of both crops.
Over the past 10 years, corn and soybean plantings ranged from 170-180 million acres, and Gro predicts 2022 figures will match or exceed the top end of that range. Last year, US farmers planted 87.2 million acres of soybeans, and 93.4 million acres of corn.
Local prices also figure prominently in a farmer’s decision-making process and are a key input in Gro’s US Planting Intentions Model. Farmers also consider crop rotation schedules, soil makeup, and other environmental elements in their planting decisions. As US spring planting approaches, Gro’s Planting Intentions model and Crop Budgets application will allow users to combine the latest revenue and costs data with historical relationships in order to gauge the most likely planted area estimates for numerous crops.
Join Gro’s research analyst team for our March 3 webinar, What Will Farmers Plant in 2022?, to hear our predictions for US planting intentions for the upcoming season, weeks ahead of the USDA’s Prospective Plantings report.