With producers evaluating marketing strategies and the looming March 15 insurance sales deadline, several trends are emerging. By monitoring these trends, producers may be able to refine their marketing plans for corn, soybeans and spring wheat. New crop futures prices are tallied during February and their average during the month determines the projected price for insurance purposes. In early February the futures prices for corn, soybeans and spring wheat were at higher levels than during February of 2016 (Figure 1). Thus, producers may have a greater incentive to implement pricing and protection strategies for the 2017 marketing year. Here are some additional crop-specific observations.
Figure 1. Projected Price by Crop
The pricing attention this year has been directed at soybeans, but corn remains relevant because of crop rotations and feed needs. The volatility level in early February is currently similar to last year, which was a historically low level (Figure 2). Thus, even if aggressive pricing is not attractive at this time, the cost of insurance premiums and options strategies would be manageable. For example, put options could be considered for uninsured bushels.
Corn insurance in South Dakota settles during October giving the harvest price at that time. Last year the insurance price fell from $3.86 in February to $3.49 in October. If harvest is later than October, a producer could face a type of basis risk relative to insurance. Any pricing or protection strategies should be monitored and potentially lifted or rolled in October to mitigate the disparity. Basis, the difference between the cash price and the futures price, was -$0.40 per bushel for South Dakota corn in October of 2016. The average corn basis was -$0.46 per bushel from 2012-2016. The average basis may reflect a state-level price to be received for 2017 relative to new-crop futures. Details on insuring corn can be found in Diersen (2016).
Aside from crop insurance, there are also WASDE and baseline price projections that give some indication of price trends. However, those projections are for the U.S. marketing year average (MYA) price. The South Dakota MYA corn price averaged 93% of the U.S. price from 2011-2015. NASS will soon release a preliminary MYA price, but it will only reflect the value of corn already sold this marketing year, which has averaged 52% of production by February. A futures-adjusted price at harvest would be comparable to a state-level MYA price after accounting for any storage expectations.
The absolute high price for soybeans has generated a fair amount of pricing interest by producers. The recent price changes have also resulted in large soybean to corn price ratio, which historically favors a high soybean to corn acreage mix in South Dakota at the time planting intentions are made. The volatility in soybeans in early February is higher than the level observed in 2016, but still at the low end of historical levels (Figure 2). Thus, protection strategies for unpriced bushels may be feasible.
Soybean insurance in South Dakota also settles during October. Last year the insurance price rose from $8.85 per bushel in February to $9.75 per bushel in October and the basis was -$0.84 per bushel. The average soybean basis was -$0.78 per bushel from 2012-2016, a level that may reflect a state-level price to be received for 2017 relative to new-crop futures.
The South Dakota MYA soybean price averaged 96% of the U.S. MYA price from 2011-2015. Typically by February 64% of South Dakota soybean production has been marketed. A disparity in the relationship compared to corn could exist because of different storage practices.
Figure 2. Price Volatility by Crop
The price of spring wheat has also increased recently, but its historic relationship among the mix of corn and soybean acres is weaker than that between corn and soybeans. The volatility in spring wheat in early February is below that observed last year, and historically low (Figure 2). Thus, both pricing and protection strategies in a wheat marketing plan may be more feasible compared to a year ago. If the higher price and lower volatility continue through February producers would likely see offsetting effects on insurance premiums.
Spring wheat insurance in South Dakota settles during August. Last year the insurance price fell from $5.13 per bushel in February to $5.04 per bushel in August and the basis was -$0.63 per bushel. The average spring wheat basis was -$0.58 per bushel from 2012-2016, a level that may reflect a state-level price to be received for 2017 relative to new-crop futures.
The South Dakota MYA spring wheat price averaged 103% of the U.S. MYA price for all wheat from 2011-2015. There is substantial variability in that ratio over time reflecting the value of different wheat classes. Typically by February 72% of South Dakota production of all wheat has been marketed reflecting its earlier marketing year compared to soybeans and corn.
Reference: Diersen, M. 2016. Chapter 7: Insuring Corn in South Dakota. In Clay, D.E., C.G. Carlson, S.A. Clay, and E. Byamukama (eds). iGrow Corn: Best Management Practices. South Dakota State University.