Lower corn and soybean price volatility means lower crop insurance premiums

Consider more coverage, Kansas State University economist says

Amid tough circumstances farmers have faced the past couple of years with weaker crop prices and lower farmland values, a bit of potentially good news came to light in early February.

Indications are that crop insurance premiums on corn and soybeans will be lower for farms in lower risk production counties for the coming year based on information released in early February by the U.S. Department of Agriculture’s Risk Management Agency, according to Kansas State University agricultural economics professor Art Barnaby.

RMA has started posting February prices and volatilities that will set corn and soybean insurance coverages and premiums in Kansas and other Corn Belt-area states. The February average price for December 2018 CME corn futures will set the base price for crop insurance.

The current estimated base price is about the same as last year’s base price and will provide about the same dollars of coverage, Barnaby said. However, current volatility is four points lower for corn and three points lower for soybeans.

The lower volatility will discount corn rates over 20 percent in low risk counties so these farmers will be able to buy about the same level of coverage as they did a year ago, but pay 20 percent less in premiums. In high-risk production counties, the discount is small; less than 3 percent.

Current volatility could change because it is not set until the last five trading days in February for December CME corn options. The current volatility for corn is the lowest since 1999 and soybean volatility is also at historic lows.

“Because the lower volatility will lower premiums, farmers might want to consider buying higher levels of crop insurance,” Barnaby said, noting however that it’s still possible for volatility to increase by the end of February, so most farmers will want to wait until March 1 to make a final decision.

Barnaby outlined details in a Feb. 2 web posting at http://bit.ly/2nERBVx. He will also provide more detailed information in a presentation at a series of upcoming meetings on the 2018 farm bill planned in locations across Kansas and Nebraska. More information is available at www.agmanager.info.