Source: John D. Anderson, Deputy Chief Economist, American Farm Bureau Federation
USDA released their latest World Agricultural Supply and Demand Estimates (WASDE) update last week. As usual, most of the market’s focus was on the monthly update of grain supply and use tables, particularly corn. On that point, adjustments were fairly minor. In response to slow May planting, USDA dropped projected 2013 corn yield to 156.5 bushels per acre – 1.5 bushels below last month’s estimate. With no change in projected acreage, the effect of the reduced yield was to drop production by 135 million bushels to 14.005 billion, still a massive crop by historic standards. Of course, the question that will continue to circulate in the market over the next couple of weeks is “What will the final planted acreage be?” There was little chance that USDA would revise this month’s acreage estimate in advance of the survey-based June 28 Acreage report, but just about everyone expects that report to revise acreage expectations to some degree. Trade estimates are being formulated now, but it appears that estimates will range from about a million to as much as five or six million acres below the current 97.5 million.
The fairly wide discrepancy in expectations about corn acreage reflects uncertainty over how farmers have responded to significantly delayed planting. It is instructive to consider the options that are available to farmers under the terms of individual crop insurance. Farmers purchasing crop insurance above the catastrophic level of coverage are able to get coverage against prevented planting. That is, they can receive an indemnity if conditions prevent them from being able to plant their crop by the final planting date defined in their policy. They can receive an indemnity, but they don’t have to. Farmers who do not have their crop planted by the final planting date actually have three basic options. First, they can go ahead and plant the crop late. During what is called the late planting period – typically the next 25 days beyond the final planting date – the crop insurance guarantee is reduced by 1% for every day that planting is delayed. Beyond the end of the late planting period the insurance guarantee is the same as the prevented planting payment would be (i.e., 60% of the original crop insurance guarantee). Second, they can plant a different crop after the end of the late planting period. For corn, of course, that second crop would in all likelihood be soybeans. Finally, they can plant nothing (or a cover crop) and receive a full prevented planting indemnity, which generally amounts to 60% of the crop insurance guarantee.