Agriculture
Important PRF-RI Insurance: Choosing Months for Coverage
2024-11-22
Pasture, Rangeland, and Forage Rainfall Index Insurance (PRF-RI) stands as an underappreciated insurance product within the Midwest's livestock and forage production sector. As highlighted in the Farmdoc Daily article from Oct. 9, 2024, one distinctive feature of PRF-RI is that producers have the autonomy to select the months they wish to insure against low rainfall. This flexibility enables the safeguarding of various forage production systems that thrive at different times throughout the year. Enrolling in different months throughout the year not only influences the total premium paid by producers but also determines the amount and frequency of indemnities received and, ultimately, the extent to which forage production risk is managed.

Secure Your Forage Production with PRF-RI

Background: Unraveling the Determinants of PRF-RI Premiums

The USDA Risk Management Agency (RMA) sets PRF-RI insurance premiums with the aim of achieving actuarial fairness. Over time, the indemnities paid out from PRF-RI are intended to approximately equal the premiums collected. Premiums typically rise as the frequency and magnitude of indemnity payments increase. Consequently, PRF-RI premiums vary based on factors such as the per-acre value insured, the selected two-month intervals, and the chosen coverage levels. These factors impact both the size and likelihood of an indemnity payment. PRF-RI is subsidized, meaning that producer-paid premiums (premium less subsidy) are generally lower than indemnities on average. The subsidy levels depend on the coverage level selected, with 70% and 75% policies receiving a 59% premium subsidy, 80% and 85% policies getting 55%, and 90% policies receiving 51%.In Illinois, Figure 1 presents the average producer-paid premiums for two PRF-RI intended uses in 2024: hay (non-irrigated, conventional) and grazing. For each use, premiums are shown for 90% and 85% coverage levels, with variations based on two-month intervals. Dryland hay generally has higher premiums per acre compared to grazing due to the higher value of production and the increased total value of protection. Higher coverage levels also lead to higher premiums due to the greater probability of an indemnity being triggered and the higher value of protection. The differences in premium amounts among two-month intervals result from variations in rainfall variability. Months with higher variability, such as January/February, September/October, and November/December, have higher premiums due to the increased likelihood of an indemnity payment.

Exploring PRF-RI Interval Enrollment Strategies

From a pure profit-maximization perspective, some may suggest enrolling in months with the highest rainfall variability to leverage the subsidy and maximize the chance of receiving an indemnity. In Illinois, these high variability intervals are typically January/February, September/October, and November/December, although the specific intervals may vary by location. However, when considering such a strategy, one must also take into account the overall risk related to rainfall and forage production. If a lack of rainfall in these highly variable months has minimal impact on forage growth, enrolling only in those months may increase the risk of not receiving an indemnity when forage growth is lost.To illustrate this, the PRF-RI decision tool was used to outline the outcomes of two potential enrollment strategies. The "Profit Maximization" strategy involves spreading the percentage of value insured across the three intervals with the highest rainfall variability in Illinois: 33% in January/February, 33% in September/October, and 34% in November/December. The "Risk Management" strategy, on the other hand, distributes the percentage of value across intervals coinciding with the typical Midwest growing season: 33% in March/April, 33% in May/June, and 34% in July/August. It is important to note that these strategies are for illustrative purposes only and may not be the optimal choices for all producers or locations. By exploring the PRF-RI policy outcomes using Grid ID 24168 in Champaign County for non-irrigated and conventional hay production at a 90% coverage level, it was found that the "Profit Maximization" strategy led to a higher average indemnity of $50/acre compared to $38/acre for the "Risk Management" strategy. Additionally, the 2025 premiums were higher for the "Profit Maximization" strategy due to the higher expected indemnity. When considering premiums and subsidies, the "Profit Maximization" strategy resulted in an average net gain of $19/acre for producers, while the "Risk Management" strategy yielded an average net gain of $13/acre.PRF-RI is designed to provide risk protection against the loss of forage growth due to low rainfall. Therefore, it is crucial to examine how much risk each strategy manages. Table 1 shows the correlation coefficient between indemnities each year and the Illinois state-level average hay yield. Correlation coefficients range from -1 to 1, with values further from zero indicating a stronger correlation. For the "Profit Maximization" strategy, the correlation between indemnities and state-level hay yields is close to zero, suggesting that there is little relationship between the indemnities and hay yields. In contrast, the "Risk Management" strategy indemnities are more correlated, with a coefficient of -0.4. This indicates that when an indemnity occurs from the "Risk Management" strategy, it is likely to occur in years with low yields. Another way to assess this is by examining the outcomes in a particularly low yield year, such as 2012, which was one of the worst drought years in recent history. During 2012, the "Profit Maximization" strategy provided a $50/acre indemnity, while the "Risk Management" strategy offered more than double that amount at $116/acre. This highlights the importance of selecting months that align with when rainfall is beneficial for forage growth to provide better risk protection.

PRF-RI Interval Enrollment in Illinois

Figure 2 depicts the proportion of Illinois grazing and dryland hay acreage enrolled in each two-month interval in 2024. The two most popular intervals for both types of forage are August/September and November/December. However, there is significant variation, with coverage placed in all intervals.

Concluding Thoughts

Livestock and forage producers should seriously consider PRF-RI. Overall, the use of PRF-RI offers a means to reduce the risk associated with inadequate rainfall in forage and hay production. Due to premium subsidies, indemnity payments should exceed the producer-paid premium over time. The "best" enrollment strategy for a producer depends on their risk aversion preferences, overall risk exposure from a lack of rainfall, types of forage systems, and other factors. Producers are encouraged to utilize the USDA RMA's interactive decision tool for PRF-RI to explore policy options and historical outcomes and find the policy that best meets their specific needs.For those new to enrolling in PRF-RI, the enrollment deadline for the 2025 year is December 1, 2024. PRF-RI insurance can be purchased through any authorized crop insurance agent, and the premium payment deadline is September 1 of the following year, so premiums do not need to be paid upfront.
South America's Corn Acreage: Stable in Brazil, Steep Drop in Argentina
2024-11-21
Corn production in South America's two major agricultural countries, Brazil and Argentina, is set to follow distinct trajectories during the 2024–2025 crop season. Brazil is expected to increase production while cutting exports, while Argentina is projected to see a significant drop in corn acreage due to disease concerns. This article delves into the latest forecasts and examines the factors influencing these trends.

Uncover the Future of South American Corn Production

Brazil: Steady Acreage, Changing Exports

The Brazilian food agency, Conab, has raised its estimate for the 2024–2025 corn crop to 4,717 million bushels, a 3.6% increase from last year. Corn acreage for Brazil's first, second, and third crops is expected to remain stable at 52 million acres. Field activities for the first corn crop are underway, with 52% of the area already planted by November 17, ahead of the same period last year. This season, farmers are allocating 9.3 million acres to the first crop, with production projected at nearly 897 million bushels, a slight decrease.The second corn crop acreage is expected to stay at 41 million acres, with production projected to reach 3,725 million bushels, a 5% increase over the previous harvest. However, Brazil has significantly reduced its corn exports in 2024. Between January and October, exports were 27% lower than last year, and the National Association of Cereal Exporters projects total exports of approximately 1,614 million bushels for 2024. The recovery of supply in other major producing countries and the decline in Chinese demand have contributed to this slowdown.

Argentina: Disease-Driven Acreage Drop

Argentina's corn planted area is projected to decrease by 25% in the 2024–2025 crop season, equivalent to 6 million acres. The primary factor behind this decline is the devastating impact of corn stunt disease during the previous season. Many farmers lost their entire corn crop due to the bacterium spread by the leafhopper pest. This has made farmers cautious this season, and the loss in corn area will be covered by soybeans, which require lower investment.Argentinian farmers began planting their 2024–2025 first corn crop in September, facing concerns over dry conditions due to the La Niña phenomenon. However, recent rains have allowed them to make progress. By November 14, 39% of the expected crop had been planted, six percentage points ahead of last year. Argentina's corn exports for the 2024–2025 marketing year are projected to reach 1,417 million bushels, a 9% increase compared to the previous year, marking the highest export total since 2020–2021.

Final Considerations

Recent rainfall has improved growing conditions across South America, but the onset of La Niña introduces uncertainty. In Brazil, total corn acreage is expected to remain stable, with production projected to increase. In Argentina, corn acreage is forecasted to drop due to disease challenges. Despite this, Argentina is reasserting its position in the global corn market and may overtake Brazil as the world's second-largest exporter in the current marketing year.Corn Acreage in South America: Stable in Brazil, Sharp Decline in Argentina was originally published by Farmdoc.
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Illinois Century Farm Fetches $25,581 per Acre at Auction
2024-11-21
Discover the fascinating story of a 176-acre century farm sold at auction in Waterloo, Illinois. This unique property holds significant value and offers diverse opportunities for buyers. Let's delve into the details and explore the economic implications.

Uncover the Hidden Gems of Waterloo's Farm Auction

Sellers - A Family Legacy

In Waterloo, a 176-acre century farm changed hands at an auction on Oct. 29. The property was owned by sixteen family members, seven of whom were part of a trust under LaVerne Proctor. She passed away in December 2022, leaving behind this agricultural heritage. The remaining family members decided it was time to sell, marking the end of an era.

The trust and the family's connection to the land showcase the significance of this century farm. It represents not just acres of fertile soil but also the memories and stories of generations.

Buyers - Diverse Plans

The four buyers who acquired the land have distinct plans. Tract 1 buyer aims to build a home on the mostly tillable land with a scenic pond. Sold at $20,000 per acre for a total of $210,000, this tract holds the promise of a new residential development.

Tracts 2 and 3 were purchased by a private Christian school with plans to construct a new building. At $25,581 per acre for a total of about $550,000, this section of the property will serve a different purpose, adding educational value to the area.

Tracts 4 and 5 will continue to be farmed, with a buyer planning to maintain the agricultural operations. Sold at $21,121 per acre for a total of about $1.225 million, these acres will contribute to the local agricultural economy.

Tract 6 was purchased using a USDA Farm Service Agency (FSA) loan by a beginning farmer. Sold at $13,914 per acre for a total of about $1.198 million, this tract will be a new chapter in farming for the buyer.

Economic Analysis - Steady Trends

The sale of this property at about $3.18 million, averaging $18,075 per acre, is significantly higher than the 2024 state-wide average of $8,700 per acre. This indicates the unique value of this particular farm in Waterloo.

Brad and Brenda Chandler predicted the sale price within a few hundred dollars, showing their expertise in the market. Their recent sales in the same area confirm their hunch that farmland sales in the area are holding steady.

The Federal Reserve Bank of Chicago's November 2024 AgLetter also supports this trend. The seventh district, which includes Illinois, Iowa, Indiana, Michigan, and Wisconsin, had no year-over-year change in agricultural land values in the third quarter of 2024. This is the first period without an increase since the fourth quarter of 2019.

Data from the University of Illinois Farm Business Farm Management (FBFM) shows that 2024's average of $8,700 per acre is a 3.3% increase over 2023's average of $8,420. However, the increase has slowed compared to previous years due to factors such as rising interest rates and lower commodity prices.

Brad Zwilling, who compiled the data, explains that farmers' strong financial positions and record high incomes in 2021 and 2022 have supported land purchases. But with higher interest rates and lower returns, the trend is starting to slow.

About the Property - A Rural Gem

The land is located on the edge of Waterloo in Monroe County, directly east of the Waterloo Country Club. The county's plans to redirect a road along the farm's border will transform it into a dead-end public road, adding to the property's uniqueness.

The property is a mix of fertile, tillable cropland, picturesque views, and an older home. With taxes of $4,819.62 in 2023, it offers a balance of agricultural productivity and rural charm.

Each tract has its own characteristics. Tract 1 is mostly tillable with a scenic pond and an approved entry point. Tracts 2 and 3 are also tillable, while Tract 3 includes a farmstead and historic home. Tracts 4 and 5 have road frontage and established access. Tract 6 is mostly tillable with city limits on one side and a redirected road.

All acreage amounts are considered "more or less," adding to the charm and flexibility of this diverse property.

Produced in partnership with American Farmland Owner (AFO). AFO aims to help landowners make informed decisions for their farmland while ensuring the prosperity of American agriculture.
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