WSU economist: Crop insurance choice a ‘crapshoot’

Published 2:30 pm Wednesday, February 24, 2021

Wheat farmers this year won’t have a clear-cut choice between which federal crop insurance program will work best for them in the 2021-2022 marketing year, a small grains economist at Washington State University says.

One type of crop insurance is Price Loss Coverage — called PLC. A payment is triggered when the price of wheat is below $5.50 per bushel.

USDA projects the average wheat price will be at most $5.10 per bushel for the next decade, assuming stable production and demand.

“If this ends up being accurate, and it won’t, because it’s 10 years out, PLC will always make payments in the foreseeable future,” said Randy Fortenbery of WSU.

However, Kansas State University recently projected an average price of $5.80 per bushel for the 2021-2022 marketing year, and USDA projects $5.50 per bushel for the year after that.

That will make it difficult for farmers to decide between PLC crop insurance and the Agriculture Risk Coverage program, known as ARC, Fortenbery said. ARC provides income support tied to the historical base acres, not current production, of covered commodities, according to USDA.

To make matters even more confusing for farmers, there’s a 40% chance the price will be below the $5.50 per bushel target price next summer, but there’s also a 40% chance the price will be above $6.50 per bushel, he said.

“This year, right now, it really appears to be kind of a crapshoot between PLC or ARC is going to give us the strongest protection,” Fortenbery said. “It’s going to be a challenging decision and there is no real clear answer in my mind right now about which program is likely to be the most attractive.”

It comes down to whether a farmer lives in an area where county average yields have a lot of variability, he said.

“We’re right at that $5.50 benchmark, where it wouldn’t take much of a change one way or the other to change the attractiveness of one program over the other,” Fortenbery said. “It’s very early to try and predict which of those changes is most likely to happen.”

Fortenbery delivered his annual economic forecast Feb. 24 during the Spokane Ag Show, held virtually due to the COVID-19 pandemic.

Part of the reason wheat prices have recently risen is wheat is beginning to move into feed rations domestically and internationally because of high corn prices, he said. About 25% more wheat will go into feed this year than in 2020.

China ramped up its purchases of feed grain, including wheat, exceeding expectations as it rebuilds its livestock herds, particularly hogs, after a 50% loss due to swine fever in the past year.

Wheat acres have been declining steadily since 2013, and USDA predicts that will continue through the next decade.

This year may be the exception, Fortenbery said, as USDA predicts winter wheat planted last fall for the 2021 harvest is up about 1.6 million acres from the 30.4 million acres planted in 2020.

Ratification of the U.S.-Mexico-Canada agreement, Japan Trade Agreement and phase 1 of the China agreement does provide stability, Fortenbery said.

China did not meet its initial obligations in the first phase of the deal, but later bought a record amount of U.S. products, particularly in agriculture. Continued purchases will be an important contributor to U.S. farm income in 2021, representing 25% of total U.S. agricultural export volume.

Fortenbery called 2018 the most aggressive trade re-alignment and re-negotiation period in a century.

“We’d never approached attempting to renegotiate with all of our trading partners simultaneously since the 1900s,” he said. “We made some significant progress.”

The overall U.S. trade balance declined since then, with the country importing more than it exported. But for agriculture, exports have returned to 2015-2016 levels, Fortenbery said.

“For agriculture, we’ve really come out of the 2018-2019 period looking pretty good, and in fact the picture continues to improve,” he said.

Early projections in August forecast a $4.5 billion fiscal year agricultural trade balance. By November, the forecast had increased to $15 billion. Fortenbery said USDA’s current prediction is $19.5 billion, driven by a large increase in corn and soybean exports.

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