Author: William E. Maples

  • Crop Insurance Loss Ratio Trends Over Time

    Crop Insurance Loss Ratio Trends Over Time

    The Risk Management Agency (RMA) is responsible for rating crop insurance in an actuarially sound way. Unlike private insurance companies, RMA is not driven by profit when determining rates. Premium rates do not include the cost of sales, underwriting, loss adjustments, or the operating costs of RMA. Legislative language instructs that “the amount of the premium shall be sufficient to cover anticipated losses and a reasonable reserve[1].” RMA considers actual production history in the rating process, and rates are established independently of crop and geographic region. The loss experience of rice is not a factor when developing a premium rate for corn. Likewise, the loss experience of corn in Mississippi is not a factor when developing a premium rate for corn in Illinois. 

    The politics of crop insurance comes into play with the premium subsidy percentage amounts set by policy. Subsidy percentages are equitable across all crops, though, with each crop receiving the same subsidy percentage dependent on coverage level and unit choice. Total acres insured, coverage level, and premium rates all factor into the total amount of subsidies received by a crop. As seen in Figure 1., corn has received a total of $24.6 billion of crop insurance subsidies in the past decade, followed by soybeans at $14.9 billion. Rice and peanuts have total subsidy amounts of $617 million and $424 million, respectively, over the past decade.  

    Crop insurance performance is often judged by loss ratios. A loss ratio is simply calculated as indemnity payments divided by total premium. A loss ratio of 1.0 means that indemnity payments equaled total premiums. A loss ratio greater than 1.0 means indemnity payments exceed premiums, and a loss ratio less than 1.0 means total premiums exceed indemnity payments. The Risk Management Agency (RMA) is statutorily mandated to achieve a target loss ratio of 1.0. While loss ratios can fluctuate year-to-year, the national and crop-specific ratios have been trending down since 1989, as seen in Figure 2. Interestingly, many crops have trended down at similar rates. Rice, cotton, wheat, soybeans, and the national total have similar sloping trend lines. Corn has trended down but at a slower rate than the previously mentioned crops. Peanuts have seen the most dramatic decrease in the trend of any crop.    

    Figure 1. Total 10 Year Subsidy Amount by Crop, 2013-2022

    Source: USDA-RMA Summary of Business – Report Generator (usda.gov)

    Figure 2. U.S. Crop Insurance Loss Ratio Trends Over Time by Selected Crops, 1989-2021

    Source: USDA-RMA Summary of Business – Report Generator (usda.gov)

    [1] Coble, K. H., Knight, T. O., Goodwin, B. K., Miller, M. F., Rejesus, R. M., & Duffield, G. (2010). A comprehensive review of the rma aph and combo rating methodology: Final report. Prepared by Sumaria systems for the risk Management agency.


    Maples, William E., and Keith H. Coble. “Crop Insurance Loss Ratio Trends Over Time.” Southern Ag Today 2(34.4). August 18, 2022. Permalink

  • Soybean Acerage Higher in Southern States with Increased Price Outlook

    Soybean Acerage Higher in Southern States with Increased Price Outlook

    In 2022, soybean planted acreage is estimated to increase 9% in the southern United States (U.S.) with a total planted acreage of 14.76 million acres. Southern states are estimated to account for about 16% of the total soybean acreage planted in the U.S. in 2022. Table 1 shows the past five-year history of soybean acreage by state. In 2022, Arkansas is expected to lead leads the southern states at 3.25 million acres, followed by Mississippi at 2.35 million acres. All southern states, except for Oklahoma and South Carolina, are expected to increase acreage in 2022, when compared to 2021.  Soybean acreage in the south has substantially rebounded since 2019, when acreage was reduced due to low prices influenced by the US-China trade war. Soybean acreage across the south in 2022 is up 26 percent compared to 2019.

    The observed increase in soybean acreage is influenced by a positive price outlook. On May 12th, USDA released their monthly World Agricultural Supply and Demand Estimate (WASDE) report. The May WASDE provided the first USDA projections for the 2022/23 marketing year for soybeans (and other crops). In this report, USDA projects the national average farm price for soybeans in 2022/23 to be $14.40/bushel. If realized, this price would match the record high achieved in 2012. The positive price outlook is supported by higher exports and domestic crushing on the demand side, compared to 2021. The supply side calls for higher production due to increased acreage, which increases estimated ending stocks to 310 million bushels. However, with a stocks-to-use ratio of 6.76 percent, the overall market environment is supportive of higher soybean prices. 

    Even with the positive price outlook, it’s important for producers to have a marketing plan in place to take advantage of the current high prices in the market. The new crop soybean Nov’22 futures has been trending higher since January 12th, with a closing price of $15.12/bushel as of May 25th. While prices are currently high, we continue to see considerable price volatility and producers should familiarize themselves with available tools to mitigate price risk. Available tools for price risk mitigation include forward cash sells on portions of expected production or hedging using the futures market. Another tool to consider is forward pricing with options which was covered in a recent Southern Ag Today article by Dr. John Robinson with an application to cotton markets (Forward Pricing with Options on ICE Cotton Futures – Southern Ag Today).

    Table 1. Soybean Planted Acreage in U.S. Southern States, 2018-2022 (1,000 acres) 

    State20182019202020212022*
    Alabama345265280310350
    Arkansas3,2702,6502,8203,0403,250
    Georgia145100100140170
    Kentucky1,9501,7001,8501,8502,000
    Louisiana 1,3408901,0501,0801,200
    Mississippi2,2301,6602,0902,2202,350
    North Carolina1,6501,5401,6001,6501,800
    Oklahoma640465560580560
    South Carolina390335310395390
    Tennessee1,7001,4001,6501,5501,850
    Texas17580120110160
    Virginia 600570570600680
    Total 14,43511,65513,00013,52514,760
    * Estimate as of March 31, 2022 Prospective Plantings report.
    Source: USDA-NASS

    Maples, William E. . “Soybean Acreage Higher in Southern States with Increased Price Outlook“. Southern Ag Today 2(24.1). June 6, 2022. Permalink

  • U.S. Total Rice Acerage Projected at 35 Year Low

    U.S. Total Rice Acerage Projected at 35 Year Low

    In the Prospective Plantings report released March 31st by USDA-NASS, total planted rice acreage for 2022 was projected at 2.452 million acres, down 3% or 80,000 acres from last year. If realized, this would be the lowest acreage of rice planted in the United States since 1987. The majority of the acreage reduction is due to a 60,000 acre decrease in California, which grows medium and short grain rice. Long grain acres, the main type grown in the Southern states, is projected at 1.943 million acres, down 1.4% from last year. Arkansas remains the largest growing rice state with 1.191 million acres, accounting for 49% of all acreage. Louisiana is the only state to increase acreage, adding 20,000 acres for 440,000 acres total, while Mississippi’s 100,000 acres is the lowest since 1975. 

                Higher input costs played a key role in producer unwillingness to add rice acreage this year. Enterprise budgets from Mississippi State University’s Department of Agricultural Economics project rice production expenses to increase by 10% to $899/acre averaged across production practices. A large driver of this increase is fertilizer costs, which are projected up 43%. University of Arkansas budgets project similar increases, with a 47% increase in production expenses from last year. Additional supply chain uncertainty for herbicides needed in rice production makes a lower input intensive crop like soybeans more attractive to producers. 

                Additionally, long grain rice had to compete with a better price outlook for alternative crops, such as corn and soybeans. The chart below shows the percent change in the harvest month futures price for corn, soybeans, and rice since December 1, 2021. The November CBOT Rough Rice futures contract price has increased approximately 20% since the 1st of December. The percent price increase of corn and soybeans though has outpaced rice at 25% for soybeans and over 35% for corn. The combination of higher input costs and a lower price relative to other crops has likely made producers take a longer-term outlook of the rice market. Lower acreage will continue to support the upward trend in rice prices seen this spring. While supplies are not necessarily tight at this point, we can expect increased price volatility due to any events that might influence production during the growing year. As of April 25th, the USDA-NASS Crop Progress report has rice planting at 26% complete compared to the 5-year average of 47%. If plantings remain stalled, the market will begin to worry about supply and push prices higher.    

    Note: Contracts used: Corn- CBOT DEC ’22; Soybeans- CBOT NOV ’22; Rice – CBOT Rough Rice NOV ‘22 

    Maples, William E. . “U.S. Total Rice Acreage Projected at 35 Year Low“. Southern Ag Today 2(19.1). May 2, 2022. Permalink

  • Rice Production Down in 2021 Despite Strong Yields

    Rice Production Down in 2021 Despite Strong Yields

    Rice saw a record overall yield with the 2021 crop, but rice production was down almost 16% from the previous year. The overall rice yield was 7,709 lbs./acre, which beats the previous record high of 7,694 lbs./acre in 2013. This new record high was driven by a record medium-grain rice yield of 8,623 lbs./acre, which was 2.8% higher than the previous record. The 2021 long-grain rice crop saw the second-highest yield on record at 7,471 lbs./acre, just below the record of 7,517 obtained in 2018. Despite these high yields, 2021 production was lower than the previous year at 191.8 million hundredweight for all rice and 144.6 million hundredweight for long-grain rice. Lower production was driven by a reduction in planted acreage by nearly 17% in 2021 as compared to 2020. Mississippi saw the largest reduction of any state in planted acreage, down 36% from the previous year. 

     With lower production, U.S. long-grain rice ending stocks for the 2021 marketing year is currently estimated by the USDA at 21.4 million hundredweight resulting in a stocks-to-use ratio of 12.1%, which is down from 29.7% in 2020. Domestic U.S. consumption of long-grain rice, while lower than last year, remains strong, but exports remain flat compared to previous years. The current 2021 market year average price projection for long-grain rice is $13.20/cwt, which is the highest price since 2013. 

    U.S. long-grain rice acreage has fluctuated from around 2.5 million to 3 million acres year to year consistently since 2013. Given this pattern and current high prices, rice acreage is expected to rebound back to around 3 million acres in 2022. One potential factor that can limit an acreage increase is current high input costs and supply uncertainty. Soybeans are the common rotational crop planted with rice and currently, soybean prices are strong and can be planted at a lower cost of production per acre. Current high long-grain rice prices though will likely convince most producers to stay with their normal crop rotation.         

    Source: USDA NASS, February 2022

    Maples, William E. . “Rice Production Down in 2021 Despite Strong Yields“. Southern Ag Today 2(8.1). February 14, 2022. Permalink

  • Cotton Outlook

    Cotton Outlook

    On September 28th, ICE cotton futures closed above a dollar for the first time since 2011. Over the past year, the cotton market has been bullish, with prices following a long-term upward trend. On April 1, 2020, at the start of the COVID pandemic, December 2021 cotton futures closed at a contract low of 54.37 cents, but since that point the contract price has increased nearly 95% as of October 1, 2021. 

    A big driver in U.S. prices has been robust demand. Current USDA estimates for the 2020/21 marketing year have the U.S. exporting 16.37 million bales (Figure 1). As the estimate stands now, this would be the highest level of exports since 2005. China was the largest purchaser of U.S. upland cotton in the 2020/21 marketing year at 4.839 million bales, followed by Vietnam, Pakistan, and Turkey. Upland cotton sales to China were up 97% compared to the previous year. USDA export projections for the 2021/22 marketing year are currently at 15.5 million bales. Chinese demand will be a key factor going forward as questions persist about whether China can maintain current purchasing levels and about how much Chinese purchasing is attributable to the Phase 1 trade deal. Supply chain issues also continue across the globe, and higher U.S. prices have the potential to dampen U.S. export demand.

    Current estimates have the U.S. with 11.19 million planted acres of cotton in 2021, down 900,000 acres from the previous year. Though planted acres are down, production is projected to be 3.9 million bales higher than the previous year at 18.51 million bales. Higher production estimates are a combination of a better yield outlook and a lower abandonment rate. Cotton production in 2020 was hampered by drought conditions in Texas and hurricanes in the southeast. The U.S. is projected to harvest 9.92 million acres in 2021, which is 1.64 million more acres than 2020 with an average yield of 895 lbs/acre. Currently, USDA has 65 percent of the U.S. crop rated as good or excellent which is 22 percentage points higher than last year. Most of the U.S. crop remains a couple of weeks behind schedule, and weather remains the determining supply factor after a period of wet weather and milder temperatures across much of the cotton belt. 

    Bringing supply and demand together, U.S. ending stocks for the 2021/22 marketing year are projected at 3.7 million bales, which is a reasonably tight level. Looking ahead to the spring of 2022, the ratio of Dec’22 CBOT corn futures to Dec’22 ICE cotton futures can serve as an early projection for planted cotton acres. That ratio currently sits near 6.1, which is similar to last year. This suggests planted cotton acres of 11 or 12 million. The occurrence of dollar cotton, though, is exciting to producers and has the potential to push acreage higher. Assuming 12 million planted acres, a ten-year national average yield of 855 lbs/acre, a 15% abandonment rate, and keeping all else at 21/22 projections, this would suggest ending stocks at 3.87 million bales. This would be a minimal increase in ending stocks and suggests new crop futures prices trading around a comparable level to the current marketing year range.     

    Figure 1. U.S. Cotton Exports 2000-2019, 2020 estimate, and 2021 projection.

    Source: USDA WASDE, September 2021

    Maples, William E. . “Cotton Outlook.” Southern Ag Today 1(43.1a). October 18, 2021. Permalink