Crop Insurance Decisions for 201703/01/2017
The price discovery period used to determined projected prices and volatility factors for federally sponsored corn and soybean crop insurance products for 2017 is nearly completed. For the majority of the Cornbelt, the approved Projected Price (PP) for corn is expected to be about $3.96 and the volatility factor is likely to be .19. For soybeans, the Projected Price is expected to be $10.19 with a volatility factor of .16. For comparison, the 2016 prices and (volatility factors) were $3.86 (.17) and $8.85 (.12) for corn and soybeans respectively. The Projected Prices are used to determine a guarantee revenue based on futures prices, and do not reflect local basis. The Projected Price for corn is determined by averaging the closing December futures price during the trading days of February, and for soybeans by averaging the November Futures closing prices during February. The volatility factors are determined by an average of the most recent five trading days’ implied volatility estimates, scaled for the interval of time from now until the middle of October — the month during which average prices are used to determine Harvest Prices. For both corn and soybeans, the projected prices are higher than in 2016 reversing a multi-year trend of declining coverage. The volatility factor summarizes the market’s estimates of the likelihood for price movements of various magnitudes, and has corresponding impacts on premiums paid for Revenue and Harvest Price related products. All else equal, higher volatilities and higher projected prices will result in increases in premiums in 2017 compared to 2016, though other ratings changes often outweigh the direct effects.