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# How Projected Prices Work With Crop Insurance

How do the recently announced spring 2011 projected prices for corn and soybeans that are used to figure crop insurance revenue guarantees relate to my local elevator price? What is the basis?

Question: I note that the spring 2011 projected price for crop insurance purposes for corn is \$6.01 per bushel. How does this amount equate to the \$5.79 per bushel cash price offered at my Early, Iowa elevator on April 1? What makes up the basis price?

Answer: Provided by Steve Johnson, Iowa State University Extension farm management specialist.

The futures price is a reflection of global prices for corn delivered to Chicago (Illinois river system) in the month of December 2011. Basis reflects a local cash price and is roughly the cost of transportation from Early, Iowa to the Illinois river system. Cash minus Futures = Basis, so basis tends to be a negative number for much of the Corn Belt.

Remember, the \$6.01 per bushel is the Projected Price (December corn futures price average in February) for crop insurance determination. December futures trades by open outcry on the CBOT and can change each week day beginning at 9:30 a.m. and settles shortly after 1:15 p.m.

So today the December futures price closed at \$6.37½ per bushel and the cash price in Early elevator is \$5.79 per bushel. So the basis today for October delivery is 58 cents per bushel or minus 58 cents under the December corn futures contract.

If you choose to pre-sell bushels for fall delivery, December corn futures or November soybean futures are higher than the Projected Price, so you're guaranteed that if you come up short of bushels, you can collect at least the \$6.01 per bushel for corn and \$13.49 per bushel for soybeans, respectively.

If you use Revenue Protection (RP), should the Harvest Price (futures price average in October) be higher than the projected price, you get a new revenue guarantee. Selling new crop bushels for delivery that are covered by Revenue Protection  should offer a high degree of comfort, especially when your futures selling price (\$6.37½ per bushel in this example) is greater than the \$6.01 per bushel projected price. Again, you still have to have an actual revenue to count (actual farm yield times the higher of the Protected Price or Harvest Price) that falls below your revenue guarantee. Selling a portion of the crop insurance guaranteed bushels and committing those bushels to delivery is quite common across the Corn Belt.

For farm management information and analysis go to ISU's Ag Decision Maker site www.extension.iastate.edu/agdm and ISU Extension farm management specialist Steve Johnson's site www.extension.iastate.edu/polk/farmmanagement.htm.