Setting Cash Rents and Variability in Returns
Returns to farmland likely will vary considerably over the next several years. This variability will make it difficult to set a cash rent that can remain the same for several years. Prices projected for 2015 are lower than likely long-run prices. As a result, cash rents based on 2015 returns may have to be raised in the future. Similarly, rents may need to be lowered if those cash rents were set based on returns in 2010 through 2013, particularly given that prices in 2010 through 2013 were above likely long-run average prices.
Forecasts of 2015 Market Year Average Prices based on Projected Prices for Crop Insurance
The 2015 market year average (MYA) prices for corn and soybeans are forecasts using the same futures contract prices as are used to set projected prices on crop insurance products. Prices during the first two week of February indicate projected prices of $4.15 per bushel for corn and $9.60 per bushel for soybeans. Resulting forecasts of 2015 MYA prices are $3.97 per bushel for corn and $9.84 per bushel for soybeans. Given these forecasts, Agricultural Risk Coverage – County Option (ARC-CO) is projected to pay more than Price Loss Coverage (PLC) over many counties in 2015.
Evaluating the Historical Variability of Corn's Market Year Average Price and Projecting Price Loss Coverage Payments
Market Year Average (MYA) prices enter into payment calculations for Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC), two commodity program alternatives available in the 2013 Farm Bill (farmdoc daily February 20, 2014). The distribution of MYA prices will influence payment levels under both programs. Hence, quantifying the potential MYA price distributions is important for evaluating choices between commodity programs. Moreover, quantifying MYA price distribution aids in understanding price risk farmers face. Herein, the distribution of MYA corn prices is quantified based on historical price variability. Based on this distribution, PLC payment rates are estimated.