February 5 – This is a key month for farmers taking out revenue insurance on their crops. USDA calculates a base price for revenue insurance based on the average February settlement of December corn futures, as well as for November soybean futures. The average is then calculated again at harvest in the fall. The revenue coverage is then based on the higher of the two.
One would expect the market to have some risk premium in it at this time of year for the new-crop months, and that is what we see for corn. Looking back at the data since 2000, we find that the fall harvest price was lower than the February average in 11 of the past 16 years, within a range of a decline of $1.66 in 2008 to a gain of $1.82 in 2012. The overall average for those years was a 13-cent decline from February into the fall.
Soybeans saw a bit more volatility. First, the February price is being discovered at a time when the South American crop is being harvested, perhaps capping the average versus the risk premium you’d ordinarily anticipate in the market ahead of our planting season. Second, price swings were also larger due to weather threats during the period that resulted in big changes in stock projections. The range of changes varied from a decline of $4.14 per bushel from February to fall in 2008 to a rise into the fall of $2.84 in 2012, with an overall average since 2000 of a two-cent gain from February to the fall average.
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