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The Economic Drama of Soybean Rust in 2005

The Economic Drama of Soybean Rust in 2005. Corinne Alexander, Chris Hurt, Craig Dobbins, George Patrick Agricultural Economists, Purdue University. Sponsored by :. PURDUE COOPERATIVE EXTENSION SERVICE. Will the threat of rust cause U.S. farmers to abandon soybeans in 2005??????.

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The Economic Drama of Soybean Rust in 2005

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  1. The Economic Drama of Soybean Rust in 2005 Corinne Alexander, Chris Hurt, Craig Dobbins, George Patrick Agricultural Economists, Purdue University Sponsored by: PURDUE COOPERATIVE EXTENSION SERVICE

  2. Will the threat of rust cause U.S. farmers to abandon soybeans in 2005?????? Will national yields be sharply reduced?????? Can rust be Managed??????

  3. National Economic Impacts

  4. Regional Acreage Responses(After 3 Years, Medium Spread) Source: Economic Research Service, USDA, OCS-04D-02

  5. Planning yields & prices Your 2005 Decisions Average Quality Land

  6. Expected 2005/acre return: January 4, 2005

  7. Estimated production costs

  8. Assumptions on Fungicide and Application Costs for One Application? Material……………$13 to $16 per acre Application…..………$5 to $6 per acre Total………$18 to $22 per acre

  9. If you have been near a 50/50 rotation (corn/soybeans), Then What are the Alternatives to Soybeans for 2005? • Winter wheat???? • Buckwheat????? • Idle the land???? • Corn back to corn!!!!!! Have to Play the Cards you have been dealt for 2005!

  10. Adding fungicide & 100% Susceptible No RUST ONE TWO

  11. June Number of years in ten suitable for an epidemic, hatched areas indicate soybean production (courtesy of R. Magarey)

  12. 60% Susceptible ONE TWO

  13. Market Logic for 2005 Soybeans Say all U.S. farmers decided beans were to risky in 2005 and cut all U.S. bean acres and switched to corn!!!! Price Impact???

  14. $/Acre $/Acre IF expected returns to soybeans are much lower than to corn prior to planting, THEN producers would reduce bean acreage and increase corn.

  15. $/Acre $/Acre With a NEW Expected Costs for Fungicide application on Beans. New Crop bean Prices should adjust upward relative to corn to provide incentives to plant sufficient bean acres. Any Proof.......

  16. Rust in U.S.---Nov. 10

  17. So in the Pre-Plant period Expect the new-crop futures market to provide a price premium to plant beans on average quality Midwest soils that is roughly equal to the Expected Costs of Rust Treatment Our Guess is: $10 to $20 per acre of soybean premium without rust treatment costs Note: Price relationships for corn and soybeans can also depend on other world and other U.S. factors

  18. Pricing Implications: SOYBEANS • Greater yield, production, and price uncertainty in 2005 • Fewer bean acres: Our thought 3% to 5% • Volatility in price could be high • Diversified pricing---spreads risks • Tendency to use options to price 05 Beans • Bushels not committed • Price not committed if rust is a major problem • Continue to do some pricing in the March-April-May spring “premium” window.

  19. Pricing Implications: CORN • More acres in 2005: Our guess up 3 to 4% • Weaker price increases into this spring • Price danger of storing too far into the summer • Expect strong carry to continue in to 05 crop. Favorable returns for storage. • Stay with pricing some new-crop in the March-April-May spring “premium” window

  20. What about Crop Insurance?? • 64.2% of IN crop acres insured in ’04 • Soybeans = 62.3% of acres • Corn = 66.8% of acres • Two types of insurance products • County-based (group) products GRP and GRIP (18.7% in ’04) • Individual producer-based products APH, CRC, RA & IP (81.3% in ’04) County Loss Individual Loss

  21. Individual Crop Insurance • Plant diseases, including soybean rust, due to natural causes are a covered peril • Expected to use “good farming practices” • Crop Insurance would also pay if: • No effective control is available, or • A lack of supplies of fungicide for effective control • What about Inability to get a custom applicator???---(We don’t know if this will be covered by insurance) • LossesNOT covered by insurance if: • There is insufficient or improper application of plant disease control measures • Damage due to producer’s decision not to buy and apply available control measures

  22. Individual Crop Insurance • Remember insurance only covers losses from yield/revenue below the coverage level of insurance • Coverage level can vary between 50% and 85% of producer’s historical yields times “price” for revenue products • 15% to 50% insurance “deductible” Point: For insurance to cover losses from rust, you will likely have to apply fungicide, and if you properly apply fungicide treatments the proper number of times, you likely won’t have a yield loss from rust that is in excess of 15%.

  23. Critical Questions Asked if You Claim Rust Loss: • Could producer have applied recommended fungicides in a timely manner?????? • Were fungicides applied in a timely manner for optimum control (rate) regardless of cost? • How will Crop Insurance Adjuster Decide???? • Probably case-by-case decisions, especially in 2005 until better guidelines can be developed Document Your Rust Monitoring and Spray Activity

  24. Insurance Bottom Line: Start with insurance you have used in the past, Then. Consider that Rust is a new risk of loss and you will not have to pay more for insurance The new rust threat tends to cause one to: --Stay with insurance you have had, or --Increase soybean coverage levels in 2005

  25. Conclusions: National Perspective • Rust can be managed! • Primary impact is on production costs not yields • Soybean producers bear most of the negative impacts • Consumers also bear some • Livestock producers to a small extent • Impacts will vary by region of the county • Bigger bean acreage reduction in the Eastern Corn Belt (ECB) and Southeast compared to WCB • Somewhat more corn and lower prices in ECB compared to WCB • Somewhat more growth of animal industries in ECB compared to WCB

  26. Conclusions: Indiana Producers • For 2005 alternative to soybeans is corn-on-corn • With 7% yield drag, corn-on-corn tends not to be a good “economic” alternative • Susceptibility % may vary around the state and remains uncertain for 2005 • November 2005 bean futures are expected to “bid for bean acres” maybe $10 to $20 per acre over corn • Most will tend to stay with corn/soybean rotations • Insurance is a better deal in 2005 • New risks of loss from rust is included, but • Premiums will not be higher in 2005, but • Will have to spray if you have rust, and if you spray yield losses from rust may not exceed 15%.

  27. Policy Implications Should the broader society help farmers bear some of the negative implications? • Government costs-share for fungicides • Provide Disaster Assistance legislation • Establish a rust detection system • Crop insurance programs: • Soybean premium rates could be adjusted downward or be subsidized more • Farm programs: • Increase soybean Target Price as an example.

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