Each March, we review corn and soybean crop insurance prices and their budget implications. This year’s update is a reminder of how quickly and abruptly conditions can change. In 2022, the soybean crop insurance price was $14.33 per bushel, a record high. 2023 prices resulted in a new high for projected corn revenue ($5.91 per bushel at 184 bushels per acre). This year, however, low contribution margins and high fixed costs result in a low crop insurance safety net.

Prices and contribution margins

For 2024, spring crop insurance prices are $4.66 for corn and $11.57 for soybeans. Table 1 uses those prices and Purdue Crop Budget projections to report revenue and contribution margins. At first glance, budgeted 2024 corn revenue is $200 per acre lower, and soybean revenue is $100 per acre lower.

Contribution margins can tell us more about the budget squeeze. As a reminder, the contribution margin is the difference between revenue and variable production costs (seed, fertilizer, crop protection, etc.). The contribution margin covers fixed costs (cash rent, family living, and machinery expenses) and, if sufficient, generates economic profits. Here is where the reality of the current cost structure comes into focus. The 2024 contribution margin for corn is $121 per acre lower (-32%) than in 2023. For soybeans, the decline is $82 per acre (-19%).

For both crops, the year-over-year contribution margin decline was smaller on a dollar basis than the revenue changes. This means lower variable costs have offset some of the decline in commodity prices. However, the percentage changes reveal revenues fell faster than variable costs.

Relatedly, Purdue’s costs and yield assumption points to more favorable returns for soybeans. In 2024, soybeans’ contribution margin is $76 per acre higher than corn’s; also the largest soybean advantage observed. (Read more here)

The safety net

Table 2 goes deeper into the safety net by considering crop insurance coverage levels (assumed at 80%) and cost. The third column shows the share of variable expenses and cash rent that crop insurance ($708 per acre in 2024) covers. On average, crop insurance coverage has equaled 99% of these costs. The share exceeded 100% on seven occasions – which occurred most recently in 2021. In 2023, crop insurance covered 91% of variable costs and cash rent, but the 2024 share fell to just 81%.

The last two columns consider crop insurance coverage and total economic costs, including labor and machinery. Since 2007, this share has exceeded 100% three times and reflects extremely favorable budget conditions. However, crop insurance coverage has averaged covering just 78% of total economic costs. For 2024, the share is a low of 66%.

It’s often helpful to think about this gap on a dollar basis, which, in 2024, is a new record low of -$373 per acre. This means the worst-case scenario would result in producers needing to cover $373 per acre of economic costs. The last time commodity prices tumbled while production costs remained high, crop insurance covered 61% of total economic costs, but the dollar value was smaller (-$344 per acre in 2015).

Overall, soybeans have less downside exposure in 2024 (Table 3). First, crop insurance has historically covered a large share of variable expenses and cash rent. Since 2007, the average coverage has been 107%. In 2024, 91% of these costs are covered.

The share of total costs covered is nearly the same for corn and soybeans in 2024 (66% for corn versus 68% for soybeans). However, the magnitudes are considerably different on a dollar basis as soybeans’ gap is only $254 for soybeans. In the worst-case scenario, soybeans’ budget exposure is $119 per acre less than corn.

Wrapping it up

The budget challenges in 2024 are well known. These data and discussions quantify the downside risks. Overall, higher production costs and lower commodity prices mean the crop insurance safety net is much closer to the ground. In the worst-case yield scenarios, corn and soybean producers will have to rely even more heavily on working capital, which may be limited, and the balance sheet to absorb any financial losses.

While we feel these data represent the challenges corn and soybeans will face, keep in mind that conditions and assumptions will vary. One key source of variation is costs and another yields. Different cost and yield assumptions will have different conclusions. Second, remember these are economic costs. The cash expense could be higher or lower based on fixed costs and debt service obligations.