The projected price for revenue-based crop insurance policies with a sales closing date of March 15 is determined by the daily average closes of December cotton during February.
Cotton futures settled mostly lower Wednesday with most-active May finishing an inside day with a modest loss.
- May settled down 19 points to 59.55 cents, around the lower third of a tight 64-point range from down 39 points at 59.35 to up 25 points at 59.99 cents. It remained within Tuesday’s 141-point trading span.
- March — the only contract on the plus side — eked up two ticks to 59.87 cents, July slipped 19 points to 59.80 cents and December eased off seven points to 59.70 cents. First notice day for March is Tuesday.
- Volume slowed to an estimated 37,429 lots from 68,008 lots the previous session when spreads accounted for 35,330 lots or 52%, EFP 8,439 lots and EFS 1,224 lots. Options volume totaled 944 calls and 680 puts.
Producers who purchase revenue-based crop insurance policies in large areas of the Cotton Belt keep particularly close watch on December futures during February.
The month of February is when the projected price for those policies is determined in areas with a March 15 sales closing date, including the Texas High and Rolling Plains.
The price discovery periods, all based on December futures, end two weeks before the sales closing dates. In the Texas Rio Grande Valley, where early planting has begun in the traditional source of the nationΆs first new-crop supplies, the sales closing date was Jan. 31 and the discovery period was Dec. 15-Jan. 14.
Daily closes in the December contract during the first 11 business days of February averaged a rounded up 61 cents, according to a running tally compiled by the Lubbock-based Plains Cotton Growers, Inc. The 2015-crop insurance price was 64 cents.
February also is the month when the projected policy prices for many states are set for December corn, November soybeans and spring wheat, and DTN is posting running tallies for those crops in Ag News. Corn averaged $3.88 as of Tuesday.
Revenue policies with harvest-price protection cover losses caused by a difference in the harvest price — determined by the behavior of December cotton futures during October — from the projected price as determined in February. They also apply to revenue losses if prices tumble between planting and harvest.
“The amount of insurance protection is based on the greater of the projected price or the harvest price,” says the Risk Management AgencyΆs website as noted by DTN. “If the harvested plus any appraised production multiplied by the harvest price is less than the amount of insurance protection, the producer is paid an indemnity based on the difference.”
Revenue protection policies with harvest price exclusion insure based on projected price only. “The amount of insurance protection is not increased if the harvest price is greater than the projected price,” RMA says.
Futures open interest fell 15,214 lots Tuesday to 188,677, with MarchΆs down 25,349 lots to 19,544 and MayΆs up 6,491 lots to 104,160. Cert stocks grew 12,462 bales to 50,283. There were newly certified 13,098 bales and 636 bales decertified.
