How to Insure Your Farmland Against Market Volatility

Feb 19, 2024

With agricultural commodities facing weaker prices in 2024, many farmers are growing concerned—especially those currently in long-term farmland leases. Many of these lease agreements were signed when prices are high and farmers anticipated easily meeting these obligations. So how can farmers protect their operations against such volatility? 

There have been many insurance products protecting against many risk factors—rain, hail, wind, structure damage, etc.—but not market volatility. That is, until now. 

CommonGround Insurance Group is proud to team up with Hudson Insurance to offer a groundbreaking solution: Cash Lease Insurance Protection (CLIP). This exclusive offer provides a critical safety net against unforeseen drops in commodity prices, safeguarding the farmer’s wallet in the event their gross income cannot support their lease agreement. 

Let’s dive into the necessity of this offering, and how it can help farmers better withstand market turbulence without compromising their financial prospects.

What are the major risks facing the agriculture commodities market?

Across the major commodities in the U.S. crop market, there are some challenging forecasts for 2024:

  • Corn. With shrinking corn demand in the U.S., usage is down and stocks are up. Combined with strong production, this is resulting in a projected decrease to $4.80.

  • Soybeans. Soybean plantings are predicted to decrease by nearly three million acres in the 2023-24 marketing year, and a competitive market is placing downward pressure on soybean prices. This leads to projections of $12.75 in 2024. 

  • Wheat. With a reduction in planted wheat acreage last year and increasing global supply of wheat increasing after disruptions from COVID and the Russia-Ukraine conflict, prices are predicted to fall to $7.20 in 2023-24. 

  • Cotton. Cotton supply is up, primarily due to carryover stock from the previous marketing period. As a result, outlooks are forecasting anywhere between a 3-10% decline in 2024. 

  • Dairy. Increased production, stagnating herd numbers, and weak net exports have all contributed to a decline in dairy prices, projected at a 15-20% decline over the next two years.  

  • Poultry and poultry products. After experiencing record high prices in 2022, boiler prices have started to decline. Prices fell in 2023 and high ending stocks are predicted to cause the price to further decline in 2024. 

So what exactly is causing all this fluctuation within the commodities market? Although we’ve hinted at some of the reasons above, let’s dive into each of the most notable factors in detail. 

Price volatility

At the end of the day, markets are markets, and are subject to the same laws of supply and demand. Any disruption in supply—higher/lower stocks, lost acres, access to global markets—all of these influence the end price of the good in question. 

For example, the war in Ukraine initially caused massive disruption to the global wheat market, causing prices to soar as international supplies were limited. Now, however, as the market adapts to these conditions, that scarcity is not longer driving lower prices. 

As many of these geopolitical and broader market conditions are outside the farmer’s control, it can be difficult to take precautions before the season begins. This can serve as a major point of risk exposure for farmers. 

Weather uncertainties

In farming, Mother Nature always gets a vote. Unpredictable weather events, from droughts to floods, directly impact crop yields and can significantly alter market prices. While farmers can hedge against weather damage to their own crops, they have less control over wide-scale weather events that influence entire markets. 

Input costs

In addition to broader market volatility, farmers are keenly aware of input costs. Right now, we’re seeing a correlation between decreasing input costs and farm incomes—in other words, the market seems to be responding to input costs and evaporating portions of farmers’ anticipated margins. These broader trends can put farmers in a serious bind, despite their best planning efforts.

Market access challenges

For smaller farming operations, there may be challenges accessing certain markets directly. Dependence on intermediaries and limited bargaining power may limit some farmers’ ability to fully capitalize on the fruits of their labor. 

How can these risks impact your cash rental agreements? 

Your cash rental agreement is a major fixed cost for your operation. As such, it’s important to consider how market volatility can put financial pressure on your operation with regard to your lease agreement. Here are some ways this can play out. 

Profit margin pressures

The most obvious pressure is that lower farm income leads to slimming profit margins. A sudden drop in prices squeezes farm income, yet the farmer is already committed to the cash rental agreement rate, which could be based on market rates from up to three years prior. As such, maintaining profit margins in a volatile market can be challenging when certain fixed costs are in place. 

Challenges meeting rental commitments

Cash rental agreements are contracts, and market pressures can result in reductions in farm income that make it difficult to meet those obligations. This not only has financial implications for the greater operation, but also puts strain on the relationship between farmers and tenants. 

Market-driven valuation shifts

Not only is the crop market volatile, but the real estate market can be as well. A sudden spike in property values can lead to higher cash rental rates. If farmers are already grappling with reduced incomes, this can present a challenge when negotiations come around. 

The solution: CommonGround Insurance Group’s rent protection insurance with Hudson Insurance

Given all of these challenges, protection against market volatility is key to stabilizing farmers’ wallets in today’s economy. Until recently, there have been no insurance products on the market to accomplish these ends. 

Now, however, farmers have options. CommonGround Insurance Group is excited to announce our exclusive CLIP insurance offering through Hudson Insurance. This new product enables farmers to protect against fluctuations in commodities, as they can purchase coverage for a percentage of their cash rent if prices drop and their profit margins collapse—without having to market through a grain broker.

Because of this layer of protection, more farmers can be willing to accept higher rental rates based on real-time, objective land values. As this new product reaches more people, we anticipate the cash rental market will remain strong despite the challenges faced in the broader market. 

Want to learn more about this insurance offering? Connect with CommonGround Insurance agent, Trevor Froehling to help you find the ideal policy for your ground.