Wednesday, February 23, 2011
Crop Insurance For 2011: Easier Than You Thought It Would Be.
It is late February and you are preparing to head to the office of your crop insurance agent, and you notice that Uncle Sam has changed it on you. Where is the CRC you have purchased for the last 15 years, or the Revenue Assurance? What is going on? Well, Rip Van Winkle, while you were asleep this winter your neighbors were learning about YP, RP, and Combo the new name for USDA’s method of helping you manage production and revenue risk. But don’t worry, it is more of a change in name only, and it will only take a couple minutes here to get you squared away to make that trip in town.
Farm operators who are planning to use crop insurance are the smart ones this year, because of the high production costs, and the high volatility in the market that could make marketing a headache. When the toppling of a Middle Eastern dictator can send the market down limit, you need some revenue protection. We’re going to tap the expertise of Iowa State University economist William Edwards, whose explanations will help increase your comfort level.
1) Yield Protection is the new term for APH or MPCI insurance of the past, with some new features. You will make your typical coverage choice of 50% to 85% if your APH yield, with a price that is 55% to 100% of the projected market price that is being determined during February with the average closing prices for fall futures delivery contracts. You will know about March 4 what that price actually is. If your actual yield is less than the guarantee, your indemnity check will equal the production deficit multiplied by the price you elected.
What do you pay for this? Your premium depends on your APH, the choices you make, and the price guarantee. Find the potential premium here. USDA will subsidize your premium, from 100% at the least yield and price level to 38% at the maximum coverage level.
Details are important; and one of those is delayed planting, which reduces your guaranteed yield when corn is planted after June 1 and beans after June 16. Prevented planting gives you a 60% guarantee, but you can raise that by paying a higher premium.
2) Revenue Protection is the new term for your old CRC and RA friends. The revenue guarantee is calculated similar to the yield protection policy, with the insurable price multiplied by the APH yield multiplied by the level of coverage equaling the income guarantee. Options range from 50% to 85%. The policy automatically gives you the harvest price, if it is higher, with no additional premium. If your actual gross revenue is below the insured level, you get an indemnity check, which are triggered by both yield and price. The maximum increase for the harvest price is 100% of the February or spring price. Find the potential premium here.
3) Revenue protection without the harvest price is just like revenue protection, but your revenue guarantee does not increase beyond the February price. As you would expect, the premium rate is going to be lower than for the Revenue Protection. Find the potential premium here.
4) Group Risk Plan (GRP) is like the GRP of past years, which protects against a widespread (countywide) crop failure. If your county average yield (not known until January after harvest) is below the trigger level you choose, you will get an indemnity check regardless how your farm yield turned out.
You will make a choice of trigger levels between 70% and 90% of the expected county yield, but instead of a price guarantee, you select a value of coverage for each acre, such as your production expense. USDA’s Risk Management Agency will have a maximum value for that. Your premium cost will rise along with the dollar coverage selected, and USDA subsidizes less as the coverage increases.
5) Group Risk Income Protection (GRIP) has been the favorite of many farmers for many years because of the nearly automatic payments and lower premium rates. But premiums have gone up and some of the insurance ratings have changed to reduce the automatic payouts. GRIP is based on the price guarantees being established by the futures market during February, and also based on the expected county yield. The actual gross revenue will be calculated from the county’s actual yield and the harvest delivery contract values for corn and beans.
You will have to decide on your level of coverage, which can be as high as 150% of the expected county yield, times the February price, or as low as 90%. The trigger is calculated the same as the GRP policy.
Your premium rate is less than the Yield Protection and Revenue Protection policies and you do not need to have an APH yield established. GRIP is a relatively inexpensive insurance for operators whose farm yields approximate the county average. However, some of the savings may well be spent acquiring supplemental insurance to protect against that hail, or windstorm that hits your small section of the county.
6) Catastrophic Insurance protects against yield losses of more than 50%, with guarantees and payments based on 55% of the insurable price. USDA pays the premium for CAT, but there is a $300 administrative fee per crop, per farm. While it may not cover your production input cost, it qualifies a producer to benefit from the SURE program, which is the permanent disaster program, without the higher cost of crop insurance premiums.
Don’t forget that March 15 is the deadline to either sign up for the first time, or to make major changes in the type of crop insurance you are signing up to get. If you are unsure of the benefits of one policy over another, visit with a neighbor or two, visit with your agent, or visit the crop insurance section at FarmDoc.
Summary:
Do not let your blood pressure or anxiety rise because of the changes in crop insurance. They reflect improvements made by USDA and the crop insurance industry to merge many of the policies that had similarities and simplify them. The choices that you have to select from are quite similar to past years. The back room parts of the policies have been changed, which impact the premiums that you pay. Some have gone up, others have gone down, and many have been equalized among counties and between states where there had been disparities. Overall, premiums have increased because the value of the grain being insured has increased.
Posted by Stu Ellis on 02/23 at 12:00 AM | Permalink
Comments
Posted by: Grain Marketing Expert at February 24, 2011 1:01AM
If you are making a crop insurance decision based on premium amounts, remember the larger the combined acreage, the lower the premium. But Edwards also says USDA adds more of a discount for Enterprise units with a higher subsidy of the premium. This will also allow higher coverage levels to be selected while paying the same amount. On the other hand, indemnity payments may be less frequent because the USDA risk is spread out more.
Good points! Thanks for the emphasis.
~Stu