Thursday, November 10, 2011
How Did Revenue-Based Crop Insurance Work Out For You?
As Congressional agriculture leaders debate whether a new Farm Bill safety net should reimburse “shallow” or “deep” loses, many Cornbelt farmers are going to find themselves reimbursed with crop insurance indemnity payments this year. As the new structure of crop insurance went into effect last spring and simplified the policies, many farmers will find simple also meant compensation.
With the growing popularity of revenue-based crop insurance, many farmers opted for the higher priced, but attractive Revenue Protection policies which included the harvest price that had only been an option under the prior structure. The revenue policy indemnity payments are calculated with the performance of November soybean and December corn futures contracts during the month of October. Once the USDA’s Risk Management Agency certified the futures prices, announcements were made whether and how insurance policies would indemnify revenue shortfalls.
USDA’s Risk Management Agency has certified the harvest prices, which were $6.32 for corn and $12.14 for soybeans. Compared to the spring guarantee of $6.01 for corn and $13.49 for soybeans, farmers with revenue policies will be getting an additional 31¢ for corn if they had the policy that did not exclude the harvest price. Since the fall soybean price was $1.35 below the spring guarantee, it will require a lesser yield loss for the policy to provide an indemnity check.
University of Illinois ag economist Gary Schnitkey provides an analysis for holders of crop insurance policies. For policies which indemnify only yield, the price of the crop is not a factor, so indemnity checks will only be issued if yields were below the guaranteed APH yield, whether that was 65% or 85% of Actual Production History or anything in between. He says, “Since the $6.31 harvest price is above the $6.01 projected price for corn, the revenue protection policy guarantee increases, resulting in the need for a yield loss before an insurance payment is received. When the harvest price is above the projected price, both Yield Protection and Revenue Protection require the same yield loss to trigger payments.”
Schnitkey says if you obtained the revenue policy that was lesser expensive because the harvest price was not included, then, higher yield losses are required when the harvest price is above the projected price. At an 85 percent coverage level, you have to have a yield loss under 81 percent of the APH yield, compared to 85 percent for the other policies. If you had a 75% coverage policy, then your yield must be 29% under your Actual Production History.
If you had revenue insurance on your soybeans the payment factor is different because the fall price was under the spring guarantee. So Schnitkey says to receive a payment, less of yield loss in required. He says if you have a revenue protection policy that covers 85% of your soybean yield history, then your yield this year only had to drop below 94% of that historical average to receive an indemnity payment. He says in this scenario, it is the same number whether your policy used the fall price or excluded the fall price, which the cheaper policies did. And if you had a yield protection policy, it will reimburse a yield decline without any price factor involved.
Summary:
USDA has announced fall or harvest prices for revenue-based crop insurance, which are $6.31 for corn and $12.14 for soybeans. Holders of revenue protection crop insurance policies covering 85% of their historical yield average will receive an indemnity check if their corn yield was below 81% of the APH yield and if their soybean yield was below 94% of their APH yield. The harvest prices force a greater corn yield loss, but less of a soybean yield loss.
Posted by Stu Ellis on 11/10 at 06:32 AM | Permalink