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Thursday, January 19, 2012

Begin Your Crop Year With Lower Insurance Premiums



 

With another potential impact from LaNina this year, how will you be managing your yield risk?  Some farmers will have a plan to not manage it, but others will be visiting crop insurance agents soon after visiting with their lenders.  And anyone who inquires about premiums for 2012 may be pleasantly surprised with what their agent says.  Really.

USDA’s Risk Management Agency has made many changes over the past few years, and one of the most popular, as far as Cornbelt farmers go, may be the re-rating of counties. That means rates were recalculated based on premiums paid in and indemnities paid out.  The Cornbelt had been getting the short end of the stick, but has now been brought in line with other counties around the country.  They may be paying more, in some cases, but most Cornbelt counties will be paying lower premiums.

It is impossible to cover every Cornbelt state here, but Illinois farm advantages have been well identified by University of Illinois Farm Management Specialists Gary Schnitkey and Bruce Sherrick.  Comparing 2011 premiums with the same premiums being set for 2012, substantial savings are being demonstrated.  These savings can either be used to save money on crop production costs, or to shift to a higher rate of coverage without the added expense.

The economists said average revenue protection corn policy premiums on optional units are reduced 7% for 65% coverage levels and there is a 5% reduction for 85% coverage levels.  For basic units premium reductions range from a 24% cut for the 65% coverage level to a 10% reduction for the 85% level.  Enterprise units of 300 acres have a savings of 21% for the 65% coverage levels to 8% for the 85% level.  If the Enterprise unit is up to 450 acres, the reduction in premium ranges from 29% on a 65% coverage to a 13% reduction on 85% coverage.

Similar reductions also occur for soybeans. For optional units, average reductions for soybeans range from 13% for the 65% coverage level to 12% for the 85% coverage level.  premium reductions for soybeans are larger for basic and enterprise units. At an 80% coverage level, the reduction is 12% for an optional unit compared to 22% reduction for the basic unit, 18% reduction for the enterprise unit with 300 acres, and a 26% reduction for an enterprise unit with 450 acres.

Schnitkey and Sherrick say, “These re-ratings efforts seem justified given the relatively low payments on corn and soybean policies compared to insurance premiums. This re-rating likely will bring loss performance closer in line with legislative target, although resulting loss experience likely will require further premium reductions to totally bring premiums in line with legislative targets.”

Summary:
While the jury is still out on how farmers will react to the lower premiums, of more coverage versus lower production costs, crop insurance will cost less in 2012.  The reason is the re-ratings for Cornbelt crop insurance policies by the USDA. 

Posted by Stu Ellis on 01/19 at 01:52 AM | Permalink

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