- Where farm decision-makers start their day

« Back to main

Sunday, March 03, 2013

The crop insurance ball is now in your court


All in, all done, just like an auctioneer.  But instead of bids going higher, this was a Dutch auction in which prices went lower.  And throughout the month of February, the new crop bids for corn and soybeans, based on November bean futures and December corn futures, continued to drop.  When all was said and done, the spring guarantees for revenue types of crop insurance were a long way from recent highs in the commodity market, and were practically parallel to the spring guarantees of 2012, a year ago.


At the end of the trading day Friday, most farmers had realized that spring guarantees for crop insurance were not going to be measurably better than 2012.  There were certainly no guarantees for $8 corn or $15 soybeans; instead the USDA’s Risk Management Agency has approved spring guarantees of $5.65 for corn and $12.87 for soybeans.  In 2012, the spring guarantees were $5.68 for corn and $12.55 for soybeans, and those were considered good.

Those spring guarantees for crop insurance may be quite good in 2013, if more normalized weather produces a large crop and USDA’s yield projections are close to being reached.  Based on normal weather and large acreage, USDA forecast season average prices of $4.80 for corn and $10.50 for soybeans, which are 85 cents below the corn guarantee and more than $2 below the soybean guarantee.  If you plan to sign up for crop insurance for the first time, or plan to change your types of policies, the sign-up deadline for crop insurance is March 15.

But what do you sign up for?  IL ag economists Gary Schnitkey and Bruce Sherrick say, “The projected prices were calculated during a month which witnessed generally falling prices for both corn and soybeans and as a result, the closing prices on the final day of trading in February were $5.57 for Dec. corn and $12.595 for Nov. soybeans – thus the insurance (guarantee) prices are higher than current trade estimates of future prices. As a result, there is a somewhat decreased likelihood that the harvest prices will exceed the projected prices compared to a year when projected prices are at or below current futures prices.”

Any recommendations?  Schnitkey and Sherrick evaluated the choices for a high yielding county, based on enterprise units that are less costly, an APH of 187 with the trend-adjusted yield, and average gross revenue of $967/A.  Their findings included:
1) GRP actually reduces the revenue distribution relative to no insurance
2) YP has almost no effect compared to no insurance, roughly covering its own cost,
3) RP 85% and RP-HPE 85% do the best job of "cutting off the tail" of the revenue distribution with minimum revenues of roughly $800 guaranteed in most cases.
4) The GRIP outcomes pay back more than premiums over a large range of revenues, but do not protect against particular revenue shortfalls as well and in years with high crop revenue actually cost the most in terms of total revenue due to their higher initial premiums.
5) Similar patterns to these results occur with soybeans, although with more muted magnitudes, and in many locations with relatively less valuable group options.

I need help #1.  The Payment Calculator estimates premiums for alternatives at each coverage election, and then calculates the expected frequency of payments, average payments, net costs, and risk reductions associated with alternative crop insurance products and election levels in an easily understood format.  Enter your county, crop, & unit.

I need help #2.  The Premium Calculator provides premiums that are useful when making crop insurance decisions for multiple crops. Enter your county, crop & APH level.

I need help #3.  The Decision Tool has 4 components.  The first computes farmer-paid premiums for different user-entered parameters.  A "what-if" tool calculates insurance payments for user-supplied prices and yields.  A history of insurance payments and premiums can be found in the "Historical Analysis" section.  The tool also allows comparison of farm yields to county yields. You will need MS Office 2003 or newer to download this tool.



The crop insurance decision season is here, with the deadline of March 15 for either enrolling for the first time or making some change from last year.  With the declining values of the spring guarantee throughout the month of February, the average of $5.65 for corn and $12.87 for soybeans may be higher than the harvest prices say specialists.  Decision tools are available to guide users through the decision-making process.

Posted by Stu Ellis on 03/03 at 10:42 PM | Permalink

Post a comment





SPAM? Leave this blank unless you are a spam-bot.


Remember my personal information

Notify me of follow-up comments?