Published: February 27, 2008 05:19 pm            

Farm Programs: Deadline looms for 2008 crop insurance decisions

Originally published in the February 22, 2008, print edition.

During the next couple weeks, many farmers will be finalizing their crop insurance decisions for the 2008 crop year. March 15 is the deadline to purchase crop insurance for the 2008 crop year.

Producers need to analyze how crop insurance fits into their risk management and grain marketing strategies for the coming year.

Biotech Yield Endorsement

A new “pilot” crop insurance program called the “Biotech Yield Endorsement” is available on all non-irrigated corn acres in Illinois, Indiana, Iowa and Minnesota for the 2008 crop year. Following are details of the new BYE.

• Available for Actual Production History, Crop Revenue Coverage and Revenue Assurance insurance coverage policies, but not Catastrophic Crop Insurance policies.

• Qualifying corn hybrids must be a combination of three biotech genetic traits developed and licensed by the Monsanto Co. — “YieldGard Corn Borer,” “YieldGard Rootworm” and “Roundup Ready Corn2.”

• A premium rate will be applied to the “unit” level. Premium rate reductions will vary depending on county, insurance plan and coverage level. Most estimates are that premiums will be reduced by approximately 12 to 15 percent.

• There is no prevented planted coverage with BYE, and any replant acres must be replanted to BYE eligible corn hybrids.

• Producer requirements for the BYE insurance policy:

   • At least 75 percent of the insured corn acreage on a “basic” or “optional” unit must be planted to BYE eligible corn hybrids. For “enterprise” or “whole-farm” units, at least 75 percent of all corn acres must be planted to BYE eligible corn hybrids.

   • On or before the date for acreage reporting, the farmer with a BYE policy must submit a signed certification statement from the BYE seed dealer, copies of seed purchase and return invoices and a signed BYE certificate by the producer.

   • Producer must comply with U.S. Environmental Protection Agency requirements for “refuge acres” on biotech crops, or risk being in violation of planting requirements, and lose current and future eligibility for the BYE.

• The U.S. Department of Agriculture and the seed companies will be conducting random spot-checks of BYE corn fields, and will be taking corn tissue samples, to verify the planted BYE corn hybrids, to verify refuge acres, and to verify the information provided on the seed dealer and producer certification statements.

Any producer who is not in compliance with the terms and agreements of the BYE on any unit, or who provides fraudulent information, would have the BYE insurance policy voided, would be required to repay any premium discounts, and could be subject to administrative, civil or criminal penalties.

• Bottom line: Producers who decide to use the BYE on some or all of their corn acres in 2008 need to find out all the requirements and details from their crop insurance agent before they sign up for the insurance coverage, and must make sure that they comply with all BYE requirements.

Other than the BYE, there are few other changes in the various types of crop insurance policies for 2008, as compared to last year. Most producers have a pretty good handle on the mechanics of standard APH (yield only) Multi-Peril Insurance policies, compared to RA and CRC revenue coverage policies (yield and price).

There has been more interest in the past couple of years in Group Risk Income Protection insurance policies that are based on county average crop yields, and Chicago Board of Trade prices, due to the lower premium prices for GRIP policies.

See Tables A and B for comparison examples of APH insurance policies with CRC/RA-HP policies at similar crop yield levels.

Following is a review of the APH (yield only), and RA-HP and CRC (yield and price), crop insurance policies for 2008

APH insurance policies

• APH policies provide protection from yield losses only.

• A market price is established for each crop early in the year prior to sign-up. This market price does not change or fluctuate at harvest time.

2008 APH market prices are:
Corn: $ 4.75 per bushel
Soybeans: $11.50/bu.
Spring wheat: $4.90/bu.

• Producers may select coverage ranging from 50 percent to 85 percent of the APH or “actual production history” (proven yield) to arrive at a yield guarantee.

Soybean example: 48 bushels per acre APH X 80 percent = 38.4 bu./acre guarantee

• Replant and prevented planting coverage apply to APH policies.

• Indemnity payments are calculated by subtracting the harvest yield on a farm unit from the yield guarantee and multiplying times the APH market price. Soybean example: 38.4 bu./acre guarantee and 27.4 bu./acre harvest yield 38.4 bu./acre - 27.4 bu./acre = 11 bu./acre X $11.50/bu. = $126.50/acre

• In most cases the crop insurance premium cost per acre is paid after harvest, and will be deducted from the “gross” indemnity payment that is calculated.

CRC and RA-HP insurance policies

• CRC and Revenue Assurance with a Harvest Pricing Option insurance policies function in the same manner.

• An RA policy without the harvest pricing option (RA-BP) functions differently than a CRC or RA-HP policy, and RA-BP policies are not affected by harvest prices.

• CRC and RA-HP insurance policies are designed to protect against crop revenue loss per acre due to yield loss and/or price fluctuation during the growing season.

• The APH, farm unit determinations, insurance coverage selections (50 percent to 85 percent), replant and prevented planting coverage, etc. with CRC and RA policies are the same as with APH policies.

• An initial “price guarantee” is established for each crop prior to the crop insurance enrollment deadline on March 15 each year. The final price guarantee is determined at harvest time in the fall. The price guarantees are based off of CBOT grain futures prices, and are not affected by local cash grain prices.

• Following is how CRC and RA-HP price guarantees are calculated.

Corn

Base price for CRC and RA-HP is the average settlement price for December CBOT corn futures in February.

Harvest price for CRC is the average settlement price for December CBOT corn futures in October during the year of harvest. Harvest price is limited to the base price plus or minus $1.50/bu.

Harvest price for RA-HP is the average settlement price for December CBOT corn futures in November during the year of harvest. RA-HP has no limit on the final harvest price.

Soybeans

Base price for CRC and RA-HP is the average settlement price for November soybean futures in February.

Harvest price for CRC and RA-HP policies is the average settlement price for November CBOT corn futures in October during the year of harvest.

Limit: Harvest price for CRC is limited to the base price plus or minus $3/bu. RA-HP has no limit on the final harvest price.

• 2008 RA and CRC base prices will be finalized on March 1. As of Feb. 15, the prices are estimated at:

Corn: $5.26/bu.
Soybeans: $12.81/bu.
Spring wheat: $10.69/bu.

• The higher of the base price or the harvest price is used to calculate revenue guarantee per acre used to determine crop indemnity payments with CRC and RA-HP policies. The harvest price is used to determine the value of the harvested crop.

• CRC or RA-HP (80 percent policy) corn crop loss example (165 bu./acre. APH, 132 bu./acre guarantee and 145 bu./acre harvest yield; $4/bu. CBOT base price and $3/bu. CBOT harvest price)

Revenue guarantee = 132 bu./acre X $5.26/bu. = $694.32/acre

Harvested crop value = 145 bu./acre X $4/bu. = $580/acre

Indemnity payment = $524.04/acre - $435/acre = $114.32/acre

Bottom line on crop insurance decisions

• View crop insurance decisions from a risk management perspective. How much financial risk can you handle if there are greatly reduced crop yields due to weather problems and/or lower than expected crop prices?

• There is a wide variety of crop insurance policies and coverage levels available.

• Make sure you are comparing “apples to apples” when comparing crop insurance premiums for various options or types of crop insurance policies.

• Take the time to verify yields and keep good yield records from year to year. You can greatly enhance your insurance protection with APH or CRC and RA-HP options at little or no extra cost by doing a good job of maintaining the maximum APH on farm units.

• Take a good look at the 80 percent and 85 percent coverage levels, especially if you are forward pricing a considerable amount of grain.

You will be surprised how much additional protection can be added at these higher coverage levels for a modest increase in premium costs. Many producers will be able to guarantee over $600/acre for corn and over $400/acre for soybeans.

• Take time to compare coverage differences and premium costs between the RA-HP and the CRC policies.

The harvest price limits on CRC compared to no limits with RA-HP policies may be a factor, especially if you have a significant amount of 2008 grain forward priced.

• APH (yield-only) insurance policies offer some good dollar guarantees, and may be an option on some farm units for producers trying to control their premium costs. Remember the APH policies protect against yield reductions only, and offer no protection against fluctuating grain markets.

• Investigate the potential of the BYE on eligible corn acres. Be sure to find out all details of the BYE from your crop insurance agent prior to sign-up, and remember to follow the compliance regulations for the BYE.

• Be cautious when considering GRIP or GRIP-HP policies for 2008. GRIP policies are available up to the 90 percent coverage level, and premiums on GRIP policies are usually significantly lower than CRC or RA-HP policies. However, GRIP policies are based on county-average yields, and do not necessarily cover yield losses from isolated storms or crop damage that affect individual farm units.

• Where to get more information on 2008 crop insurance alternatives? A reputable crop insurance agent is the best source of information to find out more details of the various coverage plans, to get premium quotes and to help finalize 2008 crop insurance decisions.

The University of Illinois Farm Management website has some good crop insurance information and an online Crop Insurance Premium Calculator. The website is www.farmdoc.uiuc.edu.

        

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