Published: September 18, 2008 04:46 pm            

Farm Programs: Calculating 2008 crop insurance payments

Originally published in the Sept. 19, 2008, print edition.

Many farmers in Minnesota and surrounding states will be facing reduced yields on some farm units in 2008, due to late planting, floods, drought and severe storms.

Many growers purchased upgraded levels of Federal Crop Insurance for the 2008 growing season, because of the excellent revenue guarantees that were available at the crop insurance sign-up deadline on March 15.

For producers who incur losses to their 2008 corn and soybean crop, the added revenue guarantees that were purchased last March are likely to pay big dividends this fall.

Following is an analysis of potential 2008 crop loss scenarios, and the likely crop insurance indemnity payments, both with Actual Production History (yield-only) policies, or with Crop Revenue Coverage or Revenue Assurance with the harvest price option policies.

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.

Producers may select coverage ranging from 50 percent to 85 percent of the APH (proven yield) to arrive at a yield guarantee.

• Indemnity payments are calculated by subtracting the harvest yield on a “farm unit” from the yield guarantee and multiplying times the APH market price.

Corn example

165 bushels per acre APH X 80 percent = 132.0 bu./acre guarantee

132 bu./acre guarantee and 125 bu./acre harvest yield

132 bu./acre - 125 bu./acre = 7 bu./acre X $4.75/bu. = $33.25/acre

$33.25/acre - $18/acre (premium) = $15.25/acre net indemnity payment

Soybean example

47 bu./acre APH X 80 percent = 37.6 bu./acre guarantee

37.6 bu./acre guarantee and 30 bu./acre harvest yield

37.6 bu./acre - 30 bu./acre = 7.6 bu./acre X $11.50/bu. = $87.40/acre

$87.40/acre - $12.60/acre (premium) = $74.80/acre net indemnity payment

CRC and RA-HP insurance policies

• CRC and RA-HP

Option (RA-HP) insurance policies function in the same manner.

• A Revenue Assurance policy without the harvest pricing option (RA-BP) functions differently than a CRC or RA-HP policy, and is 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 Chicago Board of Trade grain futures prices.

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

Corn

Base price 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. (Average price in November is used for RA-HP.)

Limit: Harvest price is limited to the base price plus or minus $1.50/bu.

Soybeans

Base price 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 is limited to the base price plus or minus $3/bu.

• 2008 RA-HP and CRC base prices were:

Corn: $5.40/bu.

Soybeans: $13.36/bu.

• 2008 RA-HP and CRC harvest price estimates as of Sept. 15:

Corn (December futures on Sept. 15): $5.48/bu.

Soybeans (November futures on Sept. 15, 2008): $11.59/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.

Please refer to accompanying table for crop loss examples for corn and soybeans with an 80 percent coverage CRC or RA-HP crop insurance policy. The table also contains space for producers to put in their own APH yields, insurance coverage levels, projected yield and harvest prices, in order to make estimates for potential crop insurance indemnity payments.

Bottom line on calculating potential crop insurance payments

• It is important for producers who are facing crop losses in 2008 to understand their crop insurance coverage and the calculations used to determine crop insurance indemnity payments. This information is also important to share with ag lenders, landlords and others.

The adjoining table provides a good example of the crop insurance protection offered by a 80 percent RA-HP or CRC insurance policies for corn and soybeans. The table also provides an easy-to-use format to calculate potential crop insurance indemnity payments at various yields, harvest prices, and crop insurance coverage levels.

• Producers who utilize an “optional unit” structure for individual farm units should be able to more fully maximize crop insurance benefits with APH and CRC or RA-HP policies. There is a lot of variation in crops from farm-to-farm and field-to-field in 2008.

• If CBOT November soybean futures stay near current levels, or drop even lower, producers with CRC and RA-HP policies will qualify for crop insurance indemnity payments at higher yield levels. For example, at an average November soybeans futures price in October of $11.50/bu. or lower, it is likely that many producers could qualify for some crop insurance benefits on a CRC or RA-HP policy at 40 bu./acre, or higher. Pay attention to the CBOT corn and soybeans futures prices in October.

• Where to get more information on potential 2008 crop insurance payments?

A reputable crop insurance agent is the best source of information to make estimates for potential 2008 crop insurance indemnity payments. The University of Illinois Farm Management website has some good crop insurance information, and an online “What-If” Crop Insurance Payment Calculator. The website is at www.farmdoc.uiuc.edu.

SURE program clarification

There have been some questions since my last column regarding 2009 crop insurance and NAP coverage requirements related to 2009 program eligibility for the Supplemental Agriculture Disaster Assistance Program.

For 2009-12, producers must purchase crop insurance (a minimum of CAT coverage) for all eligible crops, and NAP insurance coverage for other crops, in order to be eligible for the SURE program for a given crop year.

In Minnesota, the deadline to purchase 2009 crop insurance for corn, soybeans, wheat, peas, sweet corn and other crops is March 15, 2009. However, the deadline to purchase 2009 crop insurance for existing alfalfa stands and other eligible hay ground is Sept. 30, 2008. Any producers who have hay or pasture acres on their farms that are not eligible for crop insurance, including grass waterways harvested for hay, and want to be eligible for the SURE Program in 2009, will have to purchase NAP insurance on those acres at their county Farm Service Agency office by Sept. 30, 2008.

Producers who want to be eligible for the SURE Program for 2009 need to pay attention to the crop insurance purchase deadlines for all planned crops to be raised in 2009, including existing forage acres. The forage provisions for crop insurance and NAP coverage are quite confusing, and vary from state-to-state, so it is best to check with your county FSA office and crop insurance agent for more details by Sept. 30, regarding the SURE Program crop insurance and NAP coverage details and requirements.

        

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