— During the next few weeks, many farmers will be finalizing their crop insurance decisions for the 2010 crop year.
March 15 is the deadline to purchase crop insurance for the 2010 crop year. Producers need to analyze how crop insurance fits into their risk management and grain marketing strategies for the coming year. See Tables A and B for comparison examples of APH insurance policies with CRC/RA-HP policies at similar crop yield levels.
Biotech Yield Endorsement
The Biotech Yield Endorsement will be available in 2010 in Minnesota, Iowa and other major corn producing states, on corn acres that are planted to certain biotech corn hybrids.
Following are details of the BYE endorsement.
• Available for APH, CRC and RA insurance coverage policies, but not CAT policies.
• The number of qualifying biotech corn hybrids eligible for BYE has been increased and have been adjusted for 2010. Check with your crop insurance agent regarding corn hybrid eligibility.
• 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 with BYE.
• 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 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 endorsement.
• 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 endorsement 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 endorsement on some or all of their corn acres in 2010 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 they comply with all BYE requirements.
Enterprise units
In 2009, the USDA Risk Management Agency increased the federal subsidy for purchasing APH, CRC or RA insurance coverage under “Enterprise Units,” which combines all acres of a crop in a given county into one crop insurance unit. Many producers now use “Optional Units,” which allow producers to insure crops separately in each township section. There are some substantial premium savings by switching from optional units to enterprise units; however, producers need to be aware of the limitations of insurance coverage on individual farms with enterprise units.
In 2009, some producers had crop losses on individual farms, but were on enterprise units, and as a result were not eligible for any insurance indemnity payments. Enterprise units appear to work quite well when a producer has most of their land in the same general area, and when supplemental hail insurance coverage is also part of the overall risk management plan. Producers should contact their crop insurance agent to better understand insurance coverage with enterprise units.
ACRE and SURE
The Average Crop Revenue Election and the Supplemental Revenue Assistance Payment Program were added as part of the 2008 farm bill.
The ACRE program offers an alternative method of calculating farm program payments triggered by crop revenues (yield x price), as compared to the traditional price-based counter-cyclical payments.
The SURE program is the so-called “permanent disaster program” and is also based on crop revenues in a given year, and requires crop insurance coverage.
While there are some similarities in the calculations used for the ACRE and SURE programs to CRC and RA crop insurance policies, the ACRE and SURE programs function differently.
The ACRE program is based on statewide yield averages and national average grain prices, and potential payments are not made until nearly a year after harvest.
SURE payments are based on a county being declared a Federal Disaster Area by the USDA, the farm having sufficient losses to qualify and national average prices. Again payments do not usually arrive until a year or longer after the crop was harvested.
CRC and RA insurance policies are based on farm APH yields, prices are based on Chicago Board of Trade base and harvest prices, and payments are made as soon after harvest that final yields are verified. Enrollment in the ACRE program, or potential eligibility for SURE, should not be considered or be a factor when making crop insurance decisions for the 2010 crop year.
2009 insurance coverage
Other than the BYE, use of “Enterprise Units,” or considering a group insurance policy, most provisions for crop insurance policies are similar to previous years.
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 CBOT prices, due to the lower premium prices for GRIP policies.
Producers need to thoroughly analyze these types of crop insurance policies with their crop insurance agent before switching from the more traditional CRC and RA-HP policies.
Following is a review of the APH (yield only), and RA-HP and CRC (yield and price) crop insurance policies for 2010.
APH insurance policies
• APH policies provide protection from yield losses only.
• The market price is established for each crop prior to sign-up, and does not change.
2010 APH market prices are:
Corn: $3.90 per bushel
Soybeans: $9.15/bu.
• Producers may select coverage ranging from 50 to 85 percent of the “actual production history” (“proven yield”) to arrive at a “yield guarantee.”
Soybean example: 48 bushels per acre APH X 75 percent = 36.0 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 minus the crop insurance premium.
Soybean example: 36.0 bu./acre guarantee and 27.0 bu./acre harvest yield
(36.0 bu./acre - 27.0 bu./acre) = 9.0 bu./acre x $9.15/bu. - $12/acre = $64.95/acre
CRC and RA-HP insurance policies
• Crop Revenue Coverage and Revenue Assurance with a Harvest Pricing Option insurance policies function in the same manner. Revenue Assurance policies without the harvest pricing option are not affected by harvest prices.
• 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.
• Following is how CRC and RA-HP “price guarantees” are calculated.
(All prices are based on Chicago Board of Trade futures prices, and not cash prices.)
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 for RA-HP is the average settlement price for December CBOT corn futures in November during the year of harvest.
Limit: The harvest price maximum for CRC and RA-HP is limited to the base price times 200 percent. (Example: $4/bu. base price x 2 = $8/bu. maximum)
There are no restrictions regarding downside price movement.
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: The harvest price maximum for CRC and RA-HP is limited to the base price times 200 percent. (Example: $9/bu. base price x 2 = $18/bu. maximum)
There are no restrictions regarding downside price movement.
• 2010 RA and CRC base prices will be finalized on March 1.
As of Feb. 12, the prices are estimated at:
Corn: $3.94/bu.
Soybeans: $9.14/bu.
Spring wheat: $5.41/bu.
• The higher of the base price or the harvest price is used to calculate revenue guarantee per acre, and the harvest price is used to determine the value of the harvested crop.
• CRC or RA-HP (75 percent policy) corn crop loss example: (175 bu./acre APH, 131.25 bu./acre guarantee, and 131 bu./acre harvest yield; $3.94/bu. CBOT base price and $3.50/bu. CBOT harvest price)
Revenue guarantee = 131 bu./acre X $3.94/bu. = $517.13/acre
Harvested crop value = 131 bu./acre X $3.50/bu. = $458.50/acre
Indemnity payment (Gross) = $516.14/Acre - $435/acre = $58.63/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?
• 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.
There are a wide variety of crop insurance policies and coverage levels available.
Make sure you are comparing “apples to apples” when comparing crop insurance premium costs for various options or types of crop insurance policies, and recognize the limitations of the various crop insurance products.
• Take a good look at the 80 percent and 85 percent coverage levels, especially if you are using “enterprise units” or GRIP insurance policies.
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 $550 per acre for corn and over $350 per acre for soybeans.
• Be cautious when considering “Enterprise Units,” GRIP or GRIP-HP policies for 2010.
“Enterprise Units” and GRIP policies become quite attractive due to significantly lower premium costs compared to “optional units” or CRC or RA-HP policies. However, “Enterprise Units” and GRIP policies are based on larger coverage areas, and do not necessarily cover losses from isolated storms or crop damage that affect individual farm units.
• Investigate the potential of the BYE on eligible corn acres.
There will likely be significant premium savings with the BYE on corn acres in 2010; however, producers should find out all details of BYE prior to sign-up, and remember to follow the compliance regulations for the BYE.
• The ACRE and SURE farm programs do not replace good crop insurance coverage.
Make crop insurance decisions based on the risk management needs of the farm business, and recognize that the ACRE and SURE programs do not offer the same level of risk management.
• Where to get more information on 2010 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 2010 crop insurance decisions.
Following are some websites with crop insurance information.
• University of Illinois FarmDoc: www.farmdoc.uiuc.edu
• Iowa State University Ag Decision Maker: www.extension.iastate.edu/agdm
• USDA Risk Management Agency: www.rma.usda.gov
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Kent Thiesse is a government farm programs analyst and a vice president at MinnStar Bank in Lake Crystal. He may be reached at (507) 726-2137 or kent.thiesse@minnstarbank.com.
