2012 Crop Insurance Decisions

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During the next few weeks, many farm operators will be finalizing their crop insurance decisions for the 2012 crop year. March 15 is the deadline to purchase crop insurance for the 2012 crop year.The Common Crop Insurance Policy (COMBO) was introduced in the 2011 crop year, and will continue for the 2012 crop year. The COMBO insurance policy options are actually a simplification of the many and varied crop insurance choices that existed previously for individual policies.

 

Yield Protection (YP)

  • YP policies provide protection from yield losses only.
  • The price guarantee for YP policies for cornis the average settlement price for December CBOT corn futures in February, and for soybeansis the average settlement price for November soybean futures in February.
  • Producers may select coverage ranging from 50% to 85% of the APH (proven yield) to arrive at a yield guarantee. Soybean example: 50 bu./acre APH x 80% = 40-bu./acre guarantee
  • Replant and prevented planting coverage apply to YP policies.
  • Indemnity payments are calculated by subtracting the harvest yield on a farm unit from the yield guarantee and multiplying times the YP market price minus the crop insurance premium. Soybean example: 40 bu./acre guarantee and 30 bu./acre harvest yield (40 bu./acre - 30 bu./acre) = 10 bu./acre x $12.25/bu. - $16/acre = $106.50/acre

Revenue Protection (RP & RPE)

  • The RP and Revenue Protection with Harvest Price Exclusion (RPE) insurance policies function essentially in the same manner, except that the RPE policies are not affected by harvest prices. In this discussion, the focus will be primarily on the RP policies, since they are most popular for Midwest corn and soybean producers.
  • The APH, farm unit determinations, insurance coverage selections (50-85%), replant and prevented planting coverage, etc. for RP and RPE insurance policies are the same as for YP policies.
  • RP and RPE price guarantees are calculated using prices based on Chicago Board of Trade (CBOT) futures prices, and not cash prices.
  • Corn: the average settlement price for December CBOT corn futures during the month of February. Harvest price for RPpolicies is the average settlement price for December CBOT corn futures in October during the year of harvest. Limit:theharvest price maximum for RP is limited to the base price times 200%. Example: $5.70/bu. base price x 2 = $11.40/bu. maximum. There are no restrictions regarding downside price movement.
  • Soybeans: Base price for RP and RPE policies is the average settlement price for November soybean futures during the month of February. Harvest price for RPpolicies is the average settlement price for November CBOT corn futures in October during the year of harvest. Limit:Theharvest price maximum for RP is limited to the base price times 200%. Example: $12.25/bu. base price x 2 = $24.50/bu. maximum.There are no restrictions regarding downside price movement.
  • 2012 YP, RP and RPE Base Prices will be finalized on March 1, 2012. As of January 27, 2012, the prices are estimated at $5.70/bu. for corn and $12.25/bu. for soybeans.
  • The higher of the base price or the harvest price is used to calculate revenue guarantee per acre for RP policies, and the harvest price is also used to determine the value of the harvested crop for both RP and RPE policies.
  • RP (80% policy) corn crop loss example: 190-bu./acre APH; 152-bu./acre guarantee; and 150-bu./acre harvest yield. $5.70/bu. CBOT base price and $5/bu. CBOT harvest price) $30/acre premium.
    • Revenue guarantee = 152 bu./acre x $5.70/bu. = $866.40/acre
    • Harvested crop value = 150 bu./acre x $5/bu. = $750.00/acre
    • Indemnity payment = $866.40/acre - $750/acre - $30/acre = $86.40/Acre

A reputable crop insurance agent is the best source of information to find out more details of the various coverage plans, to learn more about the TA-APH endorsement, to get premium quotes, and to help finalize 2012 crop insurance decisions. Following are some very good websites with crop insurance information:

 

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.

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