During the next few weeks, many farm operators will be finalizing their crop insurance decisions for the 2014 crop year. March 15 is the deadline to purchase crop insurance for the 2014 crop year. Profit margins for crop production this year are the tightest that they have been for several years, which makes the 2014 crop insurance decisions even more critical. Producers have several crop insurance policy options to choose from, including yield protection (YP) policies and revenue protection (RP and RPE) policies, as well as several other group insurance policy options. There are also decisions with using enterprise units versus optional units, and whether or not to take advantage of the trend adjusted APH yields for 2014.
Yield Protection (YP) insurance policy options provide for yield only insurance protection, based on historic actual production history (APH) yields on a given farm unit. YP prices are based on average Chicago Board of Trade (CBOT) prices for December corn futures and November soybean futures during the month of February, similar to revenue insurance products. Producers can purchase YP insurance coverage levels from 50% to 85%, and losses are paid if actual corn or soybean yields on a farm unit fall below the yield guarantees.
Revenue Protection (RP) insurance policy options provide for a guaranteed minimum dollars of gross revenue per acre (yield x price), based on yield history (APH) and the average CBOT prices for December corn futures and November soybean futures during the month of February. The revenue guarantee is increased for final insurance calculations, if average CBOT prices during the month of October are higher than the February CBOT prices. Producers purchase RP insurance coverage levels from 50% to 85%, and losses are paid if the final crop revenue falls below the revenue guarantee. The final crop revenue is the actual yield on a farm unit times the CBOT December corn futures price and November soybean futures price during the month of October. The Revenue Protection with Harvest Price Exclusion (RPE) policy options function the same as RP policies, except RPE policies have a minimum revenue guarantee (yield and price) that is fixed, based on the February CBOT corn and soybean prices, and can not be increased later.
In recent years, a high percentage of crop insurance policies for corn and soybeans in the Upper Midwest have been RP policies, because of the combination of yield and price protection. As of February 14, the 2014 estimated crop prices in the Upper Midwest for YP, RP, and RPE policies was $4.58 per bushel for corn, $11.19 per bushel for soybeans, and $6.38 per bushel for spring wheat. 2014 YP prices and RP base prices will be finalized on March 1.