Crop Insurance Considerations

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With federal crop insurance, every year is different. And with the multiple options available to producers, there are many variable results from crop insurance coverage at harvesttime, and 2011 will be no different. Some producers chose yield protection (YP) policies (yield only) vs. revenue protection (RP) policies (yield and price). Producers also have differences in the level of coverage, and some producers chose “optional units,” while other producers chose “enterprise units” for 2011.

Farm operators with crop losses need to contact their crop insurance agent to make sure those losses are reported and verified. Producers also need to keep good yield records and follow crop insurance verification procedures in order to maximize crop insurance indemnity payments on damaged crop acres. The crop insurance yield data may also be used later for potential SURE program payments through the federal government for the 2011 crop year. The SURE program is the permanent disaster program that was part of the 2008 Farm Bill, and may be continued in the next farm bill.

In the Midwest, most corn and soybean producers in recent years have tended to secure some level of revenue (RP) crop insurance coverage, rather than standard yield-only (YP) policies. Producers like the flexibility of the RP policies that provide insurance coverage for reduced yields, as well as in instances where the harvest price drops below initial base price. In 2011, yield losses with YP policies and RP policies will likely function differently for soybeans, but similarly for corn, due to the recent fluctuation in Chicago Board of Trade (CBOT) grain prices.

The established base prices for 2011 YP and RP crop insurance policies was $6.01/bu. for corn and $13.49/bu. for soybeans This will be the payment rate for 2011 YP policies for corn and soybeans, and will serve as the final price to calculate revenue guarantees for potential RP crop insurance indemnity payments at current price levels for soybeans, but not for corn. The final harvest price for RP insurance policies is based on the average CBOT December corn futures and CBOT November soybean futures during the month of October. If the 2011 CBOT price in October is below $6.01/bu. for corn and $13.49/bu. for soybeans, the initial base price is used to calculate the RP guarantees; otherwise, the October price is used. The CBOT average price for October is used to calculate the value of the actual harvested bushels for RP policies.

As of Oct. 24, the average CBOT futures prices in October were $6.25/bu. for corn and $12.11/bu. for soybeans. Based on the current estimated harvest price for corn, the YP and RP policies will function similarly, with all losses being based on yield losses below guaranteed yields. The only difference will be that the payment rate that is used to calculate potential crop insurance indemnity payments in 2011. The payment rate for YP policies is set at $6.01/bu., and the payment rate on RP policies will be at the final average October CBOT corn futures price (currently $6.25) for every bushel of yield below the guarantee yield.

The RP policies for soybeans will likely use the initial guaranteed price of $13.49 per bushel to establish the revenue guarantee, and the final October CBOT futures price (currently $12.11) for the harvest price to calculate the actual revenue value. This price difference between the initial guarantee and the value of the harvested bushels will result in higher final soybean yields being able to potentially qualify for 2011 RP insurance payments. As a result of the lower prices and some highly variable yields, it is likely that more producers with RP policies may qualify for crop insurance indemnity payments on their 2011 soybeans than in recent years.

Producers who have 2011 crop losses on individual farms, and have crop insurance coverage with optional units, may be able to collect crop insurance indemnity payments on their 2011 corn or soybean crop on some farm units, while not on others. Meanwhile, producers with crop insurance policies with enterprise units in 2011, are less likely to qualify crop insurance indemnity payments, especially with corn – unless they had crop losses on a significant portion of crop acres in a county. Due to the recent drop in CBOT soybean prices, along with the very low corn and soybean yields in some areas due to poor 2011 weather conditions, there are likely to be more producers with enterprise units that qualify for crop insurance indemnity payments in 2011, as compared to 2010.

It is important for producers who are facing crop losses in 2011 to understand their crop insurance coverage. A reputable crop insurance agent is the best source of information to make estimates for potential 2011 crop insurance indemnity payments, and to find out about documentation requirements for crop insurance losses. The University of Illinois Farm Management website has good crop insurance information and calculators.

 

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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