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Crop Insurance Prices Finalized

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Now that the 2012 corn and soybean harvest season is completed, many farm operators are focusing their efforts on 2012 crop insurance claims. It is anticipated that 2012 crop insurance claims will likely set an all-time record, both for total claim numbers and total indemnity payments made to producers. The large number of crop insurance claims is primarily due to the significant yield reduction resulting from the 2012 drought in many key corn and soybean-producing states in the U.S. Some experts predict that total crop insurance indemnity payments for 2012 will be over $25 billion, nearly 2.4 times higher than the previous record of $10.8 billion for crop insurance payments from the 2011 crop year.

According to crop insurance industry estimates, there are 1.2 million crop insurance policies in place for the 2012 crop year, insuring approximately 281 million acres, at a farmer investment of $4.1 billion. It is also estimated that crop insurance claims on the 2012 crop may be filed close to half of those 1.2 million crop insurance policies. It is further estimated that approximately 80% of the over 95 million corn acres in the U.S. are insured by some type of crop insurance policy in 2012. By comparison, only about 15% of the nation’s corn acres were under a crop insurance policy in 1988, which was the last widespread drought causing this much loss to the U.S. corn crop.

On Nov. 1 the USDA Risk Management Agency (RMA) finalized the 2012 crop insurance harvest prices for corn at $7.50/bu., and for soybeans at $15.39/bu. The harvest prices for Revenue Protection (RP) insurance policies are based on the average CBOT December corn futures price, and the average CBOT November soybean futures price, both during the month of October. The established base prices for 2012 Yield Protection (YP) and RP crop insurance policies were $5.68/bu. for corn and $12.55/bu. for soybeans. This will be the payment rate for all 2012 YP (yield only) policies for corn and soybeans on any indemnity payments.

The $5.68 price level for corn and $12.55 for soybeans are also used to determine the final revenue guarantee for all 2012 RP crop insurance policies, with a Harvest Price Exclusion (RP-HPE). There is no enhanced revenue protection on RP-HPE policies from the increased levels of corn and soybean harvest prices in 2012. For RP-HPE policies, the base price is used to calculate the revenue guarantee and the higher harvest price is used to calculate the value of the harvested yield, which greatly reduces the potential indemnity payments.

The higher harvest price levels of $7.50/buhel for corn and $15.39 per bushel for soybeans will be used to determine final revenue guarantees for standard RP insurance policies. For example, a farm unit with a 190-bu./acre APH corn yield (proven yield), insured by an 80% RP policy, would have a final guaranteed revenue of $1,140 (152 bu./acre x $7.50/bu.). By comparison, that same farm unit insured by an 80% RP-HPE policy with a 190-bu./acre APH would have a final guaranteed revenue of $863.36 (152 bu./acre x $5.68/bu.), a difference of $276.64 less than the RP policy.

 

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