March 15 is the deadline to purchase crop insurance for the 2012 crop year.A good crop insurance program is a key part of a solid risk-management plan for a farm business. Farm operators are encouraged to discuss the Common Crop Insurance Policy (COMBO) insurance options, as well as other 2012 crop insurance needs and options with their crop insurance agent before the deadline.
- Yield Protection (YP) – The YP policy option provides 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 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) – The RP policy option provides 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.
- Revenue Protection with Harvest Price Exclusion (RPE) – The biggest difference between the RPE and RP policy options is that the minimum revenue guarantee (yield and price) is fixed, based on the February CBOT prices for corn and soybeans, and can not be increased based later. Otherwise, RPE insurance policies function similarly to RP policies.
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 Feb. 17, the 2012 estimated crop prices for YP policies, as well as the base prices for RP and RPE policies, were $5.71/bu. for corn and $12.49/bu. for soybeans.
Bottom Line On Crop Insurance Decisions
- Crop Insurance Premium reductions for 2012.2012 Crop Insurance premiums for most coverage levels of corn and soybeans in the Midwest will be lower than comparable 2011 premium levels, due to RMA premium adjustments that are based on updated crop insurance actuarial data for several years. Minnesota crop insurance premiums for 2012 are expected to drop by an average of 10-12% for corn and 7-9% for soybeans, as compared to 2011 premiums, for comparable insurance coverage.
- Take a good look at the Trend Adjusted Actual Yield History (TA-APH) Endorsement. It appears that many producers will be able to significantly enhance their insurance protection by utilizing the TA-APH option, with only slightly higher premium costs. The TA-APH endorsement will replace the Biotech Yield Endorsement (BYE) for corn in 2012.
- There are a wide variety of crop insurance policies and coverage levels available. Producers should make sure that they 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% and 85% coverage levels, especially if you are using enterprise units with RP insurance policies. 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 $850/acre for corn and over $500/acre for soybeans at these higher coverage levels.
- Be cautious when considering enterprise units, GRIP or GRIP-HP policies for 2012. Enterprise units and GRIP policies become quite attractive due to significantly lower premium costs compared to optional units on RP 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.
- View crop insurance decisions from a risk-management perspective. Producers should decide how much financial risk they are willing to handle, if there are greatly reduced crop yields due to weather problems or lower-than-expected crop prices.
- Get more information on 2012 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 learn more about the TA-APH endorsement, to get premium quotes and to help finalize 2012 Crop Insurance decisions.
Following are 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 firstname.lastname@example.org.