The guarantee for RP equals Trend Adjusted APH yield x higher of projected or harvest price x coverage level. When the projected price is announced, a minimum guarantee is known. Unless very unlikely events occur, the minimum guarantee in 2014 will be much lower than in 2013 because the 2014 projected price will be lower than the 2013 projected price. Using a 187 Trend Adjusted APH yield, and a $4.60 price, the minimum guarantee at an 85% coverage level equals $731 per acre (187 Trend Adjusted APH yield x $4.60 projected price x .85). The 2013 guarantee at an 85% coverage level using the same guarantee yield is $845 per acre. At an 85% coverage level, the 2014 guarantee is $114 per acre lower than the 2013 guarantee.

For the Sangamon County example, farmers will have to increase their coverage levels to receive the same per acre guarantee level. For example, the 70% RP has a 2013 guarantee of $687 per acre. To get the same guarantee level in 2014 an 80% coverage level has to be chosen, which results in a minimum guarantee is $688 per acre (see Table 1). Similarly, an 85% coverage level in 2014 will give roughly the same guarantee as a 75% coverage level in 2013. 

Famers who purchased 80% and 85% coverage levels in 2013 will not be able to get the same per acre guarantee level in 2014. Guarantees will be lower. In 2013, 80% of the corn acres insured in Illinois were at 80 and 85% coverage levels. Hence, most acres will have lower guarantee levels in 2014 as compared to 2013.

Non-land costs for corn contained in the 2014 Illinois Crop Budgets total $537 per acre. According to the National Agricultural Statistical Service, the average 2013 cash rent in Sangamon County is $371 per acre. Total cost for cash rent farmland at average cash rents is $908 per acre. The 85% guarantee level of $731 per acre is below the total costs for cash rent farmland. In 2014, guarantee levels are below total costs on farms with cash rent farmland.

Read the article at farmdocDaily.