Some Iowa corn and soybean producers are facing substantial if not complete crop losses due to flooding. In particular, many acres of crops in the Missouri River Valley have been under water for a month or more this year. Fortunately, nearly 90% of Iowa’s corn and soybean acres are protected by multiple peril crop insurance.


Crop Insurance

Most Iowa producers purchase crop insurance policies with a 75% or 80% level of coverage. This means that if crops are a total loss, the producer must stand the first 20-25% of the loss. However, in 2011 nearly 90% of the crop acres insured in Iowa were covered under revenue protection (RP) policies, which offer an increasing guarantee if prices increase between February and October. So far, this has added over a dollar per bushel to corn guarantees and about 25¢/bu. to soybean guarantees. Moreover, since revenue protection policies are settled at the average nearby futures price during the month of October, rather than local cash prices, farmers will receive a bonus equal to the fall grain basis in their area.

Producers with crops that have been totally destroyed by flooding will not have to incur the variable costs of harvesting. This could save around $20/acre for soybeans and perhaps $70/acre for corn, depending on potential yields and drying costs. Nevertheless, even producers who carried insurance at an 80% coverage level could be looking at net revenues of at least $100/acre below those obtained from normal yields this year.


Potential Losses

For example, assume an insured tract has an expected corn yield of 160 bu./acre and an insurance proven yield of 150 bu. A normal crop marketed at $6.50/bu. would bring $1,040/acre. The insurance indemnity payment for an 80% RP guarantee, zero yield and an October futures price of $7 would equal 150 bu. x $7 x 80% = $840. Saving $70 in harvest costs would give an equivalent of $910/acre, or $130 below the value of a normal crop.

For soybeans, assume both the expected yield and the proven yield are 50 bu./acre, and the crop could be marketed at $13/bushel. Gross income for a normal crop would be $650/acre. The insurance payment for a complete crop failure and a $13.75 October futures price would be 50 bu. x $13.75 x 80% = $550. Savings of $20 in harvesting costs brings the equivalent of $570/acre, or $80 below the value of a normal crop.

In many cases, of course, flooded acres will make up only a portion of the insured unit, so production from non-flooded acres will be averaged in with the zero yields from the flooded acres.

The real question is how much will it cost to clean up fields and bring them back into production next year? Iowa farmers have not had prior experience with fields being under water for extended periods of time, so effects are difficult to estimate. Problems will range from physically removing debris to leveling eroded areas to restoring fertility.