March 15 is the deadline to purchase crop insurance for the 2013 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 2013 crop insurance needs and options with their crop insurance agent before the deadline.
Following are some of the 2013 crop insurance options available for corn and soybeans under the COMBO insurance policies:
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. Farmers 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 guaranteed minimum dollars of gross revenue per acre (yield x price) based on 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. Farmers 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 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. 15, the 2013, estimated crop prices in the Upper Midwest for YP policies, as well as the base prices for RP and RPE policies, were $5.72/bu. for corn, $13.01/bu. for soybeans and $8.60/bu. for spring wheat.2013base prices will be finalized on March 1.
Bottom Line On Crop Insurance Decisions
Crop insurance premium reductions for 2013. 2013 crop insurance premiums for most coverage levels of corn and soybeans in the Midwest will be lower than comparable 2011 or 2012 premium levels, due to RMA premium adjustments that are based on updated crop insurance actuarial data for several years. This premium reduction will allow farmers to enhance their crop insurance coverage for 2013.
View crop insurance decisions from a risk-management perspective. How much financial risk can you handle if there are greatly reduced crop yields due to potential drought and weather problems in 2013, and/or lower than expected crop prices? RP policies serve as an excellent risk-management tool for these situations.
Take a good look at the Trend-Adjusted Actual Production History (TA-APH) Endorsement for 2013. Many farmers 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 appears to be a very good crop insurance strategy for corn, soybeans and wheat in selected areas.
There are a wide variety of crop insurance policies and coverage levels available. Make sure you 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 farmers will be able to guarantee over $900/acre for corn and over $550/acre for soybeans at these higher coverage levels.
Be cautious when considering enterprise units,GRIP or GRIP-HP policies for 2013. 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. Have your crop insurance agent compare the insurance coverage with enterprise units to the more traditional optional units for various farm units.
Where to get more information on 2013 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 2013 crop insurance decisions.
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 email@example.com.