Crop Insurance Decisions

During the next couple weeks, many farm operators will be finalizing their crop insurance decisions for the 2006 crop year. March 15 is the deadline to purchase crop insurance for 2006. Producers need to analyze how crop insurance fits into their risk management and grain marketing strategies for the coming year. There are very few changes in the various types of crop insurance policies for 2006, as compared to last year. Most producers have a pretty good handle on the mechanics of standard APH (yield only) Multi-Peril Insurance policies, compared to RA and CRC revenue coverage policies (yield and price).

There has been more interest in the past couple of years in GRIP policies that are based on county average crop yields, due to the added coverage that is available at a fairly reasonable price.

GRIP insurance policies are based on historic NASS county average yields and base futures prices to establish a revenue base and on actual county average yields and final futures prices to establish the final crop value, and if any indemnity payments are paid.

Crop losses or actual yields on individual farm units have no bearing on any potential indemnity payments from GRIP policies, so it also probably good to carry Hail Insurance.

The mechanics of a GRIP insurance policy work very similar to a CRC or RA-HP policy, except GRIP is based off of historic county average yields, and CRC or RA-HP are based off of historic yields on a given farm unit.

The market price determinations for GRIP policies are the same as the calculations for CRC insurance policies, which use the average February CBOT futures settlement price for November soybeans and December corn to determine the base price, and average October settlement price for CBOT November soybeans and December corn to determine the harvest price.

Producers may choose GRIP insurance policy coverage levels at 70-90% of the County Revenue Guarantee (average county yield x base price).

Other Crop Insurance Considerations:
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 weather problems and/ or lower than expected crop prices?

Take a good look at the 80% and 85% coverage levels, especially on soybeans. You’ll be surprised how much additional protection can be added at these higher coverage levels for a modest increase in premium costs.

Potential crop losses from Asian soybean rust and/or soybean aphids will be covered in 2006, provided reasonable efforts were made to control the problems.

Take the time to verify yields and keep good yield records from year to year. You can greatly enhance your insurance protection with APH or CRC and RA-HP options at little or no extra cost by doing a good job of maintaining the maximum APH on farm units.

Utilize an optional unit structure to maximize crop insurance protection with APH and CRC or RA-HP policies. In most years, you’ll have more crop insurance protection by establishing the smallest optional units that are possible on your farms, with the exception o GRIP Insurance.

More Information On 2006 Crop Insurance Alternatives:
A reputable crop insurance agent is the best source of information to make 2006 crop insurance decisions. The University of Illinois Farm Management Web site has some good crop insurance information, and an on-line Crop Insurance Premium Calculator. The web site is: http://www.farmdoc.uiuc.edu/.

Editors 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 kent.thiesse@minnstarbank.com.