Choosing Crop Insurance for 2004

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Choosing Crop Insurance for 2004

• William EdwardsIowa State University

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Important Decisions

• What type of insurance?
• What level of coverage?
• What type of units?

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Crop Insurance Alternatives

• Yield insurance
• Revenue insurance

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Yield Insurance(APH)

• Catastrophic (50)
• Buy-up to 85
• Group Risk Plan (GRP)
• Hail add-on

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Revenue Insurance

• Revenue Assurance (RA) Standard
• Revenue Assurance Harvest Price Optional
• Crop Revenue Coverage (CRC)
• Income Protection (IP) (SW Iowa)
• Group Risk Income Protection (GRIP)

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Acres Planted in 2003 Corn-Iowa
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Acres Planted in 2003Soybeans-Iowa
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Acres Insured in 2003 Corn-Iowa
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Acres Insured in 2003Soybeans-Iowa
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Indemnity Payments Made in Iowa for 2003 Crop
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Payback Ratio in 2003
As of farmer premium
Corn 31
Soybeans 458
All crops 170

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2003 Soybean Settlement

• Purchased 75 RA
• Guarantee is 40 bu. APH x 5.26 x 75 156
• Actual yield was 28 bu./acre
• Fall price was 7.32
• Actual revenue 28 bu x 7.32 205
• Under standard RA no payment

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2003 Soybean Settlement

• Under RA with harvest price option the guarantee
  increased to 40 bu. X 7.32 x 75 219.60
• Payment 219.60 - 205 14.60
• Or, 2 bu. of loss paid at 7.32 per bu.

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CRC and RA-HPO
Replace lost bu. at CBOT price
Feb. futures price
Harvest futures price
Replace lost revenue -
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What is Your Marketing Pattern?

• If you price before harvest
• use CRC or RA-HPO to guarantee bushels
• If you only price after harvest
• use standard RA or APH (lower premium)

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What is Your Feed Balance?

• Feed fed equals feed raised (flexible)
• Buy yield insurance
• Price doesnt matter
• Feed deficit (must buy feed if short)
• Buy CRC or Harvest Price RA to insure replacement
  bushels

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Group Risk Insurance may be appropriate when

• Individual yields closely track county yields
• No production history is available or APH is low
• Can stand more risk

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What are your crop insurance goals?

• To insure bushels? APH
• To insure cash flow? Basic RA
• To forward price? CRC,RA-HPO
• To protect equity? CAT
• To make a profit? GRP,GRIP

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What Coverage Level Should I Buy?
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How Many to Insure?

• Consider cost of production
• Seed, fertilizer, pesticides
• Machinery and hired labor
• Land rent or payments
• Debt payments
• Family living
• Subtract your deductible

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Higher Coverage Levels are Available in 2004

• Proven yields will increase for most people (at
  least corn).
• Drop 1993 yields, add 2003.
• 1993 2003
• Corn 80 bu. 157 bu.
• Soybeans 31 bu. 32 bu.

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2004 Insurance Prices

• Corn Soybeans
• CRC,RA 2.78? 6.47?
• APH 2.45 5.60
• Loan rate 1.90 4.93
• (Iowa average)

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Higher Guarantees Available

• 2003 135 bu. x 2.42 x 75 245
• 2004 143 bu. x 2.78 x 75 298

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Cost of Higher Coverage

• Raising coverage from 65 to 75 roughly doubles
  the premium
• Raising coverage from 75 to 85 roughly doubles
  it again

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Winneshiek Co. Premiums(140 bu. corn, basic
units)
Level APH RA BASIC RA-HPO CRC GRP GRIP
65 3.74 3.55 5.39 6.21
70 4.89 5.24 7.74 8.22 2.19 1.34
75 7.28 8.17 11.75 12.31 2.73 2.44
80 11.40 12.97 18.26 19.35 4.21 4.73
85 18.20 20.70 28.65 31.04 5.65 7.62
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Winneshiek Co. Premiums(45 bu. soybeans, basic
units)
Level APH RA BASIC RA-HPO CRC GRP GRIP
65 2.07 2.14 3.12 3.56
70 2.94 3.36 4.72 5.04 .92 1.00
75 4.50 5.43 7.44 7.70 1.05 1.24
80 7.10 8.83 11.87 12.18 1.49 2.77
85 11.33 14.33 18.96 19.57 2.39 4.87
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Crop Insurance Premium Calculator

• University of Illinois Extension
• http//www.farmdoc.uiuc.edu/cropins

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What Units to Choose?

• Optional Units Each farm separate
• Basic Units Can combine owned and cash rented
  acres in same county
• Enterprise Units Can combine all acres of the
  same crop in same co.
• Whole Farm Can combine crops

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Black Hawk Co. Premiums145 bu. corn, RA-standard
Level Enterprise Units Basic Units Optional Units
65 2.94 3.55 4.16
70 4.55 5.24 5.43
75 7.32 8.17 8.09
80 11.87 12.97 12.67
85 19.25 20.70 20.22
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Important Points for 2004

• Proven yields will increase for most people,
  especially corn.
• Indemnity prices will be higher. More downward
  price risk.
• Higher coverage available.
• Premiums will be higher at each guarantee.

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Thank you and have a nice day!