Farm Progress is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Corn+Soybean Digest

Balancing Your Insurance Options

A grower's dream scenario: A rising market that offers opportunities to capture a respectable price for a crop. His nightmare is when prices rise and there's nothing to sell.

The latter scene played out in much of the western Corn and Soybean Belt in 2002, where drought caused yield reductions, if not total losses, throughout major growing areas (see above map).

However, farmers holding crop revenue insurance policies or products — such as crop revenue coverage (CRC) and revenue assurance (RA) with the harvest price option — were still able to be aggressive pre-harvest marketers in 2002. So says Robert Craven, director for the Center of Farm Financial Management, University of Minnesota.

“These products were designed to help producers market pre-harvest and not worry about a big price rise in the fall and come up short,” he says. He points out that there were opportunities in August and September last year to price part of the crops at strong prices.

The past two years, Soybean Digest has covered the rise in the prevalence of revenue insurance policies. This year we visited with two insurance agents featured in 2002 and 2001 to see how the products fared for their clients.

As it turns out, both agents were in areas hit hard by drought.

“Without the revenue products, I wouldn't like to see what this area would be like,” says Ruth Gerdes, a crop insurance specialist for the Auburn Agency in Auburn, NE, where there were widespread crop losses. Gerdes' agency has about 1,200 clients; this year it handled about 1,200 claims.

“We saw the value of the revenue products in a major way this year,” she explains. “People who got caught without a revenue product will see that they left a lot on the table.”

Revenue products were successful there because of a component of the contract called the harvest price adjustment, she explains. CRC provides revenue protection based on price and yield expectations by paying for losses below the guarantee at the higher of either an early season or a harvest price.

For example, the final guaranteed corn price in Nebraska was $2.52/bu for CRC vs. $2/bu for standard multiple peril crop insurance (MPCI).

For soybeans, the harvest price was $5.45 for CRC vs. $5 for MPCI. RA, the second most popular type of revenue insurance nationwide, is not available in Nebraska.

In hindsight, revenue products appear to be the way to go in areas suffering significant yield losses. However, deciding to pay a higher premium for revenue insurance early in the year was not a no-brainer, given the early season price guarantee for MPCI was $5/bu and for CRC, $4.50/bu.

Craven says many producers were tempted to take MPCI because of the higher early season guarantee.

Jim Baldonado of Home Agency, in Elwood, NE, was questioned by clients when he continued to steer them toward revenue insurance products despite the price guarantee difference.

“In the spring we had people question the value of the revenue products because of the 50¢ difference in price,” he says. But Baldonado continued to push CRC — because of the protection from price swings it provides and because of its fit with his clients' marketing programs.

In the end, he says, it was the right recommendation — not because of lower prices, as in recent years, but because of higher prices. The harvest price adjustment for CRC policies resulted in a payment to his clients of $12-16 more per acre than a standard MPCI policy.

Baldonado says that extra money was extremely important, as almost all of his clients with non-irrigated soybeans had total losses this year.

Making Insurance Decisions In 2003

The harvest price adjustment feature of revenue insurance policies showed its worth in 2002 in areas with significant losses. Yet each year is different and there's no substitute for reviewing insurance needs before each season.

Here are a few factors to check over before making decisions this year.

  1. Market prices

    If marketing experts are correct, corn and soybean prices will hold at higher levels than in recent years. Then revenue products will provide additional protection this year against a more typical price pattern — declining prices into harvest.

    Experts stress that a primary benefit of revenue insurance is its ability to protect revenue, not just yields. In addition, revenue insurance can be a valuable part of a marketing plan by guaranteeing revenue per acre, allowing a producer to more aggressively pre-harvest market.

    Art Barnaby, Kansas State University ag economist, says higher prices mean slightly higher revenue insurance premiums as well. But, “if prices fall it will take a smaller yield loss to trigger payments.” For example, he points out, “It was possible in 2001 to collect a revenue payment on cotton even with a normal yield because of the large price decline. In addition, if the price falls, farmers would be paid the counter-cyclical payment that is not tied to current yield.”

  2. Risk factors

    Barnaby says risk certainly varies by region, but losses can occur anywhere. “The frequency of claim is very low in a place like Iowa, but it has had total losses. The 1988 drought and 1993 flood are two examples.”

    He also notes that, in low-risk areas, farmers pay lower premiums. That allows for higher coverage — 80%, for example. Conversely, states with high frequency of claims pay higher rates.

    Yield risk is only part of the equation with today's insurance products. No matter where they're located, all farmers face price risk, and that must be factored into the decision.

  3. Coverage level

    Which coverage level is best? That depends on each individual operation. “The way subsidies are set up, farmers get the highest percentage of their premiums paid at 70% coverage,” Barnaby says. “But the highest dollar subsidy occurs at 85% coverage. However, farmers do look at premiums and few buy at the highest coverage because they do self-insure some of their risk.”

  4. Policy type

    Reviewing policies available by state can pay off in lower premiums or better coverage. For example, in some states in 2002, premiums for revenue assurance policies were actually less than a standard MPCI policy, says Craig Rice, regional director for the Risk Management Agency, St. Paul, MN.

A quick review of policies sold in Minnesota shows the dramatic effect this situation caused. In 2002, the number of RA policies for soybeans sold there jumped to 7,743 from 1,180 in 2001. Meanwhile, the number of CRC policies sold tumbled to 3,310 from 8,907 a year earlier.

In 2003, Rice expects the difference in premium between RA and CRC will not be as much of a factor.

Check out Barnaby's Web site,, to compare the performance of policies and get straightforward comments on crop insurance and government policies. Also visit the Risk Management Agency Web site,

It's also a good idea to regularly sit down with an insurance agent to review options. At least 83% of more than 400 respondents in recent Soybean Digest online survey say they do just that.

Program Changes Hit Next Year

Few, if any, changes will affect crop insurance programs for corn and soybean growers in 2003, says Laurie Langstraat of National Crop Insurance Services. But don't expect status quo for 2004.

One of the biggest changes that could affect growers in 2004 will be reduced claims when a crop is lost early in the season.

“Say a farmer planted corn and early in the season the crop was lost,” says Tim Hoffmann, director of the product development division of the Risk Management Agency in Kansas City.

“If the farmer then wanted to plant soybeans on that land, under the new rules he could collect 35% of the corn indemnity and then insure the soybeans or collect 100% (of the indemnity) and not insure the soybeans.”

Under current rules, if a farmer chooses to replant, the first crop receives the full indemnity and the second crop also can be insured with full coverage.

Actual production history (APH) calculations, when adverse conditions prevent a crop from being planted, would also be revised, Hoffmann says. Currently, if a crop cannot be planted, a policyholder receives an indemnity payment, the year is thrown out, and there is no effect on the farmer's APH. If a crop is hailed out or drought-stricken, however, the resulting yield is factored into the APH.

The new rule would calculate the yield for the year a crop couldn't be planted at 60% of the transitional yield, resulting in a reduced APH.

This proposed change is to make loss calculations more equitable, no matter how they occur, Hoffmann says. It recognizes that a loss is a loss, and any loss should be reflected in the APH.

The comment period for the proposed rule changes ended last November. Input was gathered from up to 200 participants, resulting in more than 400 pages of single-spaced comments.

Proposed changes should be finalized sometime early this year, and farmers should check with their agents for details. Information also can be found online at

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.