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Crop insurance payments a possibility in 2013


Some farm operators in Minnesota, Iowa and surrounding states will be facing reduced yields on some farm units in 2013, due to very late planting, severe storms and very hot and dry weather late in the growing season. With Federal Crop Insurance, every year is different, and with the multiple options available to producers, there are many variable results from crop insurance coverage at harvest time. This year will be no different, with some producers choosing Yield Protection (YP) policies (yield only) versus Revenue Protection (RP) policies (yield and price), and also having differences in the level of coverage chosen, optional units or enterprise units, etc. that affect final insurance payments.

Many growers purchased upgraded levels of RP crop insurance for the 2013 growing season, which included the higher trend-adjusted (TA) yields that were available. Producers like the flexibility of the RP policies that provide insurance coverage for reduced yields, as well as in instances where the harvest price drops below initial base price. In 2013, corn crop insurance losses with YP policies and RP policies will function differently, due to the current level of Chicago Board of Trade (CBOT) corn prices being well below the 2013 crop insurance base price, while the soybean YP and RP policies will likely function similarly, due to the current CBOT soybean harvest price being close to the RP base price. 

The established base corn prices and soybean prices for 2013 YP and RP crop insurance policies were $5.65 per bushel for corn and $12.87 per bushel for soybeans This will be the payment rate for 2013 YP policies for corn and soybeans, and will serve as the final price to calculate revenue guarantees to calculate potential RP crop insurance indemnity payments for corn at current price levels, as well as possibly for soybean RP policies with harvest price protection. The final harvest price for RP insurance policies with harvest price protection is based on the average CBOT December corn futures and CBOT November soybean futures during the month of October. Producers with RPE policies, with a harvest price exclusion, will use the base price for both corn and soybeans.

If the 2013 CBOT price in October is below $5.65 per bushel base price for corn and $12.87 per bushel base price for soybeans, the initial base price is used to calculate the RP guarantees; otherwise, the October harvest price will be used. The CBOT average price for October is used to calculate the value of the actual harvested bushels in 2013 for all RP and RPE policies. As of Oct. 7, the CBOT average October futures prices were approximately $4.40 per bushel for December corn and $12.90 per bushel for November soybeans. If these average CBOT prices stay at these levels, the base price of $5.65 per bushel will be used to calculate RP insurance guarantees for corn, and the harvest price of $12.90 per bushel will be used to calculate RP guarantees for soybeans with harvest price protection. The soybean base price will be used, if the soybean harvest price drops below $12.87 per bushel.

The lower CBOT corn prices will also increase the likelihood of crop insurance indemnity payments on corn RP insurance policies, and possibly on soybean RP policies, if November CBOT soybean futures prices drop further. If the final harvest price is below the base price on a RP insurance policy, divide the revenue guarantee per acre by the final harvest price, in order to determine the yield “threshold” where crop insurance indemnity payments would be initiated. For example, corn with a 190 APH yield, with an 80 % RP insurance policy for 2013, and the $5.65 /Bu. base price, would have an insurance guarantee of $858.80 per acre. If the final harvest price is $4.40 per bushel, divide $845.88 by $4.40, and you get 195.18 bu./acre, which would be the threshold yield. Any yield below that level on that particular insurance unit would likely result in a crop insurance indemnity payment.

Since it appears that the final soybean harvest price is more likely to be closer to the base price of $12.87 per bushel, the threshold yields are not likely to vary as much due to the harvest price. For example, at a soybean APH of 50 bushels per acre, with an 80 % RP insurance policy, the “threshold” yield for crop insurance indemnity payments is 40 bushels per acre. This will not vary much at the current projected soybean harvest price of $12.90 per bushel. Remember, with calculating potential corn and soybean crop insurance indemnity payments, every situation is different. In addition to the final harvest price, there are a lot of variables as far as APH yields, coverage levels units, etc., so producers need to consult their crop insurance agent for specific details for their own farm units.

Producers that have crop losses in 2013, with potential crop insurance indemnity payments, should properly document yield losses for either optional units or enterprise units. A reputable crop insurance agent is the best source of information to make estimates for potential 2013 crop insurance indemnity payments, and to find out about documentation requirements for crop insurance losses. It is important for producers who are facing crop losses in 2013 to understand their crop insurance coverage, and the calculations used to determine crop insurance indemnity payments. The University of Illinois Farm Management website has an on-line “What-If” Crop Insurance Payment Calculator and other crop insurance information.

To receive a free information sheet, 2013 Crop Insurance Considerations, please contact Kent Thiesse at 507-726-2137, or [email protected]

TAGS: Management
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