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Corn+Soybean Digest

CRC: The Missing Piece To A Marketing Puzzle

Crop Revenue Coverage (CRC) is a new crop insurance concept that appears to be just what the doctor ordered, since it's good medicine for sickly yields, poor prices or a combination of the two.

It's the only insurance that'll protect you against yield losses as well as falling market prices. Plus, you'll know that a minimum number of dollars are guaranteed per acre. This fact alone allows you to be a more aggressive marketer, and perhaps you'll be able to sleep better at night this coming crop season.

Art Barnaby, a well-known Kansas State University economist, created the plan with American Agrisurance, Council Bluffs, IA. CRC is approved, reinsured and subsidized by the Federal Crop Insurance Corp. (FCIC).

How's it work? Before planting, you and your insurance agent establish a Minimum Guarantee income per acre. Minimum Guarantee is based on your yield history or Actual Production History (APH); a Base Price established by using the appropriate futures contract; and your selected coverage level, i.e., 50, 55, 60, 65, 70 or 75%.

Also, a Harvest Guarantee is established in the fall using your APH, the Harvest Price, which is set using the appropriate harvest futures contract, and your selected coverage level. Once harvested, your actual yield is multiplied by the Harvest Price, providing a Calculated Revenue.

Your Final Guarantee is the greater of the Minimum and Harvest Guarantees. The Calculated Revenue then is compared to the Final Guarantee. If it's less than that amount, you'll be paid the difference.

Note that because a minimum level of revenue is guaranteed at harvest, no yield loss is necessary for a payment.

What crops qualify? Corn, soybeans, cotton, grain sorghum and both spring and winter wheat are now included after CRC expansion was approved by FCIC. Corn has been okayed in 34 states, soybeans in 24 states, grain sorghum in 27 states, cotton in 16 states and wheat in 34 states for 1998.

What else is there? There are other crop insurance programs, including Multiple Peril Crop Insurance, Group Risk Plan, Income Protection and Revenue Assurance.

The Income Protection and Revenue Assurance plans provide a minimum revenue guarantee, but neither provides increasing coverage in an increasing market. As market prices increase, both require larger yield losses to trigger a payment. Both have limited availability.

Remember, though, the CRC contract coverage increases as market prices increase and will replace lost inventory at current market value.

The additional CRC coverage is likely to be important to anyone who forward contracts for delivery at harvest. Why? It guarantees they'll either produce the inventory or receive enough indemnity dollars to replace the inventory, thus meeting the forward contract commitment.

Let's review CRC. It protects against yield risk as well as a price bust. It guarantees a minimum dollar amount per acre. It provides replacement-cost coverage if the value of your harvested crop is greater than the Minimum Guarantee settled on in the spring.

Another plus: CRC gives you a way to divide acres into various units, giving you the opportunity to collect indemnity payments when price or yield comes up short on a given unit.

The big plus here is that all your acres are not thrown into the same pot - each unit stands on its own. Should one fall short, you collect for it even if you've had bumper yields elsewhere.

Upshot: You're more likely to collect on the CRC policy. (We all know it can pour on the field just up the road, and not rain enough on the home farm to settle the dust!)

What's the cost? You're going to pay more, probably 20-40% more, than for Multiple Peril Crop Insurance or Revenue Assurance. CRC is subsidized by FCIC, making it more affordable for you, and it can be used to secure loan repayment, increasing your borrowing power. Your banker will like it.

The bottom line: Everyone worries about not being able to make delivery. Hail or too much or too little moisture can hurt a crop.

Price uncertainty is another challenge. But CRC proponents point out that, by combining both yield and market prices in its plan, CRC eliminates forward marketing concerns.

>From the get-go, you know a certain number of bushels are guaranteed, plus you know those bushels are covered at no less than the replacement value at harvest - and possibly at a higher price. These factors can be the springboard to more aggressive marketing.

If you know what your guaranteed production is through your CRC policy, you can market that production when prices are high and avoid the pain of watching the market price spiral downward as harvesttime approaches.

Remember Base Price: For corn, it's your choice of 100% or 95% of the February average daily settlement price of Chicago Board of Trade (CBOT) December corn contracts. For soybeans, it's 100% or 95% of the February average daily settlement price of CBOT November bean contracts.

Your crop insurance agent can help you put a sharp pencil to all this, make comparisons and provide examples. More and more interest is building around CRC, and for more and more corn and soybean growers, CRC appears to be the horse to ride in '98.

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