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Rising prices in the last month could have a negative effect on insurance indemnity payments.

Kent Thiesse, Farm management analyst and vice president

October 28, 2019

4 Min Read
commodity price impact on insurance indemnity payment
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Since Sept. 1, there has been some noticeable improvement in both the Chicago Board of Trade (CBOT) and local corn and soybean prices in the Midwest. The price improvement has certainly been welcomed by producers who were facing crop prices that were well below breakeven levels in early September. Obviously, with the below-average crop yields in many areas, there are still likely to be some significant financial challenges once the harvest season is completed.

The CBOT 2019 December corn futures price improved from below $3.60 per bushel in early September to over $3.90 per bushel during October. The CBOT price improvement, together with a tighter local basis in many areas, resulted in improvements in the local cash corn market of more than 50¢ per bushel at some locations, and slightly less at locations that did not see the basis improvement. The CBOT November soybean rose from near $8.60 per bushel in early September to near $9.35 per bushel during October. Local cash soybean prices for fall delivery have improved by similar levels during that time frame, as the soybean basis levels have not changed significantly in recent months.

While the overall reaction and results from the recent corn price and soybean price improvements have been very positive for crop producers, one negative has been the impact of the rising CBOT prices on potential crop insurance indemnity payments. The final harvest prices for Revenue Protection (RP) insurance policies is the average price for CBOT December corn futures and CBOT November soybean futures during the month of October, with prices finalized on Nov. 1, 2019. The harvest price is also used to calculate the value of the actual harvested bushels for all RP insurance policies. Over 90 percent of the crop insurance policies for corn and soybeans in the Upper Midwest are RP insurance policies.  

 

Commodity price changes

As of Oct. 28, the crop insurance harvest price estimates were $3.90 per bushel for corn and $9.26 per bushel for soybeans. At the beginning of October, the crop insurance harvest price estimates were approximately $3.70 per bushel for corn and $8.80 per bushel for soybeans. The increase in the estimated corn harvest price in early October until the final corn harvest price for crop insurance calculations at the end of October will likely lower comparable crop insurance indemnity payments by about one-third. Similarly, the soybean harvest price enhancement during October will reduce potential soybean crop insurance indemnity payments by about 20 percent.

For example, assume that a producer with an RP insurance policy has an APH corn yield of 190 bushels per acre with an average 2019 corn yield of 150 bushels per acre. Based on the Oct. 1 corn harvest price of $3.70 per bushel, the gross crop insurance indemnity payment (prior to premium deductions) would have been about $91 per acre. However, when the corn harvest price is increased to the current estimate of $3.90 per bushel, the gross indemnity payment is reduced to $61 per acre.  

 

Crop insurance variables

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. The 2019 crop year will be no different, with some producers choosing Yield Protection (YP) policies (yield only) versus RP policies (yield and price), and producers having different levels of coverage on various crops. The crop insurance results will also vary depending on if a producer has optional units versus enterprise units for their crop insurance coverage. Some producers also enhanced their coverage with “buy-up” insurance policies through local insurance providers.

Producers who have crop revenue losses in 2019, which could result in potential crop insurance indemnity payments, should properly document the yield losses, regardless of their type or level of insurance coverage. A reputable crop insurance agent is the best source of information to make estimates for potential 2019 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 2019 to understand their crop insurance coverage and the calculations used to determine crop insurance indemnity payments.

Additional harvest time

Farm operators that are in areas with delayed or difficult harvest conditions for corn and soybeans should be aware that they may need to request additional time to complete harvest, in order to maintain their crop insurance coverage. The 2019 crop insurance period ends Dec. 10, 2019, which is also the deadline to have 2019 corn and soybeans harvested for crop insurance purposes. Producers who can not meet this deadline due to excessive moisture and poor field conditions should contact crop insurance agents to be allowed extra time to complete corn and soybean harvest. This will allow for 2019 crop insurance coverage to be maintained.

Kent Thiesse has prepared an information sheet titled, 2019 Crop Insurance Payment Potential, which is available by emailing [email protected]. The University of Illinois FarmDoc website also contains some good crop insurance information and spreadsheets to estimate crop insurance payments.

About the Author(s)

Kent Thiesse

Farm management analyst and vice president, MinnStar Bank

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