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Corn+Soybean Digest

Re-examine Risk Management Tools This Year

Corn producers who have been buying other types of crop insurance might want to take a closer look this year at what is called Revenue Assurance (RA) with the harvest price option.

That's one suggestion from Matt Diersen, a South Dakota State University (SDSU) extension risk and business management specialist. Jeff Svennes, a recent guest on SDSU's Midwest Market Analysis television show, agreed this might be the year when corn producers in particular should discuss with their crop insurance agents the potential advantages of revenue insurance.

Svennes is owner of Svennes Crop Insurance in Brookings.

Diersen says that last year in South Dakota, about 35% of corn acres were covered by standard yield insurance. The rest was covered by some type of revenue insurance – about 55% by what is called Crop Revenue Coverage, and only 10% by Revenue Assurance.

Crop Revenue Coverage protects revenue based on price and yield expectations by paying for losses below a guaranteed level at either an early-season price or the harvest price, whichever is higher.

Revenue Assurance with the harvest price option behaves the same way as Crop Revenue Coverage. The coverage increases in the fall if crop prices increase.

The benefit of revenue insurance, Diersen says, is that these tools give producers some assurance if they want to forward contract their crop. Without revenue insurance, forward contracting can be risky because the cost of acquiring any contracted bushels not produced could easily wipe out yield insurance payments. In addition, producers with ethanol plant commitments or those planning to feed corn may want to look at revenue insurance products.

"When purchasing Revenue Assurance, make sure you have the harvest price option," Svennes adds. "You essentially have yield insurance if you don't."

In general, Svennes says, corn producers this year will get more coverage at slightly higher premiums with revenue insurance products rather than yield protection products. There isn't such a clear advantage for wheat or soybean producers, however.

Diersen adds that Revenue Assurance with the harvest price option may be the more attractive this year because it is more affordable than in past years.

"The reason that came about this year is that even though we've seen lower corn prices, there is less variability in those prices," Diersen says. "That's the factor that plays into making the Revenue Assurance product cheaper."

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