publication archive: crop insurance
May 9, 2013
Payments by U.S. Farm Safety Net Program: Differences by CropAn important aspect of the on-going debate over the new farm bill is the proposed elimination of direct payments. This proposal differentially impacts the program crops, prompting a debate among crops and geographical regions over the distribution of payments by farm safety net programs. We believe this issue is the most important in the farm bill debate. We therefore examine it in more detail. This post specifically compares the distribution of payments by the direct payment, crop insurance, and price risk programs. The comparison begins with the 2003 crop year because the counter-cyclical program, an important price risk program, was initially enacted in the 2002 Farm Bill.
March 19, 2013
Drought and Crop Insurance Loss Experience in 2012Yield losses from the 2012 drought caused large crop insurance payments. In this post, 2012 loss ratios are shown for U.S. counties, thereby allowing areas of high loss experience to be identified. Higher loss ratios occurred in eastern Kansas, Missouri, central and southern Illinois, western Indiana, and western Kentucky. This area corresponds to the area where corn yield losses were most pronounced. The areas of high losses in 2012 bear little relationship to typical losses across the United States.
March 13, 2013
Prices Paid for Farm Inputs vs. Prices Received for Crops: Implications for Managing Risk and Farm PolicyThe prices that U.S. farms receive for crops have increased far less than have the prices U.S. farms pay for inputs. This difference is often presented as an indication of the economic pressure U.S. farms confront and thus used to justify the need for a farm safety net in general and price supports in particular. This article examines in greater detail the differential trends in crop output and farm input prices, drawing implications for managing risk and farm policy.
March 12, 2013
Early Planting and Final Planting Dates for Crop InsuranceCOMBO crop insurance products - which include Yield Protection (YP), Revenue Protection with harvest price exclusion (RPwExcl), and Revenue Protection (RP) plans - have earliest planting dates and final planting dates. This year, the Risk Management Agency (RMA) revised earliest planting dates. This post details earliest and final planting dates for corn and soybeans in Illinois. It also provides a description of the impacts of these dates on insurance coverage.
March 6, 2013
Persistence of Low and High Prices for U.S. Row Crops: Implications for Managing Risk and Farm PolicyThis article examines the occurrence of multiple years of low prices and multiple years of high prices over the period from 1974 through 2006 for the farm program crops of barley, corn, rice, sorghum, soybeans, upland cotton, and wheat. Understanding the occurrence of persistent low prices and persistent high prices is important to managing risk as well as designing policy.
March 5, 2013
Crop Insurance Product RecommendationsThis blog post discusses a "basic" product which will be appropriate for most farm situations. This "basic" product uses Revenue Protection (RP) insurance. Also discussed are situations in which Group Risk Income Plan with the Harvest Revenue Option (GRIP-HR) and RP with the Harvest Price Exclusion (RP-HPE) are appropriate choices. The post summarizes an online webinar that is available for viewing when deciding between crop insurance products.
March 1, 2013
Evaluating Your Crop Insurance Options in 2013The Risk Management Agency (RMA) has now concluded its price discovery period used to determined final prices and volatility factors for federally sponsored corn and soybean crop insurance products for 2013. For the majority of the midwest, the Projected Price for corn is $5.65 and the volatility factor relating to the price risk is anticipated to be .20. For soybeans, the Projected Price is $12.87 and the volatility factor is likely to be .17. For comparison, the 2012 prices (volatility factors) were $5.68 (.22) and $12.55 (.18) for corn and soybeans respectively. The Projected Prices are used to determine the guarantee revenue indexes based on futures prices and do not reflect local basis. The Projected Price for corn is determined by averaging the closing December futures price during the trading days of February, and for soybeans by averaging the November Futures closing prices. The volatility factors are determined by an average of the most recent five trading days' implied volatility estimates, scaled for the interval of time from now until the middle of October -- the month during which average prices are used to determine Harvest Prices. For both corn and soybeans, the volatility factors are considerably lower than in both 2011 and 2012 which has important implications for premiums and for the value of the Harvest Price options embedded in many products.
February 26, 2013
2013 Illinois County Yields and GRIP PaymentsListen to MP3 podcast
The National Agricultural Statistical Service (NASS) recently released county yields for corn and soybeans for 2012. These yields confirm that the drought significantly lowered 2012 production, with extremely low yields being prevalent in southern Illinois. Corn yields were more impacted than soybean yields. With county yield estimates, Group Risk Income Plan with the harvest price option (GRIP-HR) can be estimated. Most counties will have GRIP-HR payments for corn, with many counties having large payments. Fewer counties had GRIP-HR payments for soybeans.
February 12, 2013
GRIP-HR: A Good Product for 2013Listen to MP3 podcast
Group Risk Income Plan with the Harvest Revenue Option (GRIP-HR) has features that make it an attractive crop insurance product this year. GRIP-HR will make large payments in a drought year, a concern of many farmers as dryness extends across much of the western corn-belt and Great Plains. GRIP-HR also will make large payments if prices decline, a distinct possibility given large projected plantings of corn. Large planting, combined with normal yields, would lead to large supplies and potentially large price declines. Under the price decline scenario, GRIP-HR will make larger payments than Revenue Protection (RP), the most popular crop insurance product. Herein, payments of GRIP-HR and RP are compared under different yield and price scenarios.
February 8, 2013
Distribution of Crop Insurance Net Farm Payments by Crop and StateThis post examines the distribution of net insurance payments by crop and by state. It briefly discusses two factors that help determine the distribution and ends with a discussion of policy issues, notably a potential alternative subsidy method that would change the distribution of payments.
February 6, 2013
List of Alternatives Being Discussed to Reduce Farm Premium Subsidies in Crop InsuranceCost of crop insurance programs may be an issue this year, either via the farm bill or other legislation. Regardless, discussion of its cost is increasing. Moreover, it seems likely that the cost of crop insurance will become more prominent in future farm safety net discussions. The reason is simple: it is the largest cost program in the farm safety net. Moreover, crop insurance is no longer a small spending program. U.S. policy deliberations differ for large and small spending programs. Discussions of small spending programs focus on the program's value to beneficiaries. In contrast, discussions of large spending programs focus on whether the program is fair and appropriate for both beneficiaries and the U.S. public.
February 1, 2013
2013 Crop Insurance Projected Prices, Volatilities, and Harvest Price ImpactsThe Risk Management Agency (RMA) "resets" various features of the crop insurance programs annually to reflect the market's estimate of the value of crops intended for production in the current year. Among the most important factors are (1) projected prices, (2) volatility factors, and (3) harvest prices. Projected prices directly determine the insurable value of production, and thus impact premiums as well. The volatility factor is a measure of the price risk the market associates with potential price changes in the production year, and thus directly impacts the calculated costs of insurance. Finally, the harvest price has the potential to increase the amount of insurance coverage in effect if prices increase between the end of the projected price discovery period and the harvest price determination period. The purpose of this article is to describe the processes used to establish each of these features and to discuss important implications for crop insurance in 2013.
January 29, 2013
The 75 to 85% Coverage Level Choice for RP Crop InsuranceThe most popular crop insurance choice is Revenue Protection (RP), with coverage levels of 75%, 80%, and 85% being the most used. Often the choice of coverage level with RP is difficult. Comparisons of premiums and guarantees across coverage levels with production costs provide useful information in making coverage level choices. Those comparisons are made in this article for a Sangamon County farm example.
January 15, 2013
Crop Insurance Use in 2012 and 2013 ProjectionsIn 2012, most corn and soybean acres were insured with Revenue Protection (RP) crop insurance products using 75% and higher coverage levels. It is likely that 2013 crop insurance use will be similar to 2012 use.
January 8, 2013
Crop Insurance Premiums and the 2013 Crop Insurance Decision ToolThe 2013 version of the Crop Insurance Decision Tool is now available for download from the FAST section of farmdoc. If projected prices and volatilities are the same as last year, most corn and soybean premiums in Illinois will be lower in 2013 as compared to 2012.
January 3, 2013
IFES 2012: Crop Insurance - 2012 Performance and Updates for 2013Listen to MP3 podcast
Though final numbers will not be known until early 2013, crop insurance policies resulted in very large indemnity payments over a large region of the Corn Belt for both corn and soybeans for the 2012 crop. Policies that included the harvest price option benefitted significantly from the increased harvest prices (corn = $7.50 and soybeans = $15.39) relative to March projected prices (corn of $5.68 and soybeans of $12.55), and the resulting increased guarantees. Producers without claims benefitted from the higher market prices that accompanied the lower production due to drought. The Risk Management Agency has announced several important changes to available crop insurance programs for the 2013 crop year as well and these will be identified and discussed including substantial changes to group policies, extensions and expansions of the Trend Adjusted APH endorsement, impacts of rerating, and the likely impact of the payouts from this year's policies.
January 2, 2013
IFES 2012: Crop Insurance - Tax Reporting OptionsListen to MP3 podcast
Approximately 80% of Illinois farmers purchased various types of crop insurance on their 2012 crops. The total premiums for these policies were over $770 million. It is projected that the total claims will exceed twice the amount of the premiums.