Crop Insurance Premium in 2023
The 2023 Crop Insurance Decision Tool has been released and can be used to calculate premiums (click here for download). We used the 2022 and 2023 versions of the tool to evaluate how rate changes will impact premiums in 2023. Overall, rate changes increase premiums for corn and soybeans in many counties if projected price and volatilities are the same as last year. Projected prices and volatilities in 2023 will influence premiums.
2023 Crop Insurance Decision Tool
Figure 1 shows the 2023 Premium Calculator, which gives farmer-paid premiums for a user-specified state, county, and crop. In Figure 1, premiums are shown for soybeans in DeKalb County, Illinois (see the top left corner of Figure 1). Once a state and crop are selected, default values come in for all parameter items, which have blue lettering on yellow background. Defaults represent a typical case for the county and can be changed.
The Premium Calculator is described in a January 19, 2021, farmdoc daily article. In the following, we will focus on Revenue Protection (RP) premiums with enterprise units. RP is used on over 90% of Illinois’s acres for corn and soybeans (see farmdoc daily, November 17, 2020). Enterprise units are the most used unit structure. In the above example, farmer-paid premiums for enterprise units ranged from $.38 per acre for a 50% coverage level to $18.76 per acre for an 85% coverage level.
2023 Rates
Premiums shown in Figure 1 are calculated using 2023 rates released by the Risk Management Agency (RMA). These premiums are not final as projected prices and volatilities have yet to be set. Figure 1 uses the projected price and volatility for 2022. If the user wishes, the projected price and the volatility can be changed. When projected prices and volatilities are known at the end of February, premiums also will be known for 2023. By the March 15 deadline, farmers can change crop insurance choices from the previous year.
In 2022, the projected price for corn was $5.90 per bushel. The corn projected price is based on settlement prices of the Chicago Mercantile Exchange (CME) December contract during February. Current prices of the December 2023 contract are near $5.90 per bushel, roughly the same as the 2022 projected price.
In 2022, the projected price for soybeans was $14.33 per bushel. The average of the February settlement prices of the November contract is used to set the projected price for soybeans. Current prices of the November 2023 contract are near $14.00, slightly below the 2022 projected price. Premiums decrease with lower projected prices, and vice versa.
Volatilities are based on data from the last five days of February. In 2022, volatilities were .22 for corn and .19 for soybeans. Current trading data point to a .21 for corn and .16 for soybeans. Both volatility estimates are below 2022 volatilities. Lower volatilities will lower the premium and vice versa.
Table 1 shows farmer-paid premium estimates for corn and soybeans in three counties: DeKalb County is in northern Illinois, Champaign County is in central Illinois, and Saline County is in southern Illinois. Premiums are shown for 2022 and 2023, with details of the individual quotes given in the table’s footnotes. In addition, the 2022 projected prices and volatilities are used for 2023. Using the same factors allows an assessment of how RMA rate changes impact premiums.
Rate Changes from 2022 to 2023
For corn, both DeKalb and Champaign counties have premium increases if 2023 factors equal 2022 factors. In DeKalb County, the RP premium increases from $31.34 per acre to $31.93 per acre, a 1.9% increase. In Champaign County, the 85% premium increases by 3.7%. Saline County’s 75% RP premium decreased from $21.93 per acre to $21.34 per acre, a 2.7% decrease.
For soybeans, RP premiums increases in all three counties. At the 85% coverage level, premiums increased by 0.6% in DeKalb County, 0.8% in Champaign County, and 2.0% in Saline County. Champaign County’s premiums were $14.14 per acre in 2022 and $14.22 in 2023.
Rate changes occur as RMA adds another year of data to ratings. For 2023, data for 2021 are available for ratings. The rating increases are surprising as 2021 was a low-loss year in Illinois (see farmdoc daily, July 5, 2022). The loss ratio for corn was .24 and .28 for soybeans, well below the 1.0 statutory goal of RMA, and two of the lowest loss ratios in history.
Summary
The 2023 Crop Insurance Decision Tool has been released and is available for use. It can be downloaded here. Projected prices and volatilities will impact premiums, and February is the month for setting those values.
References
Crop Insurance Decision Tool – Spring 2023. Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, Updated January 5, 2023.
Schnitkey, G., C. Zulauf, K. Swanson, N. Paulson and J. Baltz. "The 2021 Crop Insurance Loss Performance." farmdoc daily (12):100, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 5, 2022.
Schnitkey, G., N. Paulson, C. Zulauf and K. Swanson. "Revenue Protection: The Most Used Crop Insurance Product." farmdoc daily (10):198, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 17, 2020.
Schnitkey, G., R. Batts, K. Swanson, N. Paulson and C. Zulauf. "Release of the 2021 Crop Insurance Decision Tool." farmdoc daily (11):8, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, January 19, 2021.
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