Choosing Crop Insurance for 2004 William Edwards Iowa State University.

Choosing Crop Insurance for 2004

William EdwardsIowa State University

Important Decisions

What type of insurance?

What level of coverage?

What type of units?

Crop Insurance Alternatives

Yield insurance

Revenue insurance

Yield Insurance(APH)Catastrophic (50%) “Buy-up” to 85%Group Risk Plan (GRP)Hail add-on

Revenue Insurance Revenue Assurance (RA): Standard Revenue Assurance: Harvest Price Optional

Crop Revenue Coverage (CRC) Income Protection (IP) (SW Iowa) Group Risk Income Protection (GRIP)

Acres Planted in 2003 Corn-IowaNo

Insurance16%

Revenue Insurance

63%

Yield Insurance

21%

Acres Planted in 2003Soybeans-Iowa

No Insurance

14%

Revenue Insurance

45%

Yield Insurance

41%

Acres Insured in 2003 Corn-Iowa

Other2%

RA68%

CRC7%

APH23%

Acres Insured in 2003Soybeans-Iowa

Other2%

RA45%

CRC6%

APH47%

Indemnity Payments Made in Iowa for 2003 Crop

$1.42 $2.80

$17.53

$24.84

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$ per acre

Corn Soybeans

Indemnity Payments Made in Iowa for the 2003 Crop

Yield Insurance

Revenue Insurance

Payback Ratio in 2003

As % of farmer premium

Corn 31%Soybeans

458%

All crops 170%

2003 Soybean Settlement

Purchased 75% RAGuarantee is

40 bu. APH x $5.26 x 75% =$156Actual yield was 28 bu./acreFall price was $7.32Actual revenue: 28 bu x $7.32 =$205Under standard RA no payment

2003 Soybean Settlement

Under RA with harvest price option the guarantee increased to:

40 bu. X $7.32 x 75% = $219.60

Payment = $219.60 - $205 = $14.60

Or, 2 bu. of loss paid at $7.32 per bu.

CRC and RA-HPO

Feb. futures price Harvest futures price

Replace lost bu. at CBOT price

Replace lost revenue - $

What is Your Marketing Pattern?

If you price before harvest: use CRC or RA-HPO to guarantee

bushels

If you only price after harvest: use standard RA or APH

(lower premium)

What is Your Feed Balance?

Feed fed equals feed raised (flexible) Buy yield insurance Price doesn’t matter

Feed deficit (must buy feed if short) Buy CRC or Harvest Price RA to insure replacement bushels

Group Risk Insurance may be appropriate

when:

Individual yields closely track county yields

No production history is available or APH is low

Can stand more risk

What are your crop insurance goals?

•To insure bushels? APH•To insure cash flow? Basic RA•To forward price? CRC,RA-HPO•To protect equity? CAT •To make a profit? GRP,GRIP

What Coverage Level Should I Buy?

0%5%

10%15%20%25%30%35%

50 65 70 75 80 85

% Guarantee

Level of Guarantee Purchased--Iowa 2003

Corn

Soybeans

0%5%

10%15%20%25%30%35%40%

50 65 70 75 80 85

% Guarantee

Level of Guarantee Purchased--Iowa 2003

Yield Ins.Revenue Ins.

How Many $ to Insure?

Consider cost of production Seed, fertilizer, pesticides Machinery and hired labor Land rent or payments Debt payments Family living

Subtract your “deductible”

Higher Coverage Levels are Available in 2004

Proven yields will increase for most people (at least corn).

Drop 1993 yields, add 2003.1993 2003

Corn 80 bu. 157 bu.Soybeans 31 bu. 32 bu.

2004 Insurance Prices

Corn SoybeansCRC,RA $2.78? $6.47?APH $2.45 $5.60Loan rate $1.90 $4.93(Iowa average)

Higher Guarantees Available

2003: 135 bu. x $2.42 x 75% = $245

2004: 143 bu. x $2.78 x 75% = $298

Cost of Higher Coverage

Raising coverage from 65% to 75% roughly doubles the premium

Raising coverage from 75% to 85% roughly doubles it again

Winneshiek Co. Premiums(140 bu. corn, basic units)

Level APHRA BASIC

RA-HPO CRC GRP GRIP

65% $3.74 $3.55 $5.39 $6.21

70% $4.89 $5.24 $7.74 $8.22 $2.19 $1.34

75% $7.28 $8.17 $11.75 $12.31 $2.73 $2.44

80% $11.40 $12.97 $18.26 $19.35 $4.21 $4.73

85% $18.20 $20.70 $28.65 $31.04 $5.65 $7.62

Winneshiek Co. Premiums(45 bu. soybeans, basic

units)

Level APHRA BASIC

RA-HPO CRC GRP GRIP

65% $2.07 $2.14 $3.12 $3.56

70% $2.94 $3.36 $4.72 $5.04 $ .92 $1.00

75% $4.50 $5.43 $7.44 $7.70 $1.05 $1.24

80% $7.10 $8.83 $11.87 $12.18 $1.49 $2.77

85% $11.33 $14.33 $18.96 $19.57 $2.39 $4.87

Crop Insurance Premium Calculator

University of Illinois Extensionhttp://www.farmdoc.uiuc.edu/

cropins

What Units to Choose?

Optional Units: Each farm separateBasic Units: Can combine owned and

cash rented acres in same countyEnterprise Units: Can combine all

acres of the same crop in same co.Whole Farm: Can combine crops

Black Hawk Co. Premiums145 bu. corn, RA-standard

Level Enterprise

Units

BasicUnits

OptionalUnits

65% $2.94 $3.55 $4.16

70% $4.55 $5.24 $5.43

75% $7.32 $8.17 $8.09

80% $11.87 $12.97 $12.67

85% $19.25 $20.70 $20.22

Important Points for 2004

1.Proven yields will increase for most people, especially corn.

2. Indemnity prices will be higher. More downward price risk.

3.Higher $ coverage available.4.Premiums will be higher at each

% guarantee.

Thank you and have a nice day!