January 2010 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 [email protected] .

January 2010 Steven D. Johnson

Farm & Ag Business Management Specialist(515) 957-5790

[email protected] www.extension.iastate.edu/polk/farmmanagement.htm

Evaluating Crop Insurance Options

2010 Crop Insurance Considerations

Can my operation withstand a large yield loss or crop price decline?

Should I buy enough crop insurance just to cover my input costs? Should I elect MPCI or Revenue coverage? What level of coverage should I elect? Should I elect Basic, Optional or Enterprise Units? Should I purchase hail insurance along with the MPCI or Revenue

coverage? Should I request the Biotech Endorsement (BE) for corn? How can I forward price a portion of my 2010 crop using various

crop insurance products?

Source: Johnson, ISU Extension, January 2010

2010 Crop Insurance Decisions


Crop Insurance for Iowa Corn Acres

Source: USDA Risk Management Agency, October 2009

85% of all 2009 insured acres are covered by Revenue Products

Note: Expect CRC & RA to be combined into one “combo product” for 2011

Level of Coverage for Iowa Corn Acres - 2009

2.99%

0.21% 2.54%

10.55%

20.81%

34.42%

21.59%

7.26%

1.62%


Crop Insurance for Iowa Soybean Acres


84% of all 2009 insured acres are covered by Revenue Products

2.97%

0.20% 0.48%

9.74%

18.58%

33.66%

23.27%

9.54%

1.55%

Level of Coverage for Iowa Soybean Acres - 2009


Crop Insurance Premium Subsidies


Crop Insurance Units

• Optional Units: Each farm is separate

• Basic Units: Combines owned and cash rented acres

• Enterprise Units: Combine all acres of the same crop across the county

• Whole Farm: Combine corn and beans

Enterprise Unit Overview6 5 4 3 2 1

7 8 9 10 11 12

18 17 16 15 14 13

19 20 21 22 23 24

30 29 28 27 26 25

31 32 33 34 35 36

If all your farm ground has a similar proximity and

productivity, Enterprise Units

could be an advantage Example

Townshipwith 36

sections

However, if you elect Enterprise Units, all corn fields in the

county will be combined for Federal Crop Insurance

coverage.


Typical County with 16 Townships

Basic vs. Optional Unit ExampleShare with Jones 2.00

Share with

Smith 1.00

Share with Jones 2.00

Farm/Section 6 Farm/Section 5

Cash Rent 3.00

Owns 3.00



Share with

Smith 1.00



Cash Rent 3.01

Owns 3.02


Insured has 3 Basic Units: 1 with Smith = Unit 1.001 with Jones = Unit 2.001 for Cash Rent & Owned = Unit 3.00

Insured has 1 Basic Unit:1 with Smith = Unit 1.00Insured has 4 Optional Units: 1 with Jones = Unit 2.011 with Jones = Unit 2.021 for Cash Rent = Unit 3.011 for Owned = Unit 3.02


Enterprise Unit (EU) Advantages

• Premium savings in 2009 enabled producers to insure crops at higher levels of coverage (move from 75% to 85% level)

• Easier to qualify for Prevent Plant and Replant claims than Optional Units (20/20 rule: minimum of 20 acres or 20% of the unit)

• If already insured, you may improve Actual Production History (APH) yields by combining units and dropping off older yields.

Source: Adapted from Crop Insurance Industry, December 2009

Enterprise Unit (EU) Disadvantages

• Variability in farm ground and crop rotation• If you have inconsistent crop APHs• Farm ground is dispersed throughout a

county• Localized loss such as hail could occur, so

consider additional crop hail coverage• Irrigated and non-irrigated crops must be

combined• Crop disease and quality issues could arise.

Source: Adapted from Crop Insurance Industry, December 2009

Biotech Endorsement (BE) Qualifications

• Expanded hybrids and the entire Corn Belt

• 75% of the acres per unit must be planted to qualifying hybrids

• Customer must complete certification form and provide seed invoices by acreage reporting date (typically June 30th or July 15th)

• Producer must keep track of where corn is planted by unit

• Lack of compliance penalty, loss of premium only

• Estimated premium discount of 10-15%.

Source: USDA Risk Management Agency, December 2009

Specialty Soybean Coverage

• Can be insured separately in 2010 • Must be covered by a yield product, not

revenue• Past yield records can be used to create

APH yield for each type of soybeans• Low yields will not drag down the APH yield

for conventional/GMO beans• Indemnity price is the higher of contract

price or conventional APH soybean indemnity price


2010 Crop Insurance Reminders

• Recordkeeping has become more important with 2008 Farm Program changes

• Keep APH production records for up to 3 years plus current year

• APH yields are used for both SURE and ACRE programs

• Crop insurance policy entity type and Tax ID and/or SSN number needs to match FSA documentation

• Inconsistent information can reduce or eliminate crop insurance loss payments.

Source: USDA RMA & FSA, January 2010

2010 Crop Insurance Indemnity Prices

Corn APH (Yield) Revenue

2009 $4.00 $4.04

2010 $3.90 Dec. Corn futures in the month of

February

Soybeans

2009 $9.90 $8.80

2010 $9.15 Nov. Soybean futures in the month

of February


New Crop ‘10 Corn Chart

Source: www.jimwyckoff.com, January 25, 2010

New Crop Corn Seasonal Trend

79% Odds: Spring Price Exceeds Harvest Price

Chicago December Corn Futures, 1990-2009 average1-J

an 1-F

eb

1-M

ar 1-A

pr

1-M

ay

1-J

un

1-J

ul

1-A

ug

1-S

ep

1-O

ct

1-N

ov

1-D

ec

255

260

265

270

275

280

285

290

295

300

approximate dates

cent

s pe

r bu

shel

Source: www.cmegroup.com U of MN, CFFM, 2009

80% Odds that Spring Price is higher than Fall

Corn Historical Crop Insurance Prices

19951993

2002

2006

1997


75% of the Timethe Spring Price is higher than Fall

New Crop ‘10 Soybean Chart

Source: www.jimwyckoff.com, January 25, 2010

New Crop Soybean Seasonal Trend

79% Odds: Spring Price Exceeds Harvest Price

Source: www.cmegroup.com U of MN, CFFM, 2009

Chicago November Soybean Futures, 1990-2009 average1-

Jan

1-Fe

b

1-M

ar

1-Apr 1-

May

1-Ju

n 1-Ju

l

1-Aug

1-Se

p

1-O

ct

1-N

ov

605

615

625

635

645

655

665

675

685

approximate dates

cent

s pe

r bu

shel

67% Odds that Spring Price is higher than Fall

Soybean Historical Crop Insurance Prices

19951993 2002 20052003

1990

2007 2009


60% of the Time the Spring Price is higher than Fall

23%

31%

29%

17%

Roll 7 Roll 8 or 10

$3.12/bu.

$3.91/bu.

$4.80/bu.

$6.28/bu.

Assumes a Neutral ENSO on June 1st, 2010

National Avg. Yield, Dec. 2010 Corn Futures Price at Harvest

Source: Taylor, ISU Extension Climatologist, December 2009

2010 Long-Term Corn Yield Probability

CRC or RA Coverage170 bu/A APH75% Level$4.00 bu/A Spring and Fall Price

Crop Revenue Insurance Coverage

(with SURE)

SURE Coverage115% of Revenue Coverage


Comparing ACRE Payments to CCP

2010 ACRE Cash Price Triggers:Corn = $3.35 /bu Soybeans = $8.55 /bu

Counter-Cyclical Payment (CCP)Nat’l Cash Price below: $2.35 /bu Corn $5.56 /bu Soybeans

CCP

ACRE


Source: Johnson, ISUE Farm Mgt., Sept. 2008.

Consider 2010 ACRE

Enrollment by June 1st

Prove your APH annually for Optional

Units

Consider Multiple

Pre-Harvest

Marketing Strategies

Use Crop Insurance Revenue Products

(Consider Additional Hail Coverage)

5 Strategies for Managing Revenue Risk

Wrap up Crop Sales with Spring

Seasonal Price

Trends


5 Crop Insurance Web Sites• Crop Risk Management - ISU Polk County

(Crop Marketing Newsletter & Crop Insurance Updates, Webcasts)www.extension.iastate.edu/polk/farmmanagement

• USDA Risk Management Agency (RMA)www.rma.usda.gov

• Ag Manager – K-State Extensionwww.agmanager.info

• Farm Doc – U. of Illinois Extension www.farmdoc.illinois.edu

• Ag Decision Maker – ISU Extension(Decision Tools, Newsletters, Publications and Voiced Media)www.extension.iastate.edu/agdm


http://www.extension.iastate.edu/polk/news/efarmmanagement.htm

January 2010 Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 [email protected] .

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