AgDM newsletter article, January 2001

2001 Crop Insurance Update

by William Edwards, extension economist, 515-294-6161, wedwards@iastate.edu

What’s New

Coverage level

50%

55%

60%

65%

70%

75%

80%

85%

New Federal %

67%

64%

64%

59%

59%

55%

48%

38%

Actual Production History (yield) Insurance

APH indemnity prices are:

 

2000

2001

Corn

$1.90

2.05

Soybeans

$5.16

5.26

Oats

$1.15

1.15

Revenue Insurance

The February 2000 futures price used to calculate the guarantees for Crop Revenue Coverage (CRC) and Revenue Assurance (RA) were $2.51 for corn and $5.32 for soybeans. The fall futures prices used to calculate the “actual” revenue were $2.11 for corn and $4.72 for soybeans. Since the prices dropped by 16 % and 11%, respectively, the yield losses (below the APH yield) needed to receive a payment were as shown below.

Corn

Soybeans

85% guarantee

 0%

 4%

75% guarantee

11%

15%

65% guarantee

23%

27%

It is likely that only producers who had localized production problems will get a payment from RA or CRC for 2000, especially on soybeans. It still took a smaller yield loss to get paid under CRC or RA than under MPCI yield insurance, however, since prices declined from February to harvest. This was especially true for corn.

CRC-Plus

CRC-Plus is an optional policy coverage in which the price used to calculate the CRC guarantee can be increased by up to $.35 for corn and by $.75 for soybeans. This is small decrease from last year. However, the final revenue guarantee cannot exceed 90% of the APH yield times the February futures price for corn, or 85% of the APH yield times the February futures price for soybeans.

Premiums

Higher coverage rates mean higher premiums. As a general rule, increasing the guarantee from 65 percent to 75 percent will about double the premiums, and increasing it from 75 percent to 85 percent will double it again. Premium subsidy rates were increased more for revenue insurance than for yield insurance.

Points Worth Remembering for 2001

1. Downside yield risk is probably greater than downside price risk this year.

-Low subsoil moisture
-Loan rate (LDP or marketing loan) sets a price floor

2. If yields are low and prices go up:

-CRC or RA-optional give the most $ coverage
-MPCI is next
-Standard RA gives the least protection

3. The futures price for soybeans (minus the cash/futures basis) is near the MPCI indemnity price, but the futures price (minus basis) for corn is higher than the MPCI indemnity price. This makes MPCI relatively more attractive for soybeans, and revenue insurance (RA or CRC) more attractive for corn.

4. Higher premium subsidies make higher coverage financially feasible. The new rates reduce the cost of revenue insurance more than yield insurance.

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