AgDM newsletter article, January 2002

2002 Crop Insurance Update - Results from 2001

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

Results from 2001

Declining corn and soybean prices from February 2001 to harvest time coupled with spotty yields and late planting in southeast Iowa resulted in significant crop indemnity payments to Iowa farmers in 2001. The ratio of indemnity payments to total premiums was 44 percent, the highest since 1998. After subtracting the federal share of crop insurance premiums, farmers received indemnities equal to 95 percent of the premiums they paid as shown in Figures 2 and 3.

Revenue Assurance policyholders actually received more dollars in indemnity payments than they paid in premiums, while CRC policies were slightly below breakeven. Note that Group Risk Plan (GRP) indemnities haven't been determined yet, pending estimation of county average yields.

Revenue insurance

The February 2001 futures prices that were used to calculate the guarantees for Crop Revenue Coverage (CRC) and Revenue Assurance (RA) were $2.46 for corn and $4.67 for soybeans. The fall futures prices used to calculate the actual revenue in 2001 were $2.05 for corn and $4.37 for soybeans. Thus, the increasing coverage feature of CRC and RA-harvest price optional policies did not go into effect this year. Corn producers who purchased revenue insurance at the 85 percent level and achieved yields equal to their APH yield received a small payment based solely on the price decline. The table below shows what percent of yield loss below the APH yield would have been required to receive an indemnity payment at other guarantee levels.

Guarantee level
Corn
Soybeans
85 %
0 %
9 %
75 %
10 %
20 %
65 %
22 %
31 %

For 2002 the fall futures price used to calculate the actual revenue for corn will be the average of the December contract price during October instead of November.

Actual Production History (yield) Insurance

APH indemnity prices for 2002 are not available yet. They likely will be close to the levels set for the past two years:

 
Corn
Soybeans
2000
$1.90
$5.16
2001
$2.05
$5.26

Premiums

Figure 1. Level of Guarantee Purchased Iowa, 2001

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. The federal subsidy (percent) is lower for higher levels of coverage. Figure 1 shows the coverage levels chosen by Iowa producers in 2001. The 50 percent coverage level was mostly from catastrophic policies.

Fig.2. Farmer premium and indemnity paid corn - Iowa, 2001 and Figure 3. Soybeans, Iowa, 2001

Points worth remembering for 2002

The USDA loan rate (LDP or marketing loan) sets a price floor near or above insurance rates, especially for soybeans.

 

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