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Multiple Peril Crop Insurance (MPCI). Actual Production History (APH)Yield Insurance APH yield is average of past 10 years. APH yield is average of past.

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Presentation on theme: "Multiple Peril Crop Insurance (MPCI). Actual Production History (APH)Yield Insurance APH yield is average of past 10 years. APH yield is average of past."— Presentation transcript:

1 Multiple Peril Crop Insurance (MPCI)

2 Actual Production History (APH)Yield Insurance APH yield is average of past 10 years. APH yield is average of past 10 years. Can insure from 50% to 85% of APH Can insure from 50% to 85% of APH USDA projects a market price each year, called the indemnity price. USDA projects a market price each year, called the indemnity price. If actual yield is below the guarantee, farmer is paid for the lost bushels, at the indemnity price. If actual yield is below the guarantee, farmer is paid for the lost bushels, at the indemnity price.

3 APH Example--Corn APH yield148 bu/acre APH yield148 bu/acre Yield level chosen75% Yield level chosen75% Yield guarantee111 bu/acre Yield guarantee111 bu/acre Indemnity price$2.50 Indemnity price$2.50 Actual yield91 bu/acre Actual yield91 bu/acre Yield loss = 20 bu Yield loss = 20 bu Indemnity payment 20 x $2.50=$50 Indemnity payment 20 x $2.50=$50

4 Crop Revenue Insurance Guarantees gross revenue per acre instead of bushels Guarantees gross revenue per acre instead of bushels Expected gross revenue = Expected gross revenue = (APH yield x Feb. futures price) Can insure 50% to 85% of this Can insure 50% to 85% of this

5 Revenue Insurance Example APH yield 148 bu/acre APH yield 148 bu/acre Feb. futures price$3.00 Feb. futures price$3.00 Coverage level chosen75% Coverage level chosen75% Revenue guarantee Revenue guarantee 148 bu. x $3.00 x 75%= $333

6 Revenue Insurance Example Actual yield150 bu/acre Actual yield150 bu/acre Oct. futures price$2.00 Oct. futures price$2.00 Actual revenue Actual revenue $2.00 x 150 = $300 Indemnity payment Indemnity payment $ = $33 / acre

7 Increasing Coverage Policies Some revenue insurance policies increase the revenue guarantee if prices rise from February to October Some revenue insurance policies increase the revenue guarantee if prices rise from February to October Use the higher of the Feb. price or Oct. price Use the higher of the Feb. price or Oct. price

8 Example Initial guarantee 148 bu. x $3.00 x 75% = $333 Initial guarantee 148 bu. x $3.00 x 75% = $333 Oct. futures price$3.40 (goes up) Oct. futures price$3.40 (goes up) New guarantee:148 bu. x $3.40 x 75% = $377 New guarantee:148 bu. x $3.40 x 75% = $377 Actual yield91bu. Actual yield91bu. Actual revenue91 bu x $3.40 = $309 Actual revenue91 bu x $3.40 = $309 Indemnity payment$377 – 309 = $68 (20 $3.40) Indemnity payment$377 – 309 = $68 (20 $3.40)

9 Increasing Coverage Revenue Insurance Good for farmers who want to forward price their crop Good for farmers who want to forward price their crop Protects against having to buy extra bushels to fill contract at a high price Protects against having to buy extra bushels to fill contract at a high price Protects livestock feeders against having to buy extra feed Protects livestock feeders against having to buy extra feed Pays farmers for lost bushels, but at the fall futures price Pays farmers for lost bushels, but at the fall futures price

10 Crop Insurance Iowa

11 Level of Coverage Catastrophic insurance has a guarantee based on 50% of the proven APH yield. $100 per crop. Catastrophic insurance has a guarantee based on 50% of the proven APH yield. $100 per crop. Higher guarantees can be up to 85% of APH yield or revenue. Higher guarantees can be up to 85% of APH yield or revenue.

12 Level of Guarantee (Iowa)

13 Group Risk Insurance Based on County Average Yields Yields: Group Risk Protection (GRP) Yields: Group Risk Protection (GRP) Revenue: Group Risk Income Protection (GRIP) Revenue: Group Risk Income Protection (GRIP) If the county average yield is low, all farmers get paid, regardless of farm yields If the county average yield is low, all farmers get paid, regardless of farm yields More risky, but less expensive More risky, but less expensive

14 Hail Insurance Added on to policy Added on to policy Can insure up to 100% of expected yield Can insure up to 100% of expected yield Indemnity payment based on appraised damage Indemnity payment based on appraised damage

15 Other Production Risk Tools Crop diversification Crop diversification Pesticides Pesticides Resistant seeds Resistant seeds Irrigation Irrigation Crop share leases Crop share leases Livestock health programs Livestock health programs


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