Choosing Crop Insurance for 2004 William Edwards Iowa 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-Iowa

Acres Planted in 2003 Soybeans-Iowa

Acres Insured in 2003 Corn-Iowa

Acres Insured in 2003 Soybeans-Iowa

Indemnity Payments Made in Iowa for 2003 Crop

Payback Ratio in 2003 As % of farmer premium Corn31% Soybeans458% All crops170%

2003 Soybean Settlement  Purchased 75% RA  Guarantee is 40 bu. APH x $5.26 x 75% =$156  Actual yield was 28 bu./acre  Fall price was $7.32  Actual revenue: 28 bu x $7.32 =$205  Under standard RA no payment

2003 Soybean Settlement  Under RA with harvest price option the guarantee increased to: 40 bu. X $7.32 x 75% = $  Payment = $ $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?

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 Corn80 bu.157 bu. Soybeans31 bu.32 bu.

2004 Insurance Prices Corn Soybeans  CRC,RA$2.78? $6.47?  APH$2.45 $5.60  Loan 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) LevelAPH RA BASIC RA- HPO CRC GRPGRIP 65%$3.74$3.55$5.39$ %$4.89$5.24$7.74$8.22$2.19$ %$7.28$8.17 $11.75$12.31 $2.73$ % $11.40$12.97$18.26$19.35 $4.21$ % $18.20$20.70$28.65$31.04 $5.65$7.62

Winneshiek Co. Premiums (45 bu. soybeans, basic units) LevelAPH RA BASIC RA- HPO CRCGRPGRIP 65%$2.07$2.14$3.12$ %$2.94$3.36$4.72$5.04$.92$ %$4.50$5.43$7.44$7.70$1.05$ %$7.10$8.83 $11.87$12.18 $1.49$ %$11.33$14.33$18.96$19.57 $2.39$4.87

Crop Insurance Premium Calculator University of Illinois Extension

What Units to Choose?  Optional Units: Each farm separate  Basic Units: Can combine owned and cash rented acres in same county  Enterprise Units: Can combine all acres of the same crop in same co.  Whole Farm: Can combine crops

Black Hawk Co. Premiums 145 bu. corn, RA-standard LevelEnterprise Units Basic Units Optional Units 65%$2.94$3.55$ %$4.55$5.24$ %$7.32$8.17$ %$11.87$12.97$ %$19.25$20.70$20.22

Important Points for 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!