Farm News, IA
02-21-07
Crop insurance hikes sting grain farmers
By Kristin Danley-Greiner, Farm News staff
Producers have been talking about the anticipated drastic increase in insurance
prices this year, particularly for revenue insurance for corn, which will be up an
estimated 50 percent from last year, and APH prices for corn up 75 percent.
Agriculture economists are recommending that farmers do the math before
automatically renewing their policies.
Crop insurance premiums are regulated by the Federal Crop Insurance
Corporation (FCIC) under the U.S. Department of Agriculture and are based
upon yield histories in each county, the current year’s indemnity price and the
number and size of insurance units for each policy. William Edwards, an
economist with Iowa State University (ISU) Extension, said the big change
this year comes with the indemnity prices.
“For APH (yield) insurance, the prices have been set at $7 per bushel for
soybeans and $3.50 for corn. This compares to $5.15 and $2 in 2006. The
premiums are roughly proportional to the indemnity prices, meaning that if the
price doubles, the premium doubles,”î Edwards said. ’’Of course, the value of the
coverage doubles, as well.Ӕ
The APH prices are up 36 percent for soybeans and 75 percent for corn,
Edwards said, so premiums will show similar increases. The indemnity prices for
revenue insurance (RA, CRC and GRIP) are equal to the average futures prices
during the month of February, which means the industry won’t know what they
are just yet, he noted.
“Last year, they were $6.18 for soybeans and $2.59 for corn. They will be
considerably higher this year, of course,î” he said. “Farmers should check to see
what dollar value of coverage they will be buying and the premiums before
automatically renewing their crop insurance from last year. The same percentage
of coverage will cost quite a bit more this year. They should check their costs of
production, particularly fertilizer and cash rents, to see how many dollars of gross
income they need to protect this year.Ӕ
Robert Wisner, an agriculture economist at ISU, said CRC revenue insurance
likely will be 50 percent higher than last year for corn and up 26 to 30 percent
from last year for soybeans. When the February average December corn and
November soybean futures come out, economists will have more solid figures.
“Farmers, especially those choosing revenue insurance, will have much higher
coverage than in the past,î” Wisner said. “The basic RA insures crop revenue at
the spring futures price, using the farm’s historical yield. HP (harvest price) RA
increases the insurance coverage if harvest-time futures are higher than in the
previous early spring. CRC is similar to HP RA, except that there are caps on the
amount of possible increase in insurance coverage due to higher prices and the
periods for determining prices are slightly different. Insurance coverage
increases if harvest prices are higher than in February.î”
Wisner said GRP is a group-risk type of insurance where indemnity payments
are triggered if the county average yield is below the historical average by more
than the insured percentage. GRIP is based upon the county average yield and
late-winter-early spring new-crop futures prices. GRIP-HP increases the
insurance coverage if harvest futures prices are higher than in late-winter-early
spring, Wisner said.
“GRIP can work well for farmers whose farming operation is spread over a
considerable part of the county, so that their yields would tend to fluctuate with
the county average. In some situations, it may be a less expensive alternative to
insurance that is based on the farm’s historical yield,”î he said.
The University of Illinois has a Web site where producers can view tentative
premiums for their county, which can be accessed at
http://www.farmdoc.uiuc.edu/cropins/index.asp. Wisner said that, based upon the
University of Illinois estimates, CRC should be a slightly less expensive than HPRA, for similar coverage.
“In an explosive grain market, which would be very possible in case of serious
weather problems over a large area of the Midwest, RA might perform somewhat
better than CRC, because CRC has a limit on the amount of harvest price
increase that is allowed for insurance purposes,”î he said. “Both CRC and HP-RA
are potentially advantageous for the farmer who wants to contract a high
percentage of expected production before harvest. In case of low yields and a
need to buy back some over-sold contracts at higher prices, these insurances
provide additional insurance coverage if harvest prices are higher than in the late
winter-early spring period.Ӕ