CropInsurance

CropInsurance - Crop Insurance Overview Paul D. Mitchell...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Crop Insurance Overview Paul D. Mitchell AAE 320: Farming Systems Management Goal Today Crop Insurance part of Ag Policy/Farm Bill Overview current crop insurance programs for corn, soybeans and wheat It's a subsidy program--gives farmers money when they have yield/revenue losses Meant to replace ad hoc disaster payments Types of Policies Yield Insurance vs Revenue Insurance Individual vs. AreaWide Coverage What triggers a payment? Yield or Revenue below the guarantee? Whose yield/revenue triggers payment? Your own or your county's? Types of Policies APH (MPCI): Actual Production History CRC: Crop Revenue Coverage Individual Yield Insurance GRP: Group Risk Plan Individual Revenue Insurance GRIP: Group Risk Income Protection Areawide (County) Yield Insurance Areawide (County) Revenue Insurance APH: Actual Production History If your harvested yield is less than your yield guarantee, receive an indemnity Yield guarantee: average of your actual harvested yields for last 410 years Coverage Level: Choose percentage of your average yield as your guarantee, from 50% to 85% by 5% intervals Price Election: Choose price paid for each bushel below your guarantee, from 100% to 55% of established APH price APH Indemnity If Harvested Yield < Yield Guarantee Indemnity = PAPH x (Yguarantee Yharvested) APH price: Average of CBOT closing prices of harvest futures contracts in key months Coverage level determines your trigger, pay more for higher coverage Price election determines how much paid when have a loss, pay more for higher 2008: Corn = $4.75, Soybeans = $11.50 Unit Structure Each unit Three unit types (smallest to largest) Planted to same crop during insurance period Cannot cut across a county line Separate production records for each unit Optional Unit, Basic Unit, Enterprise Unit Lots of rules on units, know them. Your crop insurance agent should be able to help CRC Crop Revenue Coverage Combines APH with price protection based on CBOT futures prices Your APH yield history and CBOT prices set your preliminary revenue guarantee Same coverage level options, same unit structures Your revenue at harvest is your yield x CBOT prices (e.g., Nov average of Dec corn) If your harvest revenue is below your guarantee, triggers an indemnity payment CRC protects against price increases and decreases If price falls or have low yield, know will have grain or money to buy grain to fulfill contracts If price increases by harvest, revenue guarantee increases too, so again know will have grain or money to buy grain to fulfill contracts Still have to market your grain Can now market more aggressively since you will have grain or indemnities to buy grain at the existing market prices if you have a yield loss GRP = APH, except uses NASS county average yield GRIP with Harvest Revenue Option = CRC, except uses NASS county average yield Cheaper because lower cost to adjust losses (no field visits) Payments not made until Mar/Apr when NASS yields come out: cash flow issues GRP Group Risk Plan GRIP Group Risk Income Protection Lots of Crop Insurance Rules Lots rules: Planting dates, Late and prevented planting, Double cropping, Alternative crop uses, Corn maturity, Yield guarantees, Unit structures, Breaking new ground (CRP vs pasture) Can forfeit your coverage if break a rule Are ways to get the most out of your policy (se the rules to your advantage) Insurance agents don't always know all the rules Subsidies and Crop Insurance Premiums are subsidized so farmers pay less than the actuarially fair premium Private companies sell policy, but govt. subsidizes their administrative costs Implication: on average, farmers should make money from crop insurance Without subsidies, no privately provided crop insurance policies would exist Meant to replace ad hoc disaster Crop Insurance for Other Crops Can insure lots of crops other than corn, soybeans, and wheat Forage production and/or seeding, silage Small grains, Processing vegetables Miscellaneous crops, livestock oats, rye, barley sweet corn, snap beans, green peas, potatoes mint, hybrid seed corn, apples, cranberries Feeder and fed beef, hogs, dairy (soon) AGRLite: Schedule F income Wisconsin farmers and crop insurance Relative to neighboring states, WI a low participation state in crop insurance CRC the most popular coverage, then APH, then GRIP, then GRP APH CAT policies used (50% coverage level with 55% price election), very cheap to buy $100/crop/county % planted acres insured in 2007 State IA IL MN MI WI Corn 92% 78% 91% 67% 64% Soybeans 75% 71% 93% 66% 70% Wheat 24% 47% 91% 56% 41% WI vs. neighboring states WI in 2004: 54% corn, 63% Soybeans, 33% Wheat WI corn policies in 2007 % planted % insured % policies Avg. Units/ acres acres sold Policy APH CAT APH BuyUp CRC BuyUp GRIP BuyUp GRP CAT GRP BuyUp All Total 5.7% 11.1% 38.6% 7.7% 0.1% 1.0% 64.3% 8.9% 17.3% 60.0% 12.0% 0.2% 1.5% 9.2% 28.1% 53.7% 6.5% 0.1% 2.4% 1.03 2.30 3.42 1.09 1.00 1.01 2.68 WI soybean policies in 2007 % planted % insured % policies Avg. Units/ acres acres sold Policy APH CAT APH BuyUp CRC BuyUp GRIP BuyUp GRP CAT GRP BuyUp All Total 4.4% 9.0% 49.0% 5.6% 0.1% 1.4% 69.5% 6.4% 12.9% 70.5% 8.0% 0.1% 2.1% 6.4% 20.7% 66.5% 4.8% 0.0% 1.6% 1.04 1.86 2.59 1.06 1.00 1.04 2.24 WI wheat policies in 2007 % planted % insured % policies Avg. Units/ acres acres sold Policy APH CAT APH BuyUp CRC BuyUp All Total 4.3% 10.0% 26.8% 41.1% 10.4% 24.4% 65.2% 6.5% 29.7% 63.7% 1.03 1.74 2.07 1.90 WI farmer practices Lots of WI grain acres could be insured CRC most popular among those buying insurance Slightly larger than average sized farms buy it Use more than average number of units APH with buyup popular among smaller than average sized farms Use fewer than average number of units GRIP (and GRP) popular among very largest farms WI Crop Insurance for Corn in 2007 total prem. /A APH CAT APH BuyUp CRC BuyUp GRIP BuyUp GRP CAT farmer prem. /A indem./A program farmer loss loss ratio ratio 7.48 28.30 53.03 65.90 11.48 23.16 29.52 1.97 29.64 42.75 1.60* 0.26 1.05 0.81 0.04* 2.58 1.85 0.09* 0.63* 1.59 2.20 0.00* 0* GRP BuyUp 11.20 4.84 2.09* 0.27* All Total Farmers pay no per acre premiums, so no loss ratio. 0.68 45.48 19.50 30.97 * Policy does not pay indemnities until March/April 2008, these for 2006. WI Crop Insurance for Soybeans in 2007 total prem. /A APH CAT APH BuyUp CRC BuyUp GRIP BuyUp GRP CAT farmer prem. /A indem./A program farmer loss loss ratio ratio 2.86 12.77 26.36 35.30 5.28 11.87 15.82 0.64 10.48 23.74 0.16* 0.22 0.82 0.90 0.01* 1.99 2.00 0.01* 0.00* 1.74 0.98 0.00* 0* GRP BuyUp 9.25 4.11 0.00* 0* All Total Farmers pay no per acre premiums, so no loss ratio. 0.77 23.44 10.40 18.12 * Policy does not pay indemnities until March/April 2008, these for 2006. WI Crop Insurance for Wheat in 2007 total prem. /A APH CAT APH BuyUp CRC BuyUp farmer prem. /A indem./A program farmer loss loss ratio ratio All Total Farmers pay no per acre premiums, so no loss ratio. 3.43 12.80 22.62 18.22 0.00 5.18 9.53 7.47 1.18 1.88 13.34 9.28 0.34 0.15 0.59 0.51 0.36 1.40 1.24 Main Point Farmers, on average over the whole state, generally win on crop insurance policies Crop insurance is a subsidy program that is justified as helping farmers when they need it most, when they have low yields and/or revenues Summary Four basic types of policies Lots of crops have policies available Yield vs. Revenue; Individual vs. Areawide APH, CRC, GRP, GRIP CRC most popular for corn and soybeans Know some of the crops Premiums subsidized Overview of Federal Crop Insurance in Wisconsin So policies are available from private companies Encourage farmer participation, not disaster programs ...
View Full Document

Ask a homework question - tutors are online