As the 2014 corn and soybean harvest season is wrapping up, many farm operators in Minnesota and surrounding states are focusing their efforts on 2014 crop insurance claims. Even though USDA is projecting record U.S. corn and soybean production in 2014, farm operators in many areas of Minnesota will have crop yields that are well below average. Many farmers with final 2014 corn and soybean yields below actual production history (APH) crop yields who had a revenue protection (RP) crop insurance policy in place in 2014, will likely be able to collect a crop insurance indemnity payment on the crop losses incurred this year.
As of Nov. 1, the USDA Risk Management Agency (RMA) finalized the 2014 crop insurance harvest prices at $3.49 per bushel for corn, and $9.65 per bushel for soybeans. The harvest prices for RP insurance policies are based on the average CBOT December corn futures price, and the average CBOT November soybean futures price, during the month of October. The harvest prices will be used to calculate the value of the 2014 harvested crops. The established base prices for 2014 RP and YP crop insurance policies were $4.62 per bushel for corn and $11.36 per bushel for soybeans. The base price will be used to calculate RP crop insurance revenue guarantees for corn and soybeans. This price will also be the payment rate for crop insurance indemnity payments on any yield losses for producers with 2014 YP (yield only) insurance policies.
A large percentage of Minnesota crop producers carried either 75%, 80% or 85% RP crop insurance coverage on their 2014 corn and soybean crops. The level of insurance coverage will be a big factor in determining the amount of insurance indemnity payment that is received for crop revenue reductions this year. For example, a producer with a corn APH yield of 180 bushels per acre, carrying a 75% RP insurance policy in 2014, would have a revenue guarantee of $623.70 per acre. By comparison a producer with the same yield and an 80% RP policy would a 2014 revenue guarantee of $665.28 per acre, and a producer with an 85% RP policy would have a revenue guarantee of $706.86 per acre.
If the actual farm yield for 2014 is 150 bushels per acre, which will be common in some areas, the producer with a 75% RP policy would receive a 2014 gross crop insurance indemnity payment of $100.20 per acre for corn revenue losses. By comparison, the producer with an 80% RP policy in 2014 would receive a gross crop insurance indemnity payment of $141.78 per acre, and the producer with an 85% RP policy would receive a gross indemnity payment of $183.86. Farm operators with 80% and 85% RP crop insurance policies in place on their 2014 corn and soybean crops will certainly be in a much better position to withstand the financial impacts of significant yield reductions this year.
The 2014 RP crop insurance harvest price of $3.49 per bushel for corn is almost 25% below the RP price guarantee of $4.62 per bushel. Similarly, the 2014 soybean RP harvest price of $9.65 per bushel is about 15% below the RP price guarantee of $11.36 per bushel. This significant reduction of crop prices from the RP price guarantees to the final harvest prices will result in crop insurance indemnity payments being initiated at higher final yield levels. For example, a producer with an APH corn yield of 180 bushels per acre would have crop insurance indemnity payments initiated at a final 2014 corn yield of 202 bushels per acre with an 85% RP policy, 190 bushels per acre with an 80% RP policy, and 178 bushels per acre with a 75% RP policy. A producer with an APH soybean yield of 50 bushels per acre would have 2014 crop insurance indemnity payments initiated at final soybean yields of 50 bushels per acre with an 85% RP policy, 47 bushels per acre with an 80% RP policy, and 44 bushels per acre with a 75% RP policy.
Larger farmers who incurred significant crop revenue losses in 2014 should be aware that very high crop insurance gross indemnity payments can trigger audits by insurance companies, as well as by the USDA Risk Management Agency (RMA). These audits can delay crop insurance indemnity payments, especially if producers do not have the required documentation readily available. Documentation may include settlement sheets, yield records, etc., for the past three years, which must be verified to specific farm units.
A reputable crop insurance agent is the best source of information to make estimates for potential 2014 crop insurance indemnity payments, and to find out about documentation requirements for crop insurance losses and for potential audits. It is important for producers who are facing crop revenue losses in 2014 to understand their crop insurance coverage, and the calculations used to determine crop insurance indemnity payments.
An information sheet, “2014 Crop Insurance Analysis,” contains more details on potential 2014 crop insurance indemnity payments and calculations. To receive a copy, please e-mail: [email protected]