With Federal Crop Insurance, every year is different, and with the multiple options available to producers, there are many variable results from crop insurance coverage at harvest time. 2014 will be no different, with some producers choosing Yield Protection (YP) policies (yield only) versus Revenue Protection (RP) policies (yield and price). Producers also have differences in the level of coverage, and some producers chose optional units, while other producers chose enterprise units for 2014. Even with all these differences, a large number of corn and soybean producers in Minnesota with RP policies are likely to qualify for crop insurance indemnity payments in 2014.
In the Midwest, most corn and soybean producers in recent years have tended to secure some level of RP crop insurance coverage, rather than standard yield-only (YP) policies. Producers like the flexibility of the RP policies that provide insurance coverage for reduced yields, as well as in instances where the harvest price drops below initial base price. In 2014, corn and soybean crop insurance losses with YP policies and RP policies will function differently, due to the level of Chicago Board of Trade (CBOT) corn and soybean prices being well below the 2014 crop insurance base prices.
The established base prices for 2014 YP and RP crop insurance policies were $4.62 per bushel for corn and $11.36 per bushel for soybeans This will be the payment rate for 2014 YP policies for corn and soybeans, and at current CBOT price levels, will also likely serve as the final price to calculate revenue guarantees for calculating potential RP crop insurance indemnity payments for corn and soybeans. The final harvest price for RP insurance policies with harvest price protection is based on the average CBOT December corn futures and CBOT November soybean futures during the month of October.
If the 2014 CBOT price in October is below the $4.62 per bushel base price for corn, and the $11.36 per bushel base price for soybeans, which seems likely at this point, the initial base price is used to calculate the RP guarantees; otherwise, the October harvest price is used. The CBOT average price for October is used to calculate the value of the actual harvested bushels in 2014 for all RP insurance policies. As of September 18, the CBOT futures closing prices were $3.38 per bushel for December corn and $9.71 per bushel for November soybeans. If these average CBOT prices stay at these levels, the base prices of $4.62 per bushel for corn and $11.36 per bushel for soybeans will be used to calculate the RP insurance guarantees for corn and soybeans in 2014.
Corn and soybean producers had the option of selecting crop insurance policies ranging from 60% to 85% coverage levels. The level of insurance coverage can result in some producers receiving a significant level of crop insurance indemnity payments, while other producers receive little or no indemnity payments, even though both producers may have had the same yield guarantee and the same final harvested yield.
For example, at a proven corn yield of 190 bushels per acre, a producer with 85% coverage would have a yield guarantee of 161.5 bushel per acre, and a revenue guarantee of $746.13 per acre, while a producer with 75% coverage would have a yield guarantee of 142.5 bushels per acre, and a revenue guarantee of $658.35 per acre. If the actual 2014 yield was 190 bushels per acre, with a $3.38 per bushel harvest price, the producer with 85% coverage would receive a gross indemnity payment of $103.93 per acre, while the producer with 75% coverage would receive an indemnity payment of only $16.15 per acre. This example results in a difference of $87.78 per acre in crop insurance payments.
Some farm operators in Minnesota and surrounding states will be facing reduced yields on some farm units in 2014, as well as the lower crop prices, due to the very late planting, excessive rainfall, and severe storms. The recent frost on the weekend of September 20 and 21 could result in additional crop losses in some portions of the Upper Midwest. Many growers purchased upgraded levels of RP crop insurance for the 2014 growing season, which included the higher trend-adjusted (TA) yields that were available. The continued low CBOT corn and soybean prices increases the likelihood of significant 2014 crop insurance indemnity payments for many Minnesota farm operators that have 80% and 85% RP insurance policies in place. Crop insurance payments may not be as widespread in states such as Iowa and Illinois, which are likely to have much higher 2014 corn and soybean yield levels than will exist in much of Minnesota.
An information sheet titled “2014 Crop Insurance Analysis” contains more details on potential 2014 crop insurance indemnity payments and calculations. To receive a copy of this information sheet, please send an e-mail to [email protected]