Crop insurance payments will be limited in 2016

Crop insurance payments will be limited in 2016

As the 2016 corn and soybean harvest season is wrapping up, some producers have wondered if there will be any 2016 crop insurance payments, given the lower crop prices this fall, especially for corn. f

A large number crop producers in the Upper Midwest have had above average yields in 2016, and crop prices have increased slightly during October, which will eliminate any potential 2016 crop insurance payments in many instances.  

Some crop producers in southern Minnesota, northern Iowa, and other areas, which were impacted by excessive rainfall and severe storms during the growing season, are realizing final 2016 corn and soybean yields that are below their crop insurance actual production history (APH) crop yields.

There are also other portions of the U.S. that may have experienced reduced corn and soybean yields due to dry weather late in the growing season. Any of these areas could potentially realize some 2016 crop insurance indemnity payments, due to reduced crop yields this year. Crop insurance payments are more likely on corn acres, as compared to soybeans, due to more variable yields, and a lower corn harvest price relative to the spring base price.

As of Oct. 31, the estimated 2016 crop insurance harvest prices were $3.49 per bushel for corn and $9.74 per bushel for soybeans, with the USDA Risk Management Agency (RMA) finalizing the harvest prices on Nov. 1.

The crop insurance harvest prices are based on the average CBOT price in the month of October for December corn futures November soybean futures. The harvest prices will be used to calculate the value of the 2016 harvested crops, and for the revenue guarantee for the Revenue Protection (RP) soybean policies that include harvest price protection.

The established base (Spring) prices for 2016 RP and Yield Protection (YP) crop insurance policies were $3.86 per bushel for corn and $8.85 per bushel for soybeans. The base price will be used to calculate RP crop insurance revenue guarantee for corn, since the corn harvest price was lower than the Spring price, which will help improve the likelihood 2016 corn indemnity payments.

The level of crop insurance coverage will be a big factor in determining the amount of insurance indemnity payment that is received for crop revenue reductions, with most producers having 75%, 80%, or 85% RP insurance coverage on their 2016 corn and soybeans.

For example, a producer with a corn APH yield of 190 bushels per acre, carrying a 75% RP insurance policy in 2016, would have a revenue guarantee of $550.05 per acre. By comparison, a producer with the same APH yield, and an 80% RP policy, would have a 2016 revenue guarantee of $586.72 per acre, and a producer with an 85% RP policy would have a revenue guarantee of $623.39 per acre.

If the actual farm yield for 2016 is 160 bushels per acre, which could be common on some farms in the areas that were impacted by the excessive rainfall, the producer with a 75% RP policy would not receive a 2016 crop insurance indemnity payment for corn revenue losses.

By comparison, the producer with an 80% RP policy in 2016 would receive a gross crop insurance indemnity payment of $28.32 per acre, and the producer with an 85% RP policy would receive a gross indemnity payment of $64.99 per acre. Farm operators that incurred yield losses, and had an 80% or 85% RP crop insurance policy in place on their 2016 corn crop are more likely to receive a 2016 crop insurance payment.

A producer with an APH corn yield of 190 bushels per acre would have RP crop insurance indemnity payments initiated at a final 2016 corn yield below 179 bushels per acre with an 85% RP policy, at 168 bushels per acre with an 80% RP policy, and below 158 bushels per acre with a 75% RP policy.

A soybean RP policy will function similarly to a yield only (YP) policy, with payments based on yield reductions. So, a producer with a 52 bushel per acre APH soybean yield would have RP crop insurance payments initiated at 44 bushels per acre with an 85% RP policy, below 42 bushels per acre with an 80% RP policy, and at 39 bushels per acre with a 75% RP policy.   

Farm operators in areas with some yield losses that chose “optional units” for their 2016 crop insurance coverage, rather than “enterprise units”, will likely be in a more favorable position to collect indemnity payments on this year’s crop losses.

 “Enterprise units” combine all acres of a crop in a given county into one crop insurance unit, as compared to “optional units”, which allow producers to insure crops separately in each township section. In recent years, a high percentage of crop producers have opted for “enterprise units”, due to substantially lower crop insurance premium levels. Crop losses in 2016 were highly variable from farm-to-farm within the same county and township.

Producers that have crop revenue losses in 2016, with potential crop insurance indemnity payments, should properly document yield losses, regardless of their type or level of insurance coverage. A reputable crop insurance agent is the best source of information to make estimates for potential 2016 crop insurance indemnity payments, and to find out about documentation requirements for crop insurance losses.

Kent Thiesse has prepared an Information Sheet titled “2016 Crop Insurance Payment Potential”, which is available by contacting : [email protected].

The University of Illinois FarmDoc web site also contains some good crop insurance information and spreadsheets to estimate crop insurance payments. The FarmDoc web site is located at :   http://www.farmdoc.uiuc.edu/

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