The deadline to finalize 2015 crop insurance decisions for corn, soybeans, spring wheat and other crops in Midwest is March 15. Profit margins for crop production this year are the tightest that they have been for several years, which makes 2015 crop insurance decisions extremely important. Many farm operators are looking for ways to reduce their crop operating expenses for 2015; however, cutting back on crop insurance coverage may not be a wise decision.
In recent years, a high percentage of crop insurance policies for corn and soybeans in the Upper Midwest have been Revenue Protection (RP) policies, which offer a combination of yield and price protection. Producers purchase RP insurance coverage levels from 50% to 85%, and losses are paid if the final crop revenue falls below the revenue guarantee. Many producers have enhanced their RP coverage by opting for harvest price coverage, and by utilizing trend-adjusted APH (TA-APH) yields. They have been able to add these crop insurance options, and carry 80% or 85% RP coverage at fairly modest premium price increases, by utilizing enterprise production units, rather than optional units. Enterprise units combine all acres of a crop in a given county into one crop insurance unit, while optional units allow producers to insure crops separately in each township section.
As of Feb. 23, the 2015 estimated crop prices in the Upper Midwest for YP, RP and RPE policies were $4.16 per bushel for corn, $9.67 per bushel for soybeans and $5.88 per bushel for spring wheat. This compares to 2014 crop insurance base prices of $4.62 per bushel for corn, $11.36 per bushel for soybeans, and $6.51 per bushel for spring wheat. 2015 crop insurance base prices will be finalized on March 1.
Corn Loss Example with an 80% RP Insurance Policy (enterprise units)
(190 bu./acre APH; 165 bu./acre harvest yield; $4.16/bu. CBOT base price; $3.50/bu. CBOT harvest price; $10/acre premium)
Revenue Guarantee = 90 bu./acre x $4.16/bu. x .80 = $632.32/acre
Harvested Crop Value = 165 bu./acre x $3.50/bu. = $577.50/acre
Net Indemnity Payment = $632.32/acre - $577.50/acre - $10/acre = $44.82/acre
If the coverage level in the previous example is increased to 85%, the revenue guarantee is increased to $671.84. Assuming a harvested crop value of $577.50 per acre and a premium cost of $21 per acre, the resulting net indemnity payment would increase to $73.74 per acre.
2015 crop insurance considerations
- Lower Crop Insurance premiums for 2015. 2015 crop insurance premiums for corn and soybeans in many areas should be slightly lower than comparable 2014 premium levels, due to lower insurance guarantees for 2015.
- View crop insurance decisions from a risk management perspective. How much financial risk can you handle if there are greatly reduced crop yields due to potential drought and weather problems in 2015, and/or lower than expected crop prices? RP crop insurance policies serve as an excellent risk management tool for these situations.
- There are a wide variety of crop insurance policies and coverage levels available. Make sure you are comparing “apples to apples” when comparing crop insurance premium costs for various options or types of crop insurance policies, including the new Supplemental Coverage Option (SCO) option, and recognize the limitations of the various products.
- In most instances, utilize the TA-APH Endorsements for 2015 (where available). Many producers will be able to enhance their insurance protection for 2015 by utilizing the TA-APH option, with only slightly higher premium costs. Using the TA-APH endorsement is a good crop insurance strategy for most eligible corn and soybean producers.
- Know the limitations when utilizing ARP or SCO policies. Area Risk Protection (ARP) or SCO policies may become somewhat more attractive, due to significantly lower premium costs compared to traditional RP policies. However, the ARP and SCO policies are based on county-wide production and revenue losses, and do not necessarily cover losses from isolated storms or crop damage that affect individual farm units.
- Take a good look at the 85% coverage levels, especially if you are using “enterprise units” with RP insurance policies. Most Midwest corn and soybean producers will be utilizing a minimum of 80 % RP coverage for 2015. In many cases, the 85% coverage level offers considerably more protection, with a modest increase in premium costs. Many producers will be able to guarantee $625.00-$700.00 per acre for corn, and $400.00-$450.00 per acre for soybeans, at the 85% coverage levels.
- Where to get more information on 2015 Crop Insurance alternatives. A reputable crop insurance agent is the best source of information to find out more details of the various coverage plans, to learn more about the SCO option and TA-APH yield endorsement, to get premium quotes, and to help finalize 2015 crop insurance decisions.
Kent Thiesse has written an information sheet, 2015 Crop Insurance Decisions. To receive a free copy, e-mail [email protected] or call (507) 726-2137.