Anew Risk Management Agency (RMA) program could minimize the misery for Hoosier Brian Kemper and thousands of other growers who have suffered through the dire-straits drought that rivals the anguish of 1988.
The new Trend-Adjusted (TA) Actual Production History (APH) feature from USDA’s RMA will boost revenue insurance coverage by about $20-30/acre or more over the old APH system, say Corn Belt Extension economists and crop insurance specialists. But be sure damaged crops are appraised by your crop insurance adjustor before harvesting, and think about 2013.
Kemper, 31, is the fifth generation to farm his family’s Lafayette, Ind., operation. After graduating from Purdue University’s school of business, he joined his father Alan, a leader in national corn and soybean policymaking, in working the land both were raised on.
“For a lot of us young farmers, this is our first real drought,” says Kemper, who expects corn and soybean yields slashed by 50% or more.
The TA-APH won’t replace a bumper crop, but it will certainly help. The revised APH program became available to 14 Corn Belt states for 2012 and will be expanded for 2013, says Bruce Sherrick, University of Illinois Extension andfarmdoc agricultural economist. It couldn’t have been activated at a more critical time for growers.
The TA-APH provision was enacted to keep up with the growing increase in corn and soybean yields. Thanks to better corn hybrids, yields have increased by about 2 bu./year on average, along with about a 0.5-bu. increase for soybeans, Sherrick says. Those average annual yield increases determine a farm’s TA-APH.
With that pattern, if a farm has 10 years of continuous yields, the average of those 10 years will lag the former updated APH by 11 bu. Sherrick says that figure is the sum of (10 years of continuous yields / 2 + 0.5) x 2 bu.
“Because regular APH yields lag expected yields, payment guarantees would also lag,” he says. “The TA-APH endorsement corrects this issue by allowing a trend adjustment to be added to the APH yield. The resulting TA-APH yield then is used in calculating guarantees.”
The TA-APH option couldn’t have come at a better time. That’s because the higher APH yield will determine crop-insurance indemnity payments in 2012. “We will have many Iowa farmers who have a 190-bu. TA-APH with the 85% level of coverage, giving them more than a 160-bu. guarantee,” says Steve Johnson, Iowa State University Extension farm management specialist.
“And most growers selected Revenue Protection (RP) coverage, which has the harvest-price provision for December corn and November soybeans. Their 2012 indemnity payments are based on revenue loss using their higher TA-APH yield option times their level of coverage.
“Payments will be based on the futures price average (for December corn and November soybeans) during the month of October rather last February’s CME December corn futures price of $5.68/bu. and November soybean futures price of $12.55/bu.”
Billions of dollars will likely be paid out nationwide to growers for drought-caused losses, Johnson says.
“TA-APH could add 5, 10 or even more bushels of corn and typically 1-3 bu. of soybeans to their APH and ultimately their dollar guarantee,” says Jim Rink, farm/crop director for Indiana Farm Bureau, one of many insurance companies offering RMA insurance programs. “When you take into account the $5.68 spring corn price and a 5-bu. adjustment, that’s another $28/acre coverage, and in many situations even more (depending on yield numbers and whether they have the RP harvest price provision).”
Sherrick says the TA-APH provision did not require a higher premium, other than paying for higher yield guarantees.
Let’s follow the insurance through the Kempers’ farm in Tippecanoe County, Ind.: According to the farmdoc Crop Insurance Evaluation model, the county’s TA-APH average is 170.3 bu., compared to its regular Farm APH rate of 162 bu. The TA rate is 1.78 bu.
“We hear that the average 1,000-acre Indiana farmer is losing $5,000/day due to the drought,” Kemper says. “Our farm will be lucky to get 70 bu. of corn from a 180-bu.-average field, and to reach 30-bu. beans where 60 bu. is normal. The new TA-APH program should come in handy.”
Kemper’s crop-insurance premiums range from $18 to $45/acre. Most coverage includes both yield and revenue protection for 80-85% range of protection, he says.
Sherrick says the TA-APH enhancement has seen some growers elect a lower coverage. That’s because with the higher APH, an 80% coverage would provide the about the same protection as an 85% policy based on the standard APH.
“It allows higher coverage levels. Also, 85% of a higher number gets you more bushels; most folks used that percentage.”
Rink says some Indiana growers reduced the percentage of coverage. “However, many saw the opportunity to insure a higher percentage of their risk,” he says. “They chose to go with the 85% coverage level, as premiums in general seemed to be down this year on a per-acre basis, especially with the enterprise unit structure.”
To illustrate how growers in a typical Illinois county would fare with the program, Sherrick and farmdoc use the following example, based on the February designated corn price of just under $6/bu.: “Take a 160-bu. APH yield and a 170-bu. TA-APH yield and a projected price of $6,” Sherrick says. “An 85% RP policy without the TA-APH will have a guarantee of $816/acre for the 160-bu. APH yield. An 80% RP with the 170-bu. TA endorsement will also have an $816 guarantee.” The 80% level of coverage would cost several dollars per acre less.
Sherrick encourages growers to start looking at the 2013 TA-APH program, which will be expanded from the original 14 states (Missouri, Iowa, Illinois, Nebraska, Kansas, Minnesota, Colorado, Indiana, Kentucky, Michigan, North Dakota, South Dakota, Ohio and Wisconsin). “The revision is still taking place, but there will be some additional states and counties added, as well as some wheat production areas,” he says.
“Not having crop insurance is like playing roulette,” Kemper says. “You either win or you’re out.”
Fortunately, the new TA-APH plan will likely help some growers from going out of business.