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. 2012 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 2012.
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 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 2012, corn and soybean yield losses with YP policies and RP policies will likely function similarly, with a likely difference in the market price, due to the current high levels in the Chicago Board of Trade (CBOT) grain prices.
The established base prices for 2011 YP and RP crop insurance policies were $5.68/bu. for corn and $12.55/bu. for soybeans This will be the payment rate for 2012 YP policies for corn and soybeans on any indemnity payments. The final harvest price for RP insurance policies is based on the average CBOT December corn futures and CBOT November soybean futures during the month of October. If the 2012 CBOT price in October is above $5.68 for corn and $12.55 for soybeans, the harvest base price is used to calculate the RP guarantees; otherwise, the base price is used. If the harvest price is above the base price, RP insurance policies function similar to a YP policy, with the only difference being a higher harvest price payment rate on payment bushels. As of Sept. 28, 2012, the CBOT prices were $7.56 for December corn and $16.01 for November soybeans.
Corn and soybean producers had the option of selecting crop insurance policies ranging from 60% to 85% coverage levels at sign-up time last spring. While 85% coverage levels have increased, coverage levels of 75% and 80% are much more common with RP insurance policies, due to more affordable premium costs. The level of insurance coverage can result in some producers receiving crop insurance indemnity payments, while other producers receive no indemnity payments, even though both producers had the same guarantee and the same final yield. For example, at a proven corn yield of 180 bu./acre, a producer with 85% coverage would have a 153-bu./acre guarantee, while a producer with 75% coverage would have a yield guarantee of 135 bu.
In recent years, the USDA Risk Management Agency (RMA) increased the federal subsidy for purchasing YP or RP insurance coverage under enterprise units, which combines all acres of a crop in a given county into one crop insurance unit. As a result, crop insurance premium levels for policies with enterprise units were much more favorable than for policies utilizing optional units. Prior to 2009, most producers used optional units, which allows producers to insure corn and soybeans separately in each township section. However, many more producers are now taking advantage of the lower premium levels with enterprise units, allowing them to upgrade to 80% or 85 % RP coverage.
Farmers who have 2012 crop losses on individual farms, and have crop insurance coverage with optional units, may be able to collect crop insurance indemnity payments on their 2012 corn or soybean crop on some farm units, while not on others. Meanwhile, producers with crop insurance policies with enterprise units in 2012, may be less likely to qualify for 2012 crop insurance indemnity payments, unless they had crop losses on a significant portion of crop acres in a county. Due to the very low corn and soybean yields in some areas, resulting from the widespread drought in 2012, there are likely to be more producers with enterprise units that qualify for crop insurance indemnity payments in 2012, as compared to previous years.
Farmers who have crop losses in 2012, with potential crop insurance indemnity payments, should properly document yield losses for either optional units or enterprise units. Farmers with RP policies who qualify for crop insurance indemnity payments will likely be paid at higher payment rate than farmers with YP policies, due to the higher CBOT harvest prices for corn and soybeans. A reputable crop insurance agent is the best source of information to make estimates for potential 2012 crop insurance indemnity payments, and to find out about documentation requirements for crop insurance losses. It is important for farmers who are facing crop losses in 2012 to understand their crop insurance coverage, and the calculations used to determine crop insurance indemnity payments. The University of Illinois Farm Management website  has some good crop insurance information, and an online “what-if” crop insurance payment calculator.
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected]