Crop Insurance “Thresholds”
The harvest price for corn and soybeans is projected to be significantly lower than the base price on March 15, thus the estimated amount of indemnity payment under a CRC or RA-HP crop insurance policy will likely be enhanced from initial estimates.
The reason for the potential higher insurance indemnity payments is because the guaranteed revenue per acre is calculated using the higher of the base price or harvest price, and the value of the harvested yield is calculated using the harvest price.
The base prices for a CRC or RA-HP insurance policy in 2004 were $2.83 per bushel for corn and $6.72/bu. for soybeans. The harvest price will be determined by the average Chicago Board of Trade (CBOT) prices in October for December corn and November soybeans.
Currently, CBOT harvest prices are at about $2.05/bu. for corn and $5.35/bu. for corn.
It is also important to note that the yield threshold where CRC or RA-HP indemnity payments are initiated increase as the harvest price is lowered below the base price.
For example, indemnity payments on a 80% coverage CRC policy, with a 150 bu./acre APH at a CRC base price, and harvest price of $2.83/bu., would be initiated anytime the harvested corn yield on a given farm unit drops below 120 bu./acre.
However, if the harvest price for corn drops to $2.05/bu., the CRC indemnity payments are initiated when the harvested corn yield on a given farm unit drops to 165 bu./acre. Similarly, soybeans with an APH of 46 bu./acre and a CRC base price and harvest price of $6.72/bu., the indemnity payments on an 85 % CRC policy would be initiated anytime the yield dropped below 39 bu./acre.
However, if soybean harvest price drops to $5.35/bu., the CRC indemnity payments are initiated when the harvested soybean yield on a given farm unit is 49 bu./acre or lower. This will result in many more producers with CRC or RA-HP policies being eligible for potential indemnity payments on their 2004 corn and soybean crops.
It’s a good idea for producers to review their 2004 crop insurance policies to determine where the “yield threshold” is for this year’s corn and soybean crops on various farm units.
Because the CRC and RA-HP harvest price will be considerably lower than the base price, it’s much more likely that producers may qualify for some insurance indemnity payments on some of their farm units.
Remember, that CRC harvest prices won’t be finalized until after October 31, 2004. For more information on 2004 crop losses and potential indemnity payments under various crop insurance policies, producers should also contact their local crop insurance agent.
Every year is different, and thus the results from the various crop insurance policies also vary from year-to-year. However, there has been a fairly consistent advantage in the results of CRC or RA-HP type insurance policies in recent years, as compared to comparable standard APH crop insurance policies.
Before purchasing crop insurance for the 2005 growing season, it’s a good idea for producers to sit down with their crop insurance agent in order to review the various policy options for corn and soybeans, including the premium costs and potential indemnity payments under various yield scenarios.
Editors 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].