Steven D. Johnson. What s Different in Crop Insurance?

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1 February 2015 Steven D. Johnson Farm & Ag Business Management Specialist (515) What s Different in Crop Insurance? Lower Projected Prices (10% to 15%), thus lower revenue guarantees for 2015 New FSA Farm Programs Interact with Annual Crop Insurance Decisions beginning in 2015 Enterprise Units and Coverage Levels by both Irrigated and Non-Irrigated Practices New APH Yield Exclusion (YE) County must qualify Beginning Farmer Rancher (BFR) Program Individuals with less than 5 years of farming experience Administrative fees waived and 10 additional percentage points of premium subsidy Easier to share yield history; physical labor performed. Source: USDA Risk Management Agency, February

2 Corn Yield Exclusion (YE) Counties Source: USDA Risk Management Agency, February 2015 Soybean Yield Exclusion (YE) Counties Source: USDA Risk Management Agency, February

3 New Tie to Conservation Compliance Ties your crop insurance premium subsidies to compliance with the Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) rules through 2018 You can still buy crop insurance, but no subsidy on all policies Loss of subsidy occurs the year after a violation is determined and all appeals are exhausted For both HELC and WC, Form AD-1026 must be on file at FSA by June 1, 2015 for the 2016 crop year. Source: USDA FSA, NRCS and RMA Agencies, February 2015 Iowa Crop Insurance Coverage (2014) Revenue Protection = 96% of Insured Acres (Corn) vs. 95% (Soybeans) Corn Corn Soybeans ARP/AYP 1% 1% YP 2% 3% RPHPE 1% 1% RP 96% 95% Soybeans Source: USDA Risk Management Agency, October

4 Crop Insurance with Farm Program Choices Title XI Title I Crop Insurance Base Acres and/or Yield Update Choice Between ARC or PLC Choose ARC Choose PLC ARC -CO ARC -IC SCO Crop Insurance Supplement Source: Johnson, ISU Extension, February Crop Insurance Decisions Unit Coverage? (Basic, Optional or Enterprise) Trend-Adjusted APH Yield Endorsement? Supplementals: Hail, Wind & Green Snap or Buy-up up of Projected Price? Deductible? SCO Revenue Protection RP (65%-85% Levels) Source: Johnson, ISU Extension, February

5 Considering Supplemental Coverage Option (SCO) Source: Johnson, ISU Extension, February 2015 Projecting Corn Revenue Guarantees Assumes 2015 Projected Price = $4.15/bu. Corn APH Approved Yield % Level $540 70% Level $581 75% Level $623 80% Level $664 85% Level $ $486 $523 $560 $598 $ $432 $465 $498 $531 $ $378 $407 $436 $465 $

6 Crop Insurance Premium Subsidies Coverage Level 65% 70% 75% 80% 85% Optional Units (Fields in Section) 59% 59% 55% 48% 38% Enterprise Units (Fields in County) 80% 80% 77% 68% 53% Source: USDA Risk Management Agency, October 2009 Choosing Unit Coverage at the Farm Level Enterprise County Crop Enterprise Units must be selected by 3/15 sales closing date. Optional County Crop Share Section Basic County Crop Share Source: USDA Risk Management Agency, October

7 PLC vs. ARC Considerations What do you think the national average cash price will be each year for 2014, 2015, 2016, 2017 and 2018? Marketing Year Average (MYA) prices are used Annually, this MYA price must fall below the reference price to trigger a PLC payment $3.70/bu.Corn, $8.40/bu.Soybeans, $5.50/bu. wheat Price projections and information.. FAPRI, USDA, CBO, Futures-Based and others Is SCO an important option annually for your crop insurance decisions through the 2018 crop? National Average Corn Cash Price Forecasts X Source: FAPRI-MU stochastic baseline, January 2015 $5.29/bu. OA National Price X Source: USDA WASDE & MU FAPRI, January

8 National Avg. Soybean Cash Price Forecasts X Source: FAPRI-MU stochastic baseline, January 2015 $12.27/bu. OA National Price X Source: USDA WASDE & MU FAPRI, January 2015 Potential PLC Corn Payment for 2014 Boone County, Iowa Farm Example Corn Base: 80 acres PLC Payment Yield: 142 bu/a Reference price for Corn: $3.70/bu Corn loan rate: $1.95/bu Marketing year average (MYA) cash price: $3.65/bu (?) PLC payment rate: $0.05/bu ($ $3.65) Potential PLC payment: 80 acres X 85% X $0.05/bu X 142 bu = $

9 ARC-CO Olympic Average (OA)Yields & Prices Boone County, Iowa Farm Example Corn Base: 80 acres PLC Payment Yield: 142 bu/a 70% of Corn T-Yields in Boone County: 119 bu/a CORN Olympic Average County Yield % of T-Yield MYA Price $3.55 $5.18 $6.22 $6.89 $4.46 $5.29 Reference Price $3.70 $3.70 $3.70 $3.70 $3.70 Source: ARC-CO Revenue Calculations: 1, 2, 3 Step 1: Corn ARC-CO Benchmark Revenue Calculation: Benchmark Yield = 166/bu Benchmark Price = $5.29 Benchmark Revenue = $ (166 X $5.29) Step 2: Corn ARC-CO Guarantee Calculation: Revenue Guarantee ($878.14) X 86% = $ Step 3: Corn ARC-CO Actual Revenue in 2014: 2014 Boone County yield: 180 bu/a 2014 MYA Price: $3.65/bu Actual Revenue $657(180 X $3.65) 9

10 ARC-CO Revenue Calculations: 4, 5, 6 Step 4: Corn ARC-CO Revenue Loss Calculation: Revenue Guarantee ($878.14) X 86% = $ Actual Revenue = - $ Revenue Loss = $ Step 5: Maximum Payment: 10% Benchmark Revenue = $87.81 (< $98.20) Step 6: ARC-CO Potential Payment: Corn base 80 acres X 85 % X $87.81 = $5,971 Crop Insurance & ARC or PLC Strategies Consider Pre- Harvest Marketing: Selling a Portion of Insurance Bushels for Delivery Make Your 2015 Crop Insurance Decisions; then Finalize ARC vs. PLC/SCO Choices Lower 2015 Projected Prices, Move to a Higher Level of RP Coverage Understand How Subsidies Work, Compare Optional vs. Enterprise Units Choose Revenue Protection (RP) w/ta Option (Consider Supplementals: Hail, Wind, Buy-ups, etc.) Source: Johnson, ISU Extension, February