Crop Insurance & the 2012 Drought Whitney Wiegel Ag Business Specialist MU Extension wiegelw@missouri.edu
14-Day Observed Precipitation (valid 9/10/2012)
http://droughtmonitor.unl.edu/dm_state.htm?mo,mw
6-Month Departure from Normal Precipitation (valid 9/10/2012)
Inches 9.00 8.00 7.00 Precipitation 2012 vs Average for Richmond, MO 8.02 6.00 5.00 4.00 3.00 2.00 1.00 0.00 5.27 5.34 4.67 4.66 4.30 4.29 3.96 2.78 2.43 2.52 2.26 2.31 2.17 1.77 1.47 1.10 0.30 January February March April May June July August September Observed Average
Temp Max (F) 120 Average Daily Temperature Max by Month--Richmond, MO (2012 vs Normal) 100 80 69 70 66 81 75 87 84 97 88 8988 60 40 47 48 44 39 55 20 0 January February March April May June July August Observed Normal
Degrees (F) Above Normal 16 14 Departure from Normal - Average Daily Highs by Month 14 12 10 8 8 9 6 6 4 4 4 3 2 0 January February March April May June July August 1
Percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6 43 37 11 3 2012 Missouri Corn Condition 1 2 3 1 4 17 11 10 34 29 19 28 27 56 58 Jun Jul Aug Sept Very Poor Poor Fair Good Excellent Values are from 1 st Crop Progress Report for the respective month
Percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2012 Missouri Soybean Condition 4 1 32 45 15 4 17 33 31 18 1 1 5 5 20 17 Jun Jul Aug Sept Very Poor Poor Fair Good Excellent Values are from 1 st Crop Progress Report for the respective month 37 37 33 44
Percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2012 Missouri Sorghum Condition 2 1 1 9 0 9 22 37 47 38 32 27 27 35 38 28 26 12 2 7 Jun Jul Aug Sept Very Poor Poor Fair Good Excellent Values are from 1 st Crop Progress Report for the respective month
Percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2012 Missouri Pasture Condition 13 54 27 3 25 37 20 0 4 20 38 38 1 1 14 17 85 82 15 5 1 May Jun Jul Aug Sept Very Poor Poor Fair Good Excellent Values are from 1 st Crop Progress Report for the respective month
Crop insurance to the rescue!? What policy did you purchase? Revenue Protection (RP) Revenue Protection Harvest Price Exclusion (RPHPE) Yield Protection (YP) Group Risk Protection (GRP, GRIP) Other What coverage level did you select? What is your APH? Actual yield? How many bushels did you forward contract?
Crop Insurance in Missouri Insured Acres by Policy Type (2012) RPHPE 2% YP 19% Group 0% MO Corn Acres: 3.6 million MO Soybean Acres: 5.3 million RP 79% MO Corn Acres Insured: 84% MO Soybean Acres Insured: 81%
Crop Insurance Plans RP Revenue Protection Revenue Guarantee = Where APH * protection level * crop price APH = 4 to 10 year average yield (generally) Protection Level = 50 to 85% (5% increments) Crop Price = Higher of average Dec(corn)/Nov(beans) futures settlement prices in February OR October
Crop Insurance Plans Revenue Protection (RP) Indemnity Payment = revenue guarantee (actual yield * crop price) If result is 0 or negative, there is no indemnity Revenue Protection Harvest Price Exclusion (RPHPE) Like RP except revenue guarantee can only use the spring price To determine actual revenue, however, the fall price is used
Revenue Protection (RP) Example Policy Info: Corn; APH 138; 80% coverage level Spring price $5.68; Fall price $8.00 Farm Info: Actual yield is 45 bpa Indemnity Calculation: 138 bu * 80% * $8.00 (45 bu * $8.00) = $523.20/acre APH * Coverage * Price - (actual yield * price) = indemnity/acre
RPHPE Example Policy Info: Corn; APH 138; 80% coverage level Spring price $5.68; Fall price $8.00 Farm Info: Actual yield is 45 bpa Indemnity Calculation: 138 bu * 80% * $5.68 (45 bu * $8.00) = $267.07/acre APH * Coverage * Price - (actual yield * price) = indemnity/acre
RP vs RPHPE For our example scenario RP indemnity = $523.20 RPHPE indemnity = $267.07 Difference: $256.13 Premium difference: about $10 ($26.52 vs $17.60)
Crop Insurance Plans Yield Protection (YP) Indemnity Payment = yield guarantee (actual yield * price election) Where Yield Guarantee = APH * yield coverage level And price election is 60-100% of spring price
Yield Protection (YP) Example Policy Info: Corn; APH 138; 70% yield coverage level = 96.6 bpa yield guarantee Spring price $5.68; 100% price coverage level = $5.68/bu on bushels short of yield guarantee Farm Info: Actual yield is 45 bpa Indemnity Calculation: 96.6 bu 45 bu * $5.68 = $293.09/acre yield guarantee - actual yield *price election = indemnity/acre
Crop Insurance Plans Compared For our example scenario Plan Indemnity Est. Premium Cost (Enterprise Units) RP (80%) $523 $26.52 RPHPE (80%) $267 $17.60 YP (70% yield, 100% price) $293 $7.00 Premium estimates are based on the 2012 ifarm Premium Calculator available online from the University of Illinois at http://www.farmdoc.illinois.edu/cropins/index.asp
APH Provisions APH is generally a 4 to 10 year average yield for a single crop Yields cannot be dropped from the 4 to 10 year average calculation APH cannot decline >10% from year to year A farmer can request a yield equal to 60% of the county T yield as a substitute in the APH calculation 2012 T Yields Corn Soybean Ray 137 38 Lafayette 141 44
Crop Insurance & Forward Contracts Advised Don t forward contract more than your yield guarantee (coverage level * APH) If you plan to forward contract, select an RP policy Offers protection against higher prices at harvest time Indemnity payments may offset part or all of contract losses
Crop Insurance & Forward Contracts Example: RP vs RPHPE in 2012 Forward Contract Situation APH 138 80% coverage for both policies Forward contracts 110 bushels per acre at $6/bu Assume $0 basis, $8.00 fall price, & $5.68 spring price Actual yield is 45 bpa
Crop Insurance & Forward Contracts Example: RP vs RPHPE in 2012 Forward Contract Situation Farmer is short 65 bu; must purchase for $8/bu -$520/acre With RP Indemnity is (138aph*80%*$8) (45bu*$8) = $523 Total Revenue = 110 * $6 + $523 = $1,183 Total Revenue less contract loss = $1,183 - $520 = $663 $663 to cover production costs; likely profitable
Crop Insurance & Forward Contracts Example: RP vs RPHPE in 2012 Forward Contract Situation Farmer is short 65 bu; must purchase for $8/bu -$520/acre With RPHPE Indemnity is (138aph*80%*$5.68) (45bu*$8) = $267 Total Revenue = 110 * $6 + $267 = $927 Total Revenue less contract loss = $927 - $520 = $407 $407 to cover production costs; profitable???
Pasture & Forage Policies Ask your crop insurance agent about these! Pasture, Rangeland, and Forage (PRF) Forage Production Index Rainfall Index (RI) Vegetation Index (VI)
Resources Various Drought Resources http://extension.missouri.edu/lafayette/droughtinfo.aspx Revenue Protection Crop Insurance http://www.extension.iastate.edu/agdm/crops/html /a1-54.html Proven Yields & Insurance Units http://www.extension.iastate.edu/agdm/crops/html /a1-55.html RMA Crop Insurance Fact Sheets (Missouri) http://www.rma.usda.gov/aboutrma/fields/ks_rso/