1 Getting a Grip on GRIP Gary Schnitkey Agricultural Economist University of Illinois.

  • Published on
    17-Jan-2016

  • View
    213

  • Download
    0

Embed Size (px)

Transcript

<ul><li><p>Getting a Grip on GRIPGary SchnitkeyAgricultural EconomistUniversity of Illinois</p></li><li><p>Topics</p><p>Illinois versus Iowa experienceHow GRIP works Risks/ReturnsSituations where it works</p></li><li><p>GRIPGRIP (Group Risk Income Plan) is revenue insurance based on county yieldsGRIP-NoHR (No Harvest Revenue option) much like RA with base price optionGRIP-HR (Harvest Revenue option) much like CRC or RA with harvest price optionGRIP is the revenue counterpart to the county-level yield insurance GRP (Group Risk Plan)</p></li><li><p>Group Products Akin ToGroupAkin toInsurance Type GRP APH Yield </p><p> GRIP-NoHRIP, RA with Revenue no base priceguarantee increase</p><p> GRIP-HRCRC, RA with Revenue - harvest price guarantee increase</p></li><li><p>Introduced in I statesIntroducedGRP (Group Risk Plan) 1995GRIP-NoHR 1999 (Group Risk Income Plan -- No Harvest Revenue option)GRIP-HR 2004 (GRIP -- Harvest Revenue option)</p></li><li><p>Group Product Use, Corn, IllinoisGRPGRIPIowa 2005 UseGRP 1.2%GRIP 3.6%</p></li><li><p>Group Product Use, Soybeans, IllinoisGRIPGRPIowa 2005 UseGRP 1.9%GRIP 4.7%</p></li><li><p>Percent of Iowa Counties Receiving GRIP-NoHR Payments for Corn, 1999 -2004 ---------- Coverage Level ------------Year 90% 85% 80% 75% 70%1999 54% 30% 11% 4% 2%2000 66 22 2 1 02001 72 49 25 11 12002 3 3 3 1 12003 3 0 0 0 02004 82 72 41 16 1</p><p>AVG 47% 29% 13% 6% 1% </p></li><li><p>Percent of Iowa Counties Receiving GRIP-NoHR Payments for Soybeans, 1999 -2004 ---------- Coverage Level ------------Year 90% 85% 80% 75% 70%1999 19% 9% 4% 2% 2%2000 69 57 31 18 62001 46 19 8 4 12002 0 0 0 0 02003 30 15 9 7 52004 95 85 71 51 23</p><p>AVG 43% 31% 21% 14% 6%</p></li><li><p>How GRIP Works</p><p>Marshall County, Iowa2005 Example</p></li><li><p>Parameters in 2005County: Marshall County, IaCrop: CornExpected Yield: 164.3 *Expected Price: $2.38 **</p><p>* County specific, set by RMA** Settlement prices during February (Next year for entire month)</p></li><li><p>Farmer choicesProtection Level </p><p>Choice from within rangeGRPGRIPMax$579$587Min $323$346</p><p>Max varies by year, based on formula</p><p>Max results in highest premiums and highest payments, when they occur</p></li><li><p>Farmer choicesCoverage Level</p><p>70% to 90%</p><p>Suggestion:Take highest coverage levelChange payment/premium by lowering protection level</p></li><li><p>2005 Per Acre Premiums, Marshall County, Iowa (100% Protection Level, Corn)CoverageLevelGRP GRIP-NoHRGRIP-HR70%$3.96 $2.96 $5.5175% 4.80 4.24 7.2280% 6.17 6.90 10.5885% 6.89 10.00 13.8590% 8.60 15.92 20.25</p></li><li><p>Per Acre Guarantees,90% Coverage Level</p><p> GRP GRIP-NoHR GRIP-HRType YieldRevenue Revenue Coverage level .90 .90 .90x Expected yield 164.3 164.3 164.3x Price xxx $2.38 $2.38 @ Guarantee 147.9 bu $352 $352 @@</p><p>@ Higher of expected or harvest price@@ Will be higher when harvest price &gt; expected price</p></li><li><p>Payment exampleTypical YearActual yield = 170 bu.Harvest price = $2.00Guarantees on previous slide (90% cov level)</p><p>Shortfall = (Guarantee Actual)/Guarantee when Guarantee &gt; Actual GRP: .000 (147.9 guarantee &lt; 170 actual) GRIP-NoHR: ($352 - (170*2)) / $352 = .034 GRIP-HR: ($352 - (170*2)) / $352 = .034</p></li><li><p>Payments (Max Protection Level, 90% Coverage Level)</p><p> GRP GRIP-NoHR GRIP-HRProt. level $579 $587 $587X shortfall .000 .034 .034X price factor xxx xxx 1.00 *Payment $0 $20 $20</p><p>* Higher of (harvest price / expected price) or 1</p></li><li><p>Payment exampleDrought YearActual yield = 130 bu.Harvest price = $3.00</p><p>Shortfall = (Guarantee Actual)/Guarantee when Guarantee &gt; Actual GRP: (147.9 130) / 147.8 = .121 GRIP-NoHR: .000 Guarantee &lt; actual ($390) GRIP-HR: ($443 - (130x3)) / $443 = .120</p></li><li><p>Per Acre Guarantees, Revised90% Coverage Level</p><p> GRP GRIP-NoHR GRIP-HRType YieldRevenue Revenue Coverage level .90 .90 .90x Expected yield 164.3 164.3 164.3x Price xxx $2.38 $3.00 @ Guarantee 147.9 bu $352 $443 @@</p><p>@ Higher of expected or harvest price@@ Will be higher when harvest price &gt; expected price</p></li><li><p>Payments (Max Protection Level, 90% Coverage Level)</p><p> GRP GRIP-NoHR GRIP-HRProt level $579 $587 $587X shortfall .121 .000 .120X price factor xxx xxx 1.26 @Payment $70 $0 $89</p><p>@ Higher of (harvest price / expected price) or 1(3.00 harvest price / 2.38 expected price) = 1.26</p></li><li><p>GRP Shortfalls, Marshall County, Iowa, Corn (90% coverage level) Expected Final GRPYear Yield Yield Shortfall (90%)1995 131.1 133.7 01996133.2 139.4 01997133.2 136.4 01998135.3 144.5 01999136.5 153.8 02000137.6 144.0 02001146.7 150.5 02002146.7 181.8 02003150.1 175.9 02004158.4 183.2 0</p></li><li><p>Marshall County, Corn Yields197719881993</p><p>Chart1</p><p>124.995.7771836007</p><p>115.597.843192959</p><p>104.399.9092023173</p><p>104.1101.9752116756</p><p>104.8104.0412210339</p><p>42.5106.1072303922</p><p>111108.1732397504</p><p>132.1110.2392491087</p><p>119.3112.305258467</p><p>120.9114.3712678253</p><p>129.4116.4372771836</p><p>109.8118.5032865419</p><p>122.7120.5692959002</p><p>131.7122.6353052585</p><p>133.7124.7013146168</p><p>143.2126.767323975</p><p>70.5128.8333333333</p><p>121.5130.8993426916</p><p>127.1132.9653520499</p><p>127.4135.0313614082</p><p>154.3137.0973707665</p><p>85.7139.1633801248</p><p>151.7141.2293894831</p><p>134.8143.2953988414</p><p>140.6145.3614081996</p><p>139.2147.4274175579</p><p>146.2149.4934269162</p><p>155.8151.5594362745</p><p>145.2153.6254456328</p><p>152.9155.6914549911</p><p>184157.7574643494</p><p>179.6159.8234737077</p><p>185.1161.889483066</p><p>Year</p><p>Bu. per Acre</p><p>Sheet1</p><p>-3978.3932709447</p><p>2.0660093583</p><p>1972124.995.7771836007</p><p>1973115.597.843192959</p><p>1974104.399.9092023173</p><p>1975104.1101.9752116756</p><p>1976104.8104.0412210339</p><p>197742.5106.1072303922</p><p>1978111108.1732397504</p><p>1979132.1110.2392491087</p><p>1980119.3112.305258467</p><p>1981120.9114.3712678253</p><p>1982129.4116.4372771836</p><p>1983109.8118.5032865419</p><p>1984122.7120.5692959002</p><p>1985131.7122.6353052585</p><p>1986133.7124.7013146168</p><p>1987143.2126.767323975</p><p>198870.5128.8333333333</p><p>1989121.5130.8993426916</p><p>1990127.1132.9653520499</p><p>1991127.4135.0313614082</p><p>1992154.3137.0973707665</p><p>199385.7139.1633801248</p><p>1994151.7141.2293894831</p><p>1995134.8143.2953988414</p><p>1996140.6145.3614081996</p><p>1997139.2147.4274175579</p><p>1998146.2149.4934269162</p><p>1999155.8151.5594362745</p><p>2000145.2153.6254456328</p><p>2001152.9155.6914549911</p><p>2002184157.7574643494</p><p>2003179.6159.8234737077</p><p>2004185.1161.889483066</p><p>Sheet1</p><p>Year</p><p>Bu. per Acre</p><p>Sheet2</p><p>Sheet3</p></li><li><p>GRIP Shortfalls, Marshall County, Iowa, Corn (90% coverage level) Expected Harvest GRIPYear Price Price Shortfall (90%)1999 2.40 1.96 02000 2.54 2.11 .0342001 2.45 2.05 .0462002 2.30 2.43 0 2.38 2.37 0 2.93 1.99 .127</p><p>Shortfalls the same for GRIP-NoHR and GRIP-HR.</p></li><li><p>GRP Shortfalls, Marshall County, Iowa, Soybeans (90% coverage level) Expected Final GRPYear Yield Yield Shortfall (90%)1995 45.2 50.6 01996 46.6 49.2 01997 46.6 50.4 01998 47.7 51.6 01999 51.8 50.3 02000 52.6 45.2 .0452001 53.4 49.7 02002 52.5 53.5 02003 53.1 31.7 .3362004 53.6 51.6 0</p></li><li><p>GRIP Shortfalls, Marshall County, Iowa, Corn (90% coverage level) Expected Harvest GRIPYear Price Price Shortfall (90%)1999 4.95 4.85 02000 5.36 4.72 .1292001 4.59 4.37 .0132002 4.53 5.45 0 5.23 7.32 .058 7.27 5.26 .183</p><p>Shortfalls the same for GRIP-NoHR and GRIP-HR.</p></li><li><p>Risk/returns www.farmdoc.uiuc.edu/cropins/index.html </p></li><li><p>Crop Insurance Evaluator:For an example farm in each county for corn and soybeans shows the following for different insurance product:Frequency of paymentsPremiumsAverage paymentsNet costsAbility to prevent disasters</p></li><li><p>Marshall County, Corn</p><p>Average farm for county159 bu. APH yield, average variabilityEvaluations shown for 2005 yearEvaluations based on maximum protection level</p></li><li><p>Frequency of payments</p><p>Example of tables from Evaluator</p></li><li><p>1% VARA 1% VaR of $200 means that 1% of the time revenue will be below $200</p><p>Measure of risk reduction</p><p>Want VaRs to be as high as possible </p></li><li><p>1% VaR from Evaluator$ per acre, CornLevel APH CRCGRP GRIP-NoHR GRIP-HR65% 203 21275% 221 231 198 205 20485% 243 247 205 216 21790% 213 223 226</p><p>Group products lower risk less than Individual productsLow coverage Individual not as good as high coverage Group</p></li><li><p>Net CostsAverage payments over time minus premium</p><p>High levels indicate high costs, negative levels mean expect more insurance payments than premium over time</p></li><li><p>Net Costs from Evaluator$ per acre, CornLevel APH CRCGRP GRIP-NoHR GRIP-HR65% 1.45 2.2675% 1.74 2.04 .78 -3.94 -4.6585% 3.76 4.77 -4.65 -12.50 -17.8790% -9.77 -17.13 -26.47</p><p>Individual products have higher costs than Group products</p></li><li><p>Marshall County, Soybeans</p><p>Average farm for county50 bu. APH yield, average variabilityEvaluations shown for 2005 yearEvaluations based on maximum protection level</p></li><li><p>1% VaR from Evaluator$ per acre, SoybeansLevel APH CRCGRP GRIP-NoHR GRIP-HR65% 166 17475% 183 192 159 162 16485% 203 207 165 173 17590% 168 179 180</p><p>Group products lower risk less than Individual productsLow coverage Individual not as good as high coverage Group</p></li><li><p>Net Costs from Evaluator$ per acre, SoybeansLevel APH CRCGRP GRIP-NoHR GRIP-HR65% .57 1.0675% .81 .93 -.56 -2.66 -2.6885% 1.48 2.89 -3.18 -7.96 -8.9590% -5.31 -10.52 -12.60</p><p>Individual products have higher costs than Group products</p></li><li><p>Risk/Returns SummaryGroup products cost less than individual products. Over time, group products may average more in payments than paid in premiums</p><p>Group products reduce risk less than individual farm products</p></li><li><p>Situations Where Group Products Work:Farm-yields either:Closely follow county-yields (i.e., large farm), orAre above county-yieldsFarm has low APHFarm is in relatively strong financial positionTend to work best in good producing counties</p></li><li><p>Situations Where Group Products Do Not Work as Well:Highly leveraged farms</p><p>Farms where re-planting occurs often</p><p>Hail is a major concern</p><p>Farms with high-risk farmland </p></li><li><p>SummaryGRIP does fit certain situations</p><p>Represent another option in the risk management tool kit</p></li></ul>

Recommended

View more >