Choosing Crop Insurance for 2012

William Edwards, ISU Extension Economist

COMBO Insurance Coverage (Iowa, 2011)

Revenue Protection = 88.5% of Insured Acres

Source: USDA Risk Management Agency, September 2011

50 65 70 75 80 85 900%

5%

10%

15%

20%

25%

30%

35%

Level of Guarantee Purchased Has Increased

2004 and 2011, Iowa 2004

2011

% Guarantee

Causes of Crop Insurance Losses 2001-2010 (Iowa)

Drought32%

Excess moisture, flood

31%

Price9%

Hail25%

Insects, disese4%

Corn Indemnity Prices

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00Feb. price

Oct. price

Soybeans Indemnity Prices

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00$10.00$11.00$12.00$13.00$14.00

February price

October price

Revenue Payments in 2011

Corn Soybeans

2011 projected price (Feb. futures)

$6.01 $13.39

2011 harvest price (Oct. futures) $6.32 $12.14

Price decline 0% 9%

Yield loss to trigger payment@ 80%

20% 12%

Yield loss to trigger payment@ 75%

25% 17%

What’s New for 2012

• APH (proven) yields can be adjusted for yield trends.

• Premiums will be lower.• Biotech Endorsement discount

has been discontinued.• Reporting, billing dates changed.

APH Yield Trend Adjustment

• Actual Production History (APH) yields have been a simple average of yields for the past 4 to 10 years

• Did not reflect upward yield trends• Farms with longer yield histories were at a

disadvantage• Beginning in 2012 a yield trend adjustment

is available

Iowa Average Yields

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

20

40

60

80

100

120

140

160

180

200

Corn

Trend Adjusted APH Yields• Approved for most of Corn Belt• Trend factor estimated for each county,

based on historical county yields• Separate factors for corn and soybeans• Annual factor is added to producers’

yield history

Example

• Farm has 10 years of yield history for corn

• County trend adjustment factor is 2.0 bu/yr

Trend-Adjusted Actual Production History Yield ExampleYear Reported Yield Yield Adjustment Adjusted Yield

2002 133 20 1532003 145 18 1632004 167 16 1832005 122 14 1362006 157 12 1692007 165 10 1752008 171 8 1792009 193 6 1992010 176 4 1802011 197 2 199

Average 163 2012 APH=

174

APH Yield Trend Adjustment

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011100

120

140

160

180

200

220

Actual

APH Yield Trend Adjustment

• Trend factor is reduced 25% for each year that fewer than 4 actual yields are available.

• Example:– 3 years, adjustment factor = 1.5 bu/year– 2 years, adjustment factor = 1.0 bu/year– 1 year, adjustment factor = 0.5 bu/year

APH Yield Trend Adjustment• Maximum adjusted yield is the highest

actual yield plus the adjustment factor.• Example: 197 bu/acre is highest yield

submitted in the last 10 years• Maximum adjusted yield = 197 bu. + 2 bu.

= 199 bu./ac (higher than 174, no effect)• Applies only when yield history has been

very consistent over time

Trend-Adjusted Actual Production History Yield Example

Year Reported Yield Yield Adjustment Adjusted Yield2002 133 20 1532003 145 18 1632004 167 16 1832005 122 14 1362006 157 12 1692007 165 10 1752008 171 8 1792009 193 6 1992010 176 4 1802011 197 2 199

Average 163 174=2012 APH

Implication: more dollars guaranteed• Before:

– APH = 163 bu/acre– 80% guarantee, $5.70 projected price– Coverage = $743.28

• After:– APH = 174 bu/acre– 80% guarantee, $5.70 projected price– Coverage = $793.44

• Or: 75% x 174 bu/ac x $5.70 = $743.85

Premium Rates to be Lowered

• Loss ratios in Midwest have rarely exceeded 100% in recent years

• Technology, weather• Average Iowa rates will be reduced:

– 13% for corn– 9% for soybeans

• Will vary by county

Loss payments in Iowa rarely exceed 100%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0%

20%

40%

60%

80%

100%

120%

140%

Biotech Endorsement (BE)

• Premium discount for planting selected

hybrids with risk reducing traits.

• Pilot project for 2008 through 2011.

• Discontinued as of 2012.

• Eligible hybrids are in wide use.

Lower Indemnity Prices in 2012?

Corn Soybeans

2009 $4.04 $8.80

2010 $3.99 $9.23

2011 $6.01 $13.49

2012? $5.70?? $12.30??

Premiums in 2012?

• Higher APH yields

• Lower premium rates

• Change in projected price?

Dates Changed

• Acreage reporting date:–From June 30 to July 15

• Premium billing date–From October 1 to August 15

Key Points for 2012

1. Indemnity prices may be a little lower.

2. Yield trend adjustment is available.

3. Premium rates will be lower.

4. Biotech endorsement is discontinued

5. Reporting and billing dates are changed.