It's Crop Insurance Decision Time

It's Crop Insurance Decision Time

March 15 is deadline to purchase crop insurance for 2013 for spring-planted crops.

As of March 1 USDA's Risk Management Agency has finalized the 2013 crop prices for Yield Protection (YP) policies as well as the base prices for Revenue Protection (RP) and Revenue Protection with Harvest Price Exclusion (RP-HPE) insurance policies. The established projected prices are $5.65 per bushel for corn and $12.87 for soybeans. This is the February average for December 2013 corn futures and November 2013 soybean futures.

SPRING PRICES: The 2013 projected prices for crop insurance are now known, as USDA's Risk Management Agency released them March 1. They are $5.65 per bushel for corn and $12.87 for soybeans. Farmers are now meeting with their crop insurance agents to finalize what policies, coverage levels and unit structure to use for 2013. March 15 is deadline to sign up for coverage and to make any changes to existing federal crop insurance policies.

"We call these the projected prices and they actually determine your revenue guarantees and also influence what your final premiums will be," explains Steve Johnson, Iowa State University Extension farm management specialist in central Iowa. These 2013 spring projected prices are almost identical to last year's $5.68 on corn and just a little bit higher on beans, as last year's was $12.55 per bushel.

If 2013 planted acreage for corn in the U.S. ends up as large as USDA is projecting, and if rainfall is favorable and a big crop materializes, $5.65 might look pretty good for a corn price to determine the revenue guarantee come fall.

Crop insurance premiums are likely to be lower this year
Looking at the cost of crop insurance, premiums are probably going to be lower this year. That's hard to believe, since Iowa and a good share of the Corn Belt just experienced the worst drought in a generation in 2012. But remember, USDA's Risk Management Agency actually lowered the premiums in Iowa about 6% for corn and 9% for soybeans for 2013. And the volatility factors used to calculate final premiums are lower for 2013. Those came in at about .20 for corn and .17 for soybeans, lower than in 2012.

Thus, Johnson thinks farmers will be surprised at how attractive the premiums look, compared to last year. The farmer using the same product, APH and level of coverage as last year will likely find lower premiums in 2013.

In Iowa, most farmers are choosing the farm-level product Revenue Protection, or RP, policy instead of the county-level products such as group risk protection, or GRP, or the group risk income protection, or GRIP. "I hardly get a question about county-level products unless I'm in Illinois," says Johnson. "The crop insurance policies most Iowa farmers are buying for 2013 are almost all RP policies. Very few are buying the RP-HPE, which excludes the harvest price. That's because of the experience of seeing record-high prices at harvest in 2012."

Most all Iowa farmers will want to use Trend Adjusted yield
If farmers are making a choice for 2013, it probably is whether or not to choose the new TA, or Trend Adjusted Yield, option. Johnson believes most all Iowa farmers will want to use the TA option, regardless of the farm-level product they choose.

~~~PAGE_BREAK_HERE~~~Thus, RP or revenue protection, and TA, trend adjusted yields are what most farmers are buying this year. The final decisions come down to choosing a level of coverage and whether you are going to use Optional Units or Enterprise Units. The Enterprise Unit is more risk, but you pay a lower premium. "I think growers are really in tune with crop insurance this year," observes Johnson. "Last year was a great learning period where they recognized the importance of these crop insurance decisions."

What is at stake in the Trend Adjusted yield decision?
Trend adjusted yield was new in 2012 and is again available in 2013 as an option. Developed by University of Illinois economist Bruce Sherrick, TA basically looks at the last 20 years for corn and soybean yields in each county in Iowa. Thus, each county has a different TA factor for corn and soybeans and that factor changes each year.

"If you elect to take the TA, which I'm encouraging farmers to do, then you get a higher yield to choose for calculating revenue guarantees," says Johnson. "True, it's a slightly higher premium you will pay but it's the cheapest way to raise your revenue guarantee. So I'm encouraging everyone to consider using the TA option. I would guess probably 99% of all of Iowa's acres would likely benefit from the TA."

First, you need to determine the higher revenue guarantee from electing the TA, then whether you want the optional or enterprise unit coverage, and then whether to choose a 65%, 70%, 75%, 80% or 85% level of coverage. Most all farmers are going to take at least the same level of coverage if not higher than they had in 2012. "I've heard from a lot of people who are going to the 85% level of coverage in 2013," says Johnson.

What percent of corn and soybean acres are insured in Iowa?
"We can tell from the RMA data, comparing that to total tillable acres, 90% of all tillable acres were insured in 2012 in Iowa," says Johnson. "Of the insured acres, 92% of them are using revenue protection on corn and 91% on soybeans. It's kind of a 90-10 rule, about 90% of our acres are insured and 90% of those growers are using revenue protection."

Johnson points out that he is not saying that the other types of insurance products aren't good products. But revenue protection with the harvest price exclusion, or RP-HPE, excludes the harvest price. And the yield protection, or YP, type of insurance requires yield loss before triggering an indemnity payment. Thus, revenue protection has the advantage in that it guarantees both yield and price.

~~~PAGE_BREAK_HERE~~~That RP policy gives you the higher of the two prices; that is, the higher of the projected price (February average) or the harvest price, the October average. Last year the $7.50 per bushel for corn and $15.39 per bushel for soybeans for the harvest price provided large indemnity payments that a lot of Iowa farmers appreciated.

Is March 15 the closing date only for federal crop policies?
The closing date for sales or changes in policies is on or before March 15, 2013. That's just for the federal crop policies. The farmer could still buy hail coverage or could add on a wind policy beyond March 15.

However, for the federal crop policies, primarily farm-level products such as revenue protection, or RP, even the county-based products such as group risk protection, or GRP, or the group risk income protection, or GRIP, your decisions need to be made on or before March 15. And remember, the premiums aren't due until October 1.

Wind option has become more popular the past few years
The recent game changer was the year 2009 when RMA introduced larger subsidies for Enterprise Units. "Up to 80% of the premium for enterprise units is paid by the federal government," notes Johnson. "When you elect Enterprise Unit coverage for corn, for example, you no longer have your farm separated at the section line -- cornfields on all farms are combined for determining loss. When farmers adopt Enterprise Unit coverage, that's when they really saw the importance of adding hail coverage to corn and beans. Now more farmers are adding wind coverage for corn. Some are even adding delayed harvest expense coverage with wind policies for corn production."

He adds, "I think Iowa farmers are as in tune with crop insurance this year as I've ever seen them before. There's a lot of interest across the state in maximizing revenue guarantees and then in many cases adding hail and wind coverage. These additional endorsements can be added after the March 15 deadline for crop insurance policy changes."

Important dates: March 15 is the closing date for purchasing federally subsidized crop insurance coverage for 2013 spring planted crops -- that is, policies such as Revenue Protection. You can still purchase hail or wind coverage as an add-on later.

* If you are moving land out of the CRP or are bringing pasture or hay ground into row crop production, March 15 is also the deadline to report those intentions to your crop insurance agent.

* April 11 is the early corn planting date in Iowa and April 21 is the early soybean planting date. Crops planted before those dates are not eligible for replant coverage of roughly $40 to $45 per acre. Those acres are, however, still insured and require best-management practices be used, which still might lead to replanting.

* May 10 is the deadline for destroying established cover crops. That includes grazing or harvesting the cover crop for forage.

* Premiums are due in the fall. The final crop insurance payment for 2013 is due on October 1. A penalty is attached to later payments.

For farm management information and analysis go to ISU's Ag Decision Maker site www.extension.iastate.edu/agdm and ISU Extension farm management specialist Steve Johnson's site www.extension.iastate.edu/polk/farm-management.

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