2012 Crop Insurance Update Overview
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Transcript of 2012 Crop Insurance Update Overview
2012 Crop Insurance UpdateOverview
Feb. 21, 2012George Patrick
Purdue University
For specific information, contact a crop insurance agent
Reference
http://www.farmdoc.illinois.edu/ cropins/index.asp
1. Premium calculator 2. “What if?”3. Analysis of developments4. RMA/FCIC Handbook
Changes in 2011
Reduced insurance programs available for corn and soybeans
• Combined CRC and RA (COMBO)• Eliminated Income Protection Plan
(IP)• Established uniformity in prices used
across policies
2011 Prices used in IN
Corn Projected – Dec. futures in Feb. $6.01 Harvest – Dec. futures in Oct. $6.32Soybeans
Projected – Nov. futures in Feb. $13.43 Harvest – Nov. futures in Oct. $12.14 Use the hlgher of projected or harvest
prices Limit of 2X price increase
Effects of price increases on revenue products
Corn price increased by $0.31 to $6.32/bu. (4.9% increase)
Volatility affects price changes – greater volatility-larger changes
Higher price increases the insurance guarantee level (bushels X price)
Any indemnity is paid at higher price
Effects of price reductions on revenue products
“Use higher of projected or harvest price”Soybean price decrease of $1.29 (9.6%)
from spring (projected) to harvest results in guarantee level using $13.43
Producer has nearly a 10% revenue loss on price alone
Any indemnity is paid at the $13.43 rate
Premium subsidy increased for enterprise unit
Insurance unitBasic unit (land owned or share leased from a landowner)
Optional (divides into smaller units)Enterprise unit all of crop within the county
Premium Subsidies – 2012
c
Level of Insurance Coverage
Insurance 65% 70% 75% 80% 85% 90% Basic 0.59 0.59 0.55 0.48 0.38 NA
Optional
Enterprise
0.59
0.80
0.59
0.80
0.55
0.80
0.48
0.68
0.38
0.53
NA
NA
GRP NA 0.59 0.59 0.55 0.55 0.51 GRIP NA 0.59 0.59 0.55 0.49 0.44
Changes for 2012
1. Price change effect on crop insurance costs
2. Premium rate changes3. Effect of trend yield
adjustment Effect on insurance in 2012
‘12 Premium Rate Changes
Loss ratio has been below target rate for much of the Corn Belt
IN premium rates have been adjusted downward an average - 11 % for corn- 7 % for soybeans
2012 Projected Prices
Based on settlement prices for Feb. Have only first two weeks of Feb.
Corn $5.74 v. $6.01 Beans $12.35 v. $13.39Trend adjusted coverage in ‘12 Corn slightly up, beans slightly down
Trend Adjusted Yield
Indiana Corn Yields Yields increase about 2 bu./yr
10-year average of actual yield underestimates next year’s corn yield by about 10 bushels
% coverage level is over stated
Trend Adjusted Yield
Corn producer with a 10-year APH yield of 175 bu. and county yield trend of 2 bu./yr. has expected yield of 185 bu.
75% of 185 bu. = 138.75 bu.75% of 175 bu. = 131.25 bu.
Figure 1. Actual Corn Yields in Bu/Acre, Randolph County, 1965-07
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
0
20
40
60
80
100
120
140
160
180
Actual
Year
Bus
hels
/Acr
e
Figure 2. Actual and Trend Corn Yields in Bu./Acre Randolph County 1965-07 (trend 1.7 bu/year)
0
20
40
60
80
100
120
140
160
180
Actual
Trend
Year
Bus
hels
/Acr
e
Figure 3. Actual Corn Yields as a Percent of Trend, Randolph County 1965-07
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
40
50
60
70
80
90
100
110
120
130
140
ActualTrend
Year
Perc
ent o
f Tre
nd =
100
Detrending Procedure
Does a good job of helping a producer better understand the magnitude and frequency of losses.
Does not correct very well for the decreasing level of protection
Procedures
1. Get about 40 years of county yield data
2. Estimate regression to determine trend for farms in the county
3. Adjust past crop insurance yields4. Recompute yield guarantee and
insurance premium
TA Yield Determination
Assume 170 bu. average yield with 2 bu./yr. trend
Have yields for 7 years – 2005 to 2011
Determine TA yield for 2012
TA Yield Determination
Year Actual Yield Yield Adjustment
TA Yield
2005 144 2 X 7 = 14 1582006 158 2 X 6 = 12 1702007 168 2 X 5 = 10 1782008 183 2 X 4 = 8 1912009 164 2 X 3 = 6 1702010 194 2 X 2 = 4 1982011 183 1 X 2 = 2 185
Average 170.0 178.0Increase in APH
8 bu. or 4.7%
TA Yield – Trigger Yield and Increased Premium
Regular yield 75% 127.5 bu.
TA yield 75% 133.5 bu.
Yield prot 75% 11.14 v. 11.17COMBO 75% 21.39 v. 21.65
Crop Insurance, Indiana 2006 and 2011
Type of Insurance
APHCRC
IPRA
GRPGRIP
COMBO
TOTAL ACRES (1,000)
Corn% of insured acres
’06 ’1111.9 5.8
28.6 NA 0.6 NA
27.7 NA 3.8 1.8
27.4 13.1 NA 81.7
3,747.9 3839.5
Soybeans% of insured acres
’06 ‘1113.4 6.620.9 NA 0.7 NA 2.6 NA6.8 3.223.8 11.2 NA 79.1
4,383.4 3,833.1