University Extension/Department of Economics COMBO: Crop Insurance for 2011 Crop Advantage Series...

University Extension/Department of Economics

COMBO: Crop Insurance for 2011

Crop Advantage SeriesJan. 2010

Farm Management Extension Staff


Common Crop Insurance Policy

• Known as COMBO

• In effect for 2011 crops

• Combines major policy plans

• Simplifies guarantees and payments

• Clarifies enterprise and whole farm units

• Clarifies replant and prevented planting


COMBO is available for:• Corn

• Soybeans

• Grain sorghum

• Wheat (spring & fall)

• Barley (feed & malting)

• Cotton

• Rice

• Canola/rapeseed

• Sunflowers


Crop Revenue Coverage (CRC)Revenue Assurance with

harvest price option (RA-HPO)Revenue Protection (RP)

Revenue Assurance (RA)Income Protection (IP)

Revenue Protection with harvest price exclusion

(RP-HPE)

Actual Production History (APH) Yield Protection (YP)

OLD NEW


Acres Insured in 2010 Corn and Soybeans--Iowa

APH8%

CRC79%

RA10%

IP0%GRP

1%GRIP2%


Yield Protection (YP)

• Same as old APH (or MPCI) policy• No change to APH yield determination• Projected price is the average closing

futures price during February (same as for revenue insurance)– Corn: December contract– Soybeans: November contract



• Price Election = 55-100% of the projected price

• Insured Yield = 50-85% of APH yield

• Indemnity Payment =

(Insured Yield – Actual Yield)

x Price Election



• Catastrophic coverage is 55% of the projected price and 50% of your APH yield– $300 per crop per county administrative

fee


Revenue Protection (RP)

• Same as old CRC and RA-HPO

• No change to APH yield determination

• Projected price is the average closing futures price during February – Corn: December contract

– Soybeans: November contract



• No price election - must take 100%

• Coverage levels (revenue guarantees) are between 65-85%

• Harvest price is average of October futures price – Old RA corn coverage used November



• Final guarantee is based on the higher of the February or October price

• Catastrophic level is not available


(Coverage Level x APH Yield

x Max(Proj. Price, Harvest Price))

– Actual Yield x Harvest Price


Revenue Protection with Harvest Price Exclusion (RP-HPE)

• Same as old RA or IP policy

• Projected price is the average closing futures price during February – Corn: December contract– Soybeans: November contract

• Final guarantee is based on the projected price


Revenue Protection with Harvest Price Exclusion (RP-HPE)

• No increasing guarantee if harvest price exceeds projected price

• No catastrophic coverage


Coverage Level x APH Yield x Proj. Price

– Actual Yield x Harvest Price


0

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$ p

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bu

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Projected Price Harvest Price

Corn Insurance Prices

Harvest prices have been higher 3 out of last 11 years


Soy Insurance Prices

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4

6

8

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14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$ p

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bu

she

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Harvest prices have been higher 6 out of last 11 years


Group Policies

• Group Risk Plan: GRP

• Group Risk Income Protection: GRIP

• Group Risk Income Protection with harvest price option: GRIP-HPO


Group Policies

• No changes made• GRP uses the RMA projected price• GRIP uses the Feb. and Oct. futures prices • Expected yields based on historic trends• Actual yield is based on county averages

(per planted acre)


Premiums

• Only one rating system for revenue policies

• Similar to RA system

• RP > RP-HPE > YP

• May be higher or lower than before


What Units to Choose?

• Optional Units: Each farm is separate

• Basic Units: Combine owned and cash rented acres in same county

• Enterprise Units: Combine all acres of the same crop in same county

• Whole Farm: Combine all crops in county


Current Subsidy RatesCoverage

levelBasic Units

Optional Units

Enterprise Units

Whole Farm Units

60% 64% 80% not avail.

65% 59% 80% 80%

70% 59% 80% 80%

75% 55% 77% 80%

80% 48% 68% 80%

85% 38% 53% 80%


0%5%

10%15%20%25%30%35%

50 65 70 75 80 85 90

% Guarantee

Level of Guarantee Purchased--Iowa

200820092010


Enterprise Units

• Available for YP, RP and RP-HPE

• Must include at least 2 sections

• CRC used acres instead of sections

• At least 2 sections must have acres equal to or greater than the lesser of 20 acres or 20% of the total


Example

• 300 total acres of corn in 2 sections

• Must have at least 20 acres in each

section

• 20% rule applies if total acres is less than

100 acres


You Can Aggregate Acres Across Sections

• Example: 300 total acres– 278 acres in Section 1 – 12 acres in Section 2 – 10 acres in Section 3

• Can combine acres in Sections 2 and 3


Enterprise Units

• Generally, the more acres you combine into one unit, the lower the cost per acre

• Probability of collecting a payment is lower, too

• But grain and dollars are commingled


Whole Farm Units

• Combine all insurable crops in county

• Available for Revenue Protection only

• Must include at least 2 crops that are each 10% or more of the total planted acres


Prevented Planting/Replant Payments

• Based on Feb. futures price, not October

• Replant payments are no longer based on actual costs

• Replant Payments:– Corn: 8 bu. x Feb. price, per acre– Soybeans: 3 bu. x Feb. price, per acre


Looking Forward to 2011

Corn: Dec. 2011 futures $ 5.53

Soy: Nov. 2011 futures $12.94

as of Jan. 3, 2010


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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Corn Insurance Prices


Soy Insurance Prices

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$ p

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bu

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Thank you for your time!

Any questions?

My web site:http://www.econ.iastate.edu/~chart/

Iowa Farm Outlook:http://www.econ.iastate.edu/ifo/

Ag Decision Maker:http://www.extension.iastate.edu/agdm/

University Extension/Department of Economics COMBO: Crop Insurance for 2011 Crop Advantage Series...

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