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Multiple Peril Crop Insurance (MPCI)

Multiple Peril Crop Insurance (MPCI). Actual Production History (APH)—Yield Insurance. APH yield is average of past 10 years. Can insure from 50% to 85% of APH USDA projects a market price each year, called the indemnity price .

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Multiple Peril Crop Insurance (MPCI)

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  1. Multiple Peril Crop Insurance (MPCI)

  2. Actual Production History (APH)—Yield Insurance • APH yield is average of past 10 years. • Can insure from 50% to 85% of APH • USDA projects a market price each year, called the indemnity price. • If actual yield is below the guarantee, farmer is paid for the lost bushels, at the indemnity price.

  3. APH Example--Corn • APH yield 148 bu/acre • Yield level chosen 75% • Yield guarantee 111 bu/acre • Indemnity price $2.50 • Actual yield 91 bu/acre • Yield loss 111 - 91 = 20 bu • Indemnity payment 20 x $2.50=$50

  4. Crop Revenue Insurance • Guarantees gross revenue per acre instead of bushels • Expected gross revenue = (APH yield x Feb. futures price) • Can insure 50% to 85% of this

  5. Revenue Insurance Example • APH yield 148 bu/acre • Feb. futures price $3.00 • Coverage level chosen 75% • Revenue guarantee 148 bu. x $3.00 x 75% = $333

  6. Revenue Insurance Example • Actual yield 150 bu/acre • Oct. futures price $2.00 • Actual revenue $2.00 x 150 = $300 • Indemnity payment $333 - 300 = $33 / acre

  7. Increasing Coverage Policies • Some revenue insurance policies increase the revenue guarantee if prices rise from February to October • Use the higher of the Feb. price or Oct. price

  8. Example • Initial guarantee 148 bu. x $3.00 x 75% = $333 • Oct. futures price $3.40 (goes up) • New guarantee: 148 bu. x $3.40 x 75% = $377 • Actual yield 91bu. • Actual revenue 91 bu x $3.40 = $309 • Indemnity payment $377 – 309 = $68 (20 bu. @ $3.40)

  9. Increasing Coverage Revenue Insurance • Good for farmers who want to forward price their crop • Protects against having to buy extra bushels to fill contract at a high price • Protects livestock feeders against having to buy extra feed • Pays farmers for “lost” bushels, but at the fall futures price

  10. Crop Insurance Iowa

  11. Level of Coverage • “Catastrophic” insurance has a guarantee based on 50% of the proven APH yield. $100 per crop. • Higher guarantees can be up to 85% of APH yield or revenue.

  12. Level of Guarantee (Iowa)

  13. Group Risk InsuranceBased on County Average Yields • Yields: Group Risk Protection (GRP) • Revenue: Group Risk Income Protection (GRIP) • If the county average yield is low, all farmers get paid, regardless of farm yields • More risky, but less expensive

  14. Hail Insurance • Added on to policy • Can insure up to 100% of expected yield • Indemnity payment based on appraised damage

  15. Other Production Risk Tools • Crop diversification • Pesticides • Resistant seeds • Irrigation • Crop share leases • Livestock health programs

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