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January 2010

January 2010. Evaluating Crop Insurance Options. Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790 sdjohns@iastate.edu www.extension.iastate.edu/polk/farmmanagement.htm. 2010 Crop Insurance Considerations.

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January 2010

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  1. January 2010 Evaluating Crop Insurance Options Steven D. Johnson Farm & Ag Business Management Specialist (515) 957-5790sdjohns@iastate.edu www.extension.iastate.edu/polk/farmmanagement.htm

  2. 2010 Crop Insurance Considerations • Can my operation withstand a large yield loss or crop price decline? • Should I buy enough crop insurance just to cover my input costs? • Should I elect MPCI or Revenue coverage? • What level of coverage should I elect? • Should I elect Basic, Optional or Enterprise Units? • Should I purchase hail insurance along with the MPCI or Revenue coverage? • Should I request the Biotech Endorsement (BE) for corn? • How can I forward price a portion of my 2010 crop using various crop insurance products? Source: Johnson, ISU Extension, January 2010

  3. 2010 Crop Insurance Decisions Crop Hail Coverage ? Unit Coverage ? Federal Crop Coverage (65% - 90% Levels) Biotech Endorsement? Source: Johnson, ISU Extension, January 2010

  4. Crop Insurance for Iowa Corn Acres 85% of all 2009 insured acres are covered by Revenue Products Note: Expect CRC & RA to be combined into one “combo product” for 2011 Source: USDA Risk Management Agency, October 2009

  5. Level of Coverage for Iowa Corn Acres - 2009 34.42% 21.59% 20.81% 10.55% 7.26% 2.99% 1.62% 0.21% 2.54% Source: USDA Risk Management Agency, October 2009

  6. Crop Insurance for Iowa Soybean Acres 84% of all 2009 insured acres are covered by Revenue Products Source: USDA Risk Management Agency, October 2009

  7. Level of Coverage for Iowa Soybean Acres - 2009 33.66% 23.27% 18.58% 9.74% 9.54% 2.97% 1.55% 0.48% 0.20% Source: USDA Risk Management Agency, October 2009

  8. Crop Insurance Premium Subsidies Source: USDA Risk Management Agency, October 2009

  9. Crop Insurance Units • Optional Units: Each farm is separate • Basic Units: Combines owned and cash rented acres • Enterprise Units: Combine all acres of the same crop across the county • Whole Farm: Combine corn and beans

  10. Enterprise Unit Overview If all your farm ground has a similar proximity and productivity, Enterprise Units could be an advantage Typical County with 16 Townships Example Township with 36 sections However, if you elect Enterprise Units, all corn fields in the county will be combined for Federal Crop Insurance coverage. Source: Johnson, ISU Extension, January 2010

  11. Basic vs. Optional Unit Example Insured has 1 Basic Unit: 1 with Smith = Unit 1.00 Insured has 4 Optional Units: 1 with Jones = Unit 2.01 1 with Jones = Unit 2.02 1 for Cash Rent = Unit 3.01 1 for Owned = Unit 3.02 Insured has 3 Basic Units: 1 with Smith = Unit 1.00 1 with Jones = Unit 2.00 1 for Cash Rent & Owned = Unit 3.00 Source: Johnson, ISU Extension, January 2010

  12. Enterprise Unit (EU) Advantages Premium savings in 2009 enabled producers to insure crops at higher levels of coverage (move from 75% to 85% level) Easier to qualify for Prevent Plant and Replant claims than Optional Units (20/20 rule: minimum of 20 acres or 20% of the unit) If already insured, you may improve Actual Production History (APH) yields by combining units and dropping off older yields. Source: Adapted from Crop Insurance Industry, December 2009

  13. Enterprise Unit (EU) Disadvantages • Variability in farm ground and crop rotation • If you have inconsistent crop APHs • Farm ground is dispersed throughout a county • Localized loss such as hail could occur, so consider additional crop hail coverage • Irrigated and non-irrigated crops must be combined • Crop disease and quality issues could arise. Source: Adapted from Crop Insurance Industry, December 2009

  14. Biotech Endorsement (BE) Qualifications • Expanded hybrids and the entire Corn Belt • 75% of the acres per unit must be planted to qualifying hybrids • Customer must complete certification form and provide seed invoices by acreage reporting date (typically June 30th or July 15th) • Producer must keep track of where corn is planted by unit • Lack of compliance penalty, loss of premium only • Estimated premium discount of 10-15%. Source: USDA Risk Management Agency, December 2009

  15. Specialty Soybean Coverage • Can be insured separately in 2010 • Must be covered by a yield product, not revenue • Past yield records can be used to create APH yield for each type of soybeans • Low yields will not drag down the APH yield for conventional/GMO beans • Indemnity price is the higher of contract price or conventional APH soybean indemnity price Source: USDA Risk Management Agency, December 2009

  16. 2010 Crop Insurance Reminders Recordkeeping has become more important with 2008 Farm Program changes Keep APH production records for up to 3 years plus current year APH yields are used for both SURE and ACRE programs Crop insurance policy entity type and Tax ID and/or SSN number needs to match FSA documentation Inconsistent information can reduce or eliminate crop insurance loss payments. Source: USDA RMA & FSA, January 2010

  17. 2010 Crop Insurance Indemnity Prices Source: USDA Risk Management Agency, December 2009

  18. New Crop ‘10 Corn Chart Source: www.jimwyckoff.com, January 25, 2010

  19. New Crop Corn Seasonal Trend 80% Odds that Spring Price is higher than Fall 79% Odds: Spring Price Exceeds Harvest Price Source: www.cmegroup.com U of MN, CFFM, 2009

  20. Corn Historical Crop Insurance Prices 75% of the Time the Spring Price is higher than Fall 2006 1995 1993 1997 2002 Source: USDA Risk Management Agency, October 2009

  21. New Crop ‘10 Soybean Chart Source: www.jimwyckoff.com, January 25, 2010

  22. New Crop Soybean Seasonal Trend 67% Odds that Spring Price is higher than Fall 79% Odds: Spring Price Exceeds Harvest Price Source: www.cmegroup.com U of MN, CFFM, 2009

  23. Soybean Historical Crop Insurance Prices 60% of the Time the Spring Price is higher than Fall 2009 2007 2003 1993 2005 1990 1995 2002 Source: USDA Risk Management Agency, October 2009

  24. 2010 Long-Term Corn Yield Probability $6.28/bu. $3.12/bu. 17% 23% Roll 7 Roll 8 or 10 Assumes a Neutral ENSO on June 1st, 2010 National Avg. Yield, Dec. 2010 Corn Futures Price at Harvest 29% 31% $4.80/bu. $3.91/bu. Source: Taylor, ISU Extension Climatologist, December 2009

  25. Crop Revenue Insurance Coverage(with SURE) • CRC or RA Coverage170 bu/A APH75% Level$4.00 bu/A Spring and Fall Price • SURE Coverage115% of Revenue Coverage Source: Johnson, ISU Extension, January 2010

  26. Comparing ACRE Payments to CCP Counter-Cyclical Payment (CCP) Nat’l Cash Price below: $2.35/bu Corn $5.56 /bu Soybeans 2010 ACRE Cash Price Triggers: Corn = $3.35/bu Soybeans = $8.55 /bu CCP ACRE Source: Johnson, ISU Extension, January 2010

  27. 5 Strategies for Managing Revenue Risk Consider 2010 ACRE Enrollment by June 1st Prove your APH annually for Optional Units Consider Multiple Pre-Harvest Marketing Strategies Wrap up Crop Sales with Spring Seasonal Price Trends Use Crop Insurance Revenue Products (Consider Additional Hail Coverage) Source: Johnson, ISUE Farm Mgt., Sept. 2008. Source: Johnson, ISU Extension, January 2010

  28. 5 Crop Insurance Web Sites Crop Risk Management - ISU Polk County (Crop Marketing Newsletter & Crop Insurance Updates, Webcasts) www.extension.iastate.edu/polk/farmmanagement USDA Risk Management Agency (RMA) www.rma.usda.gov Ag Manager – K-State Extension www.agmanager.info Farm Doc – U. of Illinois Extension www.farmdoc.illinois.edu Ag Decision Maker – ISU Extension (Decision Tools, Newsletters, Publications and Voiced Media) www.extension.iastate.edu/agdm Source: Johnson, ISU Extension, January 2010

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