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Crop Insurance Payments Likely in Some Areas


Even though USDA is projecting record corn and soybean yields on a national basis, it is possible that a significant number of corn and soybean farmers in some areas of southern Minnesota, as well as adjoining areas of Iowa and South Dakota, could qualify for crop insurance indemnity payments.

Much of this region dealt with planting delays last spring, excessive rainfall during the growing season, and severe storms toward the end of the growing season. These weather issues will likely result in yield reductions on numerous farms across the region, which together with the price declines from the crop insurance base prices on March 1, increases the likelihood of 2018 crop insurance indemnity payments for many.

With Federal Crop Insurance, every year is different, and with the multiple options available to producers, there are many variable results from crop insurance coverage at harvest time.

The 2018 crop year will be no different, with some producers choosing Yield Protection (YP) policies (yield only) versus Revenue Protection (RP) policies (yield and price), and producers having different levels of coverage on various crops. Producers also vary on having “optional units” versus “enterprise units for their crop insurance coverage.”

In the Midwest, most corn and soybean producers in recent years have tended to secure some level of revenue (RP) crop insurance coverage, rather than standard yield-only (YP) policies. Producers like the flexibility of the RP policies that provide insurance coverage for reduced yields, as well as in instances where the harvest price drops below initial base price. In 2018, corn crop insurance loss calculations with YP policies and RP policies will function differently, due to the likely Chicago Board of Trade harvest price for corn and soybeans likely being below the 2018 crop insurance base prices, which were finalized on March 1.

The established 2018 base prices for 2018 YP and RP crop insurance policies were $3.96 per bushel for corn and $10.16 per bushel for soybeans These base prices will be the payment rate for 2018 YP policies for corn and soybeans. These base prices also will likely serve as the final price to calculate revenue guarantees for calculating potential RP crop insurance indemnity payments for both corn and soybeans.

The final harvest price for RP insurance policies with harvest price protection is based on the average Chicago Board of Trade December corn futures and November soybean futures during the month of October, with prices finalized on Nov. 1.

If the final harvest Board of Trade price for December corn futures or November soybean futures is higher than the established base prices, the harvest price would then be used to determine the RP insurance guarantees, which is not likely in 2018. The harvest price also is used to calculate the value of the actual harvested bushels for all RP insurance policies. As of Oct. 1, the crop insurance harvest price estimates were $3.65 per bushel for corn and $8.50 per bushel for soybeans.

Corn and soybean producers had the option of selecting crop insurance policies ranging from 60 percent to 85 percent coverage levels. The level of insurance coverage can result in some producers receiving crop insurance indemnity payments, while other producers receive no indemnity payments, even though both producers had the same adjusted APH yield and the same final yield.

For example, at an adjusted APH corn yield of 190 bushels per acre, a producer with 85 percent RP coverage would have a yield guarantee of 161.5 bushel per acre, and a revenue guarantee of $639.54 per acre, while a producer with 75 percent coverage would have a yield guarantee of 142.5 bushels per acre, and a guarantee of $564.30 per acre. If the actual 2018 yield was 155 bushels per acre, with a $3.65 per bushel harvest price, the producer with 85 percent coverage would receive a gross indemnity payment of $74.04 per acre, while the producer with 75 percent coverage would receive no indemnity payment.

Many growers purchased upgraded levels of Revenue Protection (RP) crop insurance for the 2018 growing season, which included the higher “trend-adjusted” (TA) yields that were available. The lower Board of Trade prices, especially for soybeans, increases the likelihood of crop insurance indemnity payments on some Upper Midwestern farms that have 80 percent and 85 percent RP insurance policies for 2018. Indemnity payments will be most likely to occur when there was a yield loss, due to some type of weather problem during the 2018 growing season; however, the very low soybean price also increases the soybean payment likelihood.

At a harvest price of $8.50 per bushel, the threshold yield to receive a soybean insurance payment is at 100 percent of APH yield with an 85 percent RP policy, and at 95 percent with an 80 percent RP policy. For example, with a 55 bushel per acre APH yield and a $8.50 per bushel harvest price, soybean insurance payments would begin if the final soybean yield falls below 55 bushels per acre with an 85 percent RP policy, and below 52 bushels per acre with an 80 percent RP policy. Using a harvest price of $3.65 per bushel for corn, the “threshold” yield to receive a corn insurance payment is at 92 percent of APH yield with an 85 percent RP policy, and 86 percent with an 80 percent RP policy.

A reputable crop insurance agent is the best source of information to make estimates for potential 2018 crop insurance indemnity payments and to find out about documentation requirements for crop insurance losses. It is important for producers who are facing crop losses in 2018 to understand their crop insurance coverage, and the calculations used to determine crop insurance indemnity payments.

Source: Agri News

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