Should Prospective ARC-CO Payments Impact 2016 Crop Insurance Decisions?

In efforts to save premium, some farmers are considering lowering coverage levels and relying more on Agricultural Risk Coverage at the county level (ARC-CO) to provide a revenue safety net. Also, there may be a move to yield insurances under the assumption that ARC-CO can provide price protection. Both changes would be moving away from the current practice of using either Revenue Protection (RP) or Area Revenue Protection (ARP) at high coverage levels (see farmdoc daily January 20, 2016). The following analysis uses a McLean County example to evaluate protection offered by ARC-CO and plans within the Combo product. This analysis suggests lowering coverage levels may be imprudent. Moreover, yield insurance has limited abilities to reduce downside revenue risks as compared to Revenue Projection (RP). RP at high coverage levels is still a good choice for crop insurance. A possible alternative to RP could be RP with the harvest price exclusion (RPwExcl); however, there are risks associated with using RPwExcl.

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