How much will your farmers receive from crop insurance?

By Kent Thiesse

Corn and soybean producers in many parts of Minnesota and surrounding states are likely to qualify for crop insurance indemnity payments this year. 

Much of the region dealt with planting delays, excessive rainfall and severe storms at different points during the growing season. Weather issues likely will result in yield reductions on numerous farms. Coupled with price declines from the crop insurance base prices on March 1, this year’s weather increases the likelihood of 2019 crop insurance indemnity payments.

In the Midwest, most corn and soybean producers in recent years have chosen some level of revenue protection crop insurance coverage, rather than standard yield-only policies. RP policies provide coverage for reduced yields, as well as in instances where the harvest price drops below initial base price. In 2019, corn crop insurance loss calculations with YP policies and RP policies will function differently, due to the Chicago Board of Trade harvest price for corn and soybeans likely being below the 2019 crop insurance base prices. 

The established 2019 base prices for 2019 YP and RP crop insurance policies were $4.00 per bushel for corn and $9.54 per bushel for soybeans These base prices will be the payment rate for 2019 YP policies for corn and soybeans. They will also likely serve as the final price to calculate revenue guarantees for potential RP crop insurance indemnity payments for both corn and soybeans. 

If the final harvest CBOT price for December corn futures or November soybean futures is higher than the established base prices, the harvest price would be used to determine RP insurance guarantees (unlikely this year). 

The harvest price is also used to calculate the value of actually harvested bushels for all RP insurance policies. As of September 27, the crop insurance harvest price estimates were approximately $3.70 per bushel for corn and $8.80 per bushel for soybeans. 

Because producers can opt for different coverage levels (ranging from 60% to 85%), their payouts can differ as well. At an adjusted APH corn yield of 190 bushels per acre, a producer with 85% RP coverage would have a yield guarantee of 161.5 bushels per acre, and a revenue guarantee of $646 per acre, while a producer with 75% coverage would have a yield guarantee of 142.5 bushels per acre, and a guarantee of $570 per acre. 

If the actual 2019 yield was 155 bushels per acre, with a $3.70 per bushel harvest price, the producer with 85% coverage would receive a gross indemnity payment of $72.50 per acre, while the producer with 75% coverage would receive no indemnity payment.

Some growers opted for an upgrade to their RP insurance which included the higher trend-adjusted yields that were available. The lower CBOT prices increase the likelihood of crop insurance indemnity payments on some Upper Midwest farms that have 80% and 85% RP insurance policies for 2019. Indemnity payments will be most likely to occur when there was a yield loss, due to some type of weather problem during the 2019 growing season; lower price levels also enhance the payment likelihood. 

A large majority of Midwest corn and soybean producers utilize “enterprise units” for their crop insurance coverage, which combines all acres of a crop in a given county into one crop insurance unit. By comparison, “optional units” allow producers to insure crops separately in each township section.

Premium rates are somewhat higher with optional units. Enterprise units work quite well with RP policies to protect against price drops during the growing season,and when a producer has most of their land in the same general area. Optional units are preferable when a producer has a variety of land that is spread across a wide area in a county, or when producers have individual farms that are highly susceptible to natural disasters, such as flooding or drought.

Producers that have crop revenue losses in 2019, which could result in potential crop insurance indemnity payments, should properly document the yield losses, regardless of their type or level of insurance coverage. 

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal at kent.thiesse@minnstarbank.com.  
 
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