In just seven more weeks tens of thousands of farmers around the Cornbelt will be headed to or calling the office of their crop insurance agent to finalize their crop insurance plans for a year that may or may not be another drought year. Only those with excess equity, no high cash rent, and no borrowed money will skip that annual rite of spring. But for those who will be willing participants, there is good news, because premiums will be lower for the majority of counties in a state and a majority of states across the Cornbelt and Great Plains.
With the USDA re-rating its crop insurance program, farmers who had been paying premiums higher than they should have been paying will now get to enjoy the savings. The USDA’s crop insurance program is supposed to be $1 of premium paid and $1 of indemnity payments back out. It has not been that way, but University of Illinois Farm Management specialist Gary Schnitkey says the premium reductions are being made, even with the high indemnity checks being paid out for the 2012 crop yields. He says, “Results from 2012 are not included in 2013 rates as information from the 2012 year was not available at the time 2013 premium rates were set. Information from 2012 will influence rates in 2014.” So budget more next year for higher crop insurance premiums.
Here is an example for 2013:
As an example, Schnitkey uses a farm with a 200 acre enterprise unit, a 177 bushel per acre APH, and a 188 bushel per acre trend-adjusted APH. For that farm in 2012, Schnitkey says the operator paid $29.85 for an 85% Revenue Protection policy. He says if the projected price of $5.68 and the market volatility remain steady through the end of February, the premium will drop by 7% to $27.77. But he says if the market volatility increases and the projected price rises, the premium could rise as well.
For example, Schnitkey says a $6 spring guarantee would raise the premium to $29.34. If the volatility of the market picks up, but the spring guarantee remains near $5.68, the premium would still rise to $31.83. Backing off the coverage level from 85% rapidly reduces the premium. Schnitkey’s $6 spring guarantee for a $29.34 premium would still be achieved at an 80% coverage level for just half that premium level.
Schnitkey says reductions will also occur in some other crop insurance products; “Reductions also will vary across products. Yield Projection (YP) will have larger reductions compared to RP. For example, the YP policy comparable to the above described RP policy with (85% coverage level, 200 acre enterprise unit) has a projected 2013 premium that is 20% below the 2012 premium. This compares to a 7% reduction for the RP policy.”