choosing crop insurance for 2012 william edwards, isu extension economist
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Choosing Crop Insurance for 2012
William Edwards, ISU Extension Economist
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COMBO Insurance Coverage (Iowa, 2011)
Revenue Protection = 88.5% of Insured Acres
Source: USDA Risk Management Agency, September 2011
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50 65 70 75 80 85 900%
5%
10%
15%
20%
25%
30%
35%
Level of Guarantee Purchased Has Increased
2004 and 2011, Iowa 2004
2011
% Guarantee
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Causes of Crop Insurance Losses 2001-2010 (Iowa)
Drought32%
Excess moisture, flood
31%
Price9%
Hail25%
Insects, disese4%
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Corn Indemnity Prices
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00Feb. price
Oct. price
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Soybeans Indemnity Prices
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00$10.00$11.00$12.00$13.00$14.00
February price
October price
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Revenue Payments in 2011
Corn Soybeans
2011 projected price (Feb. futures)
$6.01 $13.39
2011 harvest price (Oct. futures) $6.32 $12.14
Price decline 0% 9%
Yield loss to trigger payment@ 80%
20% 12%
Yield loss to trigger payment@ 75%
25% 17%
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What’s New for 2012
• APH (proven) yields can be adjusted for yield trends.
• Premiums will be lower.• Biotech Endorsement discount
has been discontinued.• Reporting, billing dates changed.
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APH Yield Trend Adjustment
• Actual Production History (APH) yields have been a simple average of yields for the past 4 to 10 years
• Did not reflect upward yield trends• Farms with longer yield histories were at a
disadvantage• Beginning in 2012 a yield trend adjustment
is available
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Iowa Average Yields
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
20
40
60
80
100
120
140
160
180
200
Corn
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Trend Adjusted APH Yields• Approved for most of Corn Belt• Trend factor estimated for each county,
based on historical county yields• Separate factors for corn and soybeans• Annual factor is added to producers’
yield history
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Example
• Farm has 10 years of yield history for corn
• County trend adjustment factor is 2.0 bu/yr
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Trend-Adjusted Actual Production History Yield ExampleYear Reported Yield Yield Adjustment Adjusted Yield
2002 133 20 1532003 145 18 1632004 167 16 1832005 122 14 1362006 157 12 1692007 165 10 1752008 171 8 1792009 193 6 1992010 176 4 1802011 197 2 199
Average 163 2012 APH=
174
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APH Yield Trend Adjustment
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011100
120
140
160
180
200
220
Actual
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APH Yield Trend Adjustment
• Trend factor is reduced 25% for each year that fewer than 4 actual yields are available.
• Example:– 3 years, adjustment factor = 1.5 bu/year– 2 years, adjustment factor = 1.0 bu/year– 1 year, adjustment factor = 0.5 bu/year
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APH Yield Trend Adjustment• Maximum adjusted yield is the highest
actual yield plus the adjustment factor.• Example: 197 bu/acre is highest yield
submitted in the last 10 years• Maximum adjusted yield = 197 bu. + 2 bu.
= 199 bu./ac (higher than 174, no effect)• Applies only when yield history has been
very consistent over time
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Trend-Adjusted Actual Production History Yield Example
Year Reported Yield Yield Adjustment Adjusted Yield2002 133 20 1532003 145 18 1632004 167 16 1832005 122 14 1362006 157 12 1692007 165 10 1752008 171 8 1792009 193 6 1992010 176 4 1802011 197 2 199
Average 163 174=2012 APH
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Implication: more dollars guaranteed• Before:
– APH = 163 bu/acre– 80% guarantee, $5.70 projected price– Coverage = $743.28
• After:– APH = 174 bu/acre– 80% guarantee, $5.70 projected price– Coverage = $793.44
• Or: 75% x 174 bu/ac x $5.70 = $743.85
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Premium Rates to be Lowered
• Loss ratios in Midwest have rarely exceeded 100% in recent years
• Technology, weather• Average Iowa rates will be reduced:
– 13% for corn– 9% for soybeans
• Will vary by county
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Loss payments in Iowa rarely exceed 100%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0%
20%
40%
60%
80%
100%
120%
140%
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Biotech Endorsement (BE)
• Premium discount for planting selected
hybrids with risk reducing traits.
• Pilot project for 2008 through 2011.
• Discontinued as of 2012.
• Eligible hybrids are in wide use.
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Lower Indemnity Prices in 2012?
Corn Soybeans
2009 $4.04 $8.80
2010 $3.99 $9.23
2011 $6.01 $13.49
2012? $5.70?? $12.30??
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Premiums in 2012?
• Higher APH yields
• Lower premium rates
• Change in projected price?
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Dates Changed
• Acreage reporting date:–From June 30 to July 15
• Premium billing date–From October 1 to August 15
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Key Points for 2012
1. Indemnity prices may be a little lower.
2. Yield trend adjustment is available.
3. Premium rates will be lower.
4. Biotech endorsement is discontinued
5. Reporting and billing dates are changed.
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