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Major types of crop insurance policies

Agriculture.com Staff 07/07/2010 @ 9:10am

Crop insurance for major field crops comes in two types: yield-based coverage that pays an indemnity (covers losses) for low yields; and revenue plans that insure a level of crop income, based both on yields and the prices that determine a crop's value. Here are features of the main ones. Descriptions of policies for fresh produce and pilot programs are on the USDA's Risk Management Agency (RMA) Web site.

Yield-based Insurance Coverage

Multiple Peril Crop Insurance (MPCI): MPCI insures against losses from natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. You choose the amount of your average yield you want to insure, from 50% to 75% (in some areas up to 85%). You also choose a percent of the predicted price for a crop, between 55% and 100%. RMA sets this price annually. At press time it hadn't been set due to farm bill uncertainty.

Group Risk Plan (GRP): These policies use a county yield index to determine a loss, instead of a grower's actual production history (APH). When the county yield for the insured crop, as determined by the National Agricultural Statistics Service (NASS), falls below the trigger level chosen by the farmer, an indemnity is paid. Yield levels are available for up to 90% of the expected county yield. It's fairly simple to buy, but you'll wait longer to be paid an indemnity on corn or soybean losses -- up to six months after harvest -- due to delays in calculating county yields.

Revenue Insurance Plans

Crop Revenue Coverage (CRC): CRC provides revenue protection based on expected prices and yields by paying for losses below a guarantee purchased by the grower. Losses are calculated using the higher of two prices, an early-season price or a harvest price. The early-season price in the Midwest is the February average of December corn and November soybean futures. CRC is used by growers who aggressively sell those crops on spring rallies. The harvest price for both crops is now determined by new crop futures in October.

Revenue Assurance (RA): RA provides dollar-denominated coverage by the producer selecting a dollar amount of target revenue from a range defined by 65% to 75% of expected revenue. If you buy the harvest price option (HPO) it becomes much like CRC. RA with HPO has no upside limit on harvest price protection. CRC does. If yields are average or above and prices don't rise, standard RA is your best value. CRC or RA-HPO is a better value if yields are low and prices rise.

Group Revenue Insurance Policy (GRIP): GRIP makes indemnity payments only when the average county revenue of the insured crop falls below the revenue chosen by the farmer.

Income Protection (IP): IP protects against low gross income. from low yield, price or a combination.

Crop insurance for major field crops comes in two types: yield-based coverage that pays an indemnity (covers losses) for low yields; and revenue plans that insure a level of crop income, based both on yields and the prices that determine a crop's value. Here are features of the main ones. Descriptions of policies for fresh produce and pilot programs are on the USDA's Risk Management Agency (RMA) Web site.

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