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Chances good harvest prices exceed CRC limits

A 30% chance exists this year that harvest prices will exceed Crop Revenue Coverage (CRC) limits, says Gary Schnitkey of the University of Illinois.

"This probability is much higher than has existed in previous years. Higher chances of exceeding CRC limits increase the value of Revenue Assurance (RA) crop insurance relative to CRC," Schnitkey reports.

Schnitkey addressed CRC coverage limits this week at the 2008 Commodity Classic in Nashville, Tennessee.

Schnitkey recently prepared a report, "Impacts of CRC Price Limits on the Value of CRC Relative to RA. Click here to read the report.

"CRC and RA are similar products insuring farm revenues," Schnitkey explains. "These products differ in three manners. First, CRC and RA will have different premiums. CRC averages October settlement prices of the December corn futures contract traded on the Chicago Board of Trade to determine its harvest price. RA averages November settlement prices to determine its harvest price."

Finally, CRC limits how much the harvest price can differ from the base price while RA does not have limits.

In past years, Schnitkey notes, price limits associated with CRC have not been a major concern. "In 2008, price limits are a concern as price volatility has increased greatly, increasing the likelihood that settlement prices will fall outside CRC price limits," Schnitkey adds. "This could cause RA to have higher payments than CRC."

A 30% chance exists this year that harvest prices will exceed Crop Revenue Coverage (CRC) limits, says Gary Schnitkey of the University of Illinois.

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