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The premium rate shuffle

DANIEL LOOKER 02/16/2012 @ 3:43pm Business Editor

In late November, USDA's Risk Management Agency revealed good news: Farmers in much of the Corn Belt will see rates used to calculate 2012 crop insurance premiums fall by 10% or more for corn. Rates are falling for soybeans, too.

Nationally, farmers will see rates fall by 7% for corn and 9% for soybeans, RMA's administrator, William J. Murphy, says.

It's part of an effort by USDA to make rates fairer. And, as the map above shows, not everyone is a winner. Rates go up by 10% or more in large swaths of Texas, Colorado, and the Dakotas.

This is just one of the big changes in crop insurance this year. The other is a pilot program in much of the Midwest that allows growers with at least one year of yield records out of four to choose a trend-adjusted APH yield endorsement.

In essence, USDA is allowing you to bump up the yields in your actual production history as if your crops had today's technology seven years ago, for example, as shown in the table on the next page.

RMA catches up

RMA is finally taking into consideration new genetics and practices and seed varieties, says Doug Burns, vice president for crop insurance for Farm Credit Services of America. “It's an election, and you have to make that change by March 15. Once you make that choice, it's continuous.”

In contrast to the rate changes, the trend adjustment is available (at no cost) in fewer states. Like the rate changes, adjustments in yield trend are by county (with no connection to rate changes). The corn trend adjustment election is offered in a few counties in Colorado, Kansas, and Kentucky, and in the Corn Belt from Ohio to Nebraska and Missouri and north of those states. A 2-bushel-per-acre change or more is typical of northern Illinois, most of Iowa and Nebraska, and corn-growing regions in Minnesota and the Dakotas. The soybean adjustment tops out at .6 bushels, in a similar region.

Trend adjustment effectively lowers your cost of the same coverage as before. If you decide to use its higher APH to increase your coverage, Burns' staff calculates that premiums may rise by about $10 an acre on some productive farms in Iowa, where he is based.

He thinks most farmers and agents will decide that a higher insurable value from trend adjustment will make it worth paying more if they raise coverage. It will be at less cost. Trend adjustment often will be similar to a 10% increase in coverage.

“It's a reasonable cost for that additional coverage,” Burns says. “Instead of saying, ‘I'm going to increase my coverage by 10%,’ it's cheaper to use the trend-adjusted yield.”

Bruce Sherrick, an agricultural economist at the University of Illinois, points out that both the rate and federal subsidy for your premium stay the same when you adjust the yield. If you buy a high level of coverage instead, the subsidy drops, contributing to a higher premium.

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