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Guessing crop insurance payments

STEVE JOHNSON 10/14/2013 @ 1:19pm Farm Management Specialist with ISU Extension housed in Polk County, Iowa. Areas of expertise include crop marketing, grain contracts, government farm programs, crop insurance, farmland leasing and other crop risk management strategies. Reach Steve by e-mail at sdjohns@iastate.edu.

Harvest prices determined in October will have a large impact on the size of the potential crop insurance indemnity payments for corn and soybeans. Current futures prices suggest that crop insurance revenue policies on corn will make indemnity payments a reality on some farms this year, particularly those that purchased revenue policies at high coverage levels and are experiencing yields below their actual production history (or APH).

In Iowa, there’s a better chance for insurance indemnity payments on corn than there is for soybeans this fall, says Steve Johnson, an Iowa State University Extension farm management specialist. It would likely take a significant drop in soybean yields to likely trigger such a payment. Johnson offers the following explanation of how to calculate potential indemnity payments for corn and soybeans, so you can see if your yield and expected prices would likely trigger an indemnity payment for 2013 crop.

The 2013 projected price for corn is $5.65 per bushel. That’s the average settlement price of the December Chicago Mercantile Exchange or CME corn futures contract during February. This projected price is used to set crop insurance guarantees and the premium paid by farmers. The harvest price is used to calculate revenue on which crop insurance indemnity payments are based.

The harvest price for corn equals the average of settlement prices of the December CME corn futures contract during October. Settlement prices during the first 10 days of October suggest a harvest price of $4.40 per bushel. The final harvest price can vary before the end of the month, but this number provides a good starting point for evaluating corn payments.

An estimate of a $4.40 harvest price is 78% of the $5.65 projected price ($4.40 harvest price divided by $5.65 projected price = 78%). If actual yield equals the guarantee yield on revenue polices of an 80% level or greater coverage levels, it will likely trigger an indemnity payment. So an actual yield that falls below the farm’s APH yield and use of 80% coverage level or higher should command attention by the farmer. They will need to notify their crop insurance agent and make sure good records can verify this actual yield.

The projected price for soybeans is $12.87 per bushel. That’s the average settlement price of the November CME soybean futures contract during February. The first 10 days of settlement prices during October for November soybean futures suggest a harvest price of $12.75 per bushel. Similar to corn, the soybean harvest price is not yet known, but $12.75 is a useful starting point for evaluating a potential insurance indemnity payment on soybeans.

A $12.75 harvest price is 99% of the $12.87 projected price. Because 99% is above coverage levels offered by crop insurance revenue products, a yield loss has to occur before crop insurance indemnity payments would be made.

Since corn and soybean yields will vary across farms and most farmers use enterprise unit coverage, crop insurance indemnity payments will also vary. Farmers should contact their crop insurance agent regarding the actual yield records necessary for an indemnity claim, updating the APH with this year’s harvest numbers or making a 2013 premium payment.

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