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2011 crop insurance policy changes

STEVE JOHNSON 01/03/2011 @ 10:03am 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.

The new Common Crop Insurance Policy, often called COMBO, simplifies and streamlines the number of crop insurance choices for 2011.

There will now be one master policy, with several options.

Instead of a different policy for each type of insurance, there will now be one master policy with several options:

  • Yield protection
  • Revenue protection
  • Revenue protection with Harvest Price Exclusion

Option #1 - Yield Protection

Yield Protection (YP) is equivalent to the old Actual Production History (APH) policy. Yield Protection establishes a guarantee based on the APH yield. A major change from the old APH policy is that the indemnity price used to calculate the payment in the event of a loss is now the same as the price used for revenue insurance policies. Previously, RMA set the indemnity price using a projected price that tended to be less than the futures price average used for revenue policies.

For spring-planted crops beginning in 2011, the average closing futures price for each day during the month of February will be used. The corn price is based on the December Chicago Mercantile Exchange contract, while the November contract is used for soybeans. Farmers can choose to use 55% to 100% of this price for the indemnity price at which yield losses are paid. Naturally, choosing a higher price and higher levels of yield protection will result in a higher premium.

As the name implies, a yield loss must be incurred first before an indemnity payment is triggered. While premiums are much lower than the revenue products, the likelihood of collecting an indemnity payment is much less.

Catastrophic level yield coverage (CAT) is still available for a cost of $300 per crop. The guarantee is 50% of the APH yield, and losses are paid at 55% of the indemnity price.

Option #2 - Revenue Protection

Revenue Protection (RP) can also be chosen by a farmer. Revenue Protection is equivalent to the old Crop Revenue Coverage (CRC) and the Revenue Assurance with the Harvest Price Option (RA-HPO).

Revenue Protection guarantees the insured farmer a minimum number of dollars of gross revenue per acre. The yield used to set the guarantee is the same as the APH yield used for Yield Protection, and the price is the same as February futures price. The guarantee is the product of these two values, times the level of guarantee selected (from 65% to 85%).

If the average Chicago Board of Trade price for the relevant contracts during the month of October is higher than the February price, the guarantee is increased, based on the October price. The October price is also used to calculate the “actual” revenue. Approximately 85% of the insured corn and soybean acres in Iowa in 2010 were covered with this type of policy.

Option #3: Revenue Protection with Harvest Price Exclusion

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