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COMBO merges revenue products

After long anticipation,
USDA’s Risk Management Agency last summer unveiled its common crop insurance
policy, or COMBO. Since then, experts have pored over it, finding few
surprises, at least in the Corn Belt. “I really don’t think the changes are
going to be that big,” says Steve Johnson, an Iowa State University farm
management specialist. “All policies automatically convert.” If you do nothing,
you’ll have essentially the same policy as in 2010. Just the names have

Key Differences

The biggest real change is
that crop revenue coverage (CRC) and Revenue Assurance with the Harvest Price
Option (RA+HPO) are replaced by one product, Revenue Protection. Gone is the
chance to shave premiums by cherry-picking one or the other. These similar
products did have price differences in some states.

Another difference shows up
if basic insurable units are consolidated into enterprise units (growing more
popular due to a larger premium subsidy). CRC and RA+HPO calculated premiums on
enterprise units differently, says Iowa State economist William Edwards. Adds
economist Art Barnaby of Kansas State University, “RMA has a new complicated
method for calculating the enterprise discount based on practice, type, acres
and liability.” For most commercial farmers enterprise units still make  sense, but you should check with your
agent soon, he says.


Another change is that the
value of spring-planted crops for the new Yield Protection product is based on
futures contracts in February. “Under the new system, everything is going to
get set by the February average,” says Barnaby. The old APH policies used
values set by USDA, not the futures. And USDA tended to put a lower value on
crops than February futures. The new Yield Protection will likely have a better
guarantee, but it will also have higher premiums, he says.

Sticker Shock

Even though COMBO is
supposed to be essentially the same coverage, it does have a slight rate
increase at the crop level in some cases, according to an internal analysis by
Rain and Hail, LLC.

“RMA-developed rates for
2011 spring crops vary widely from county to county and the overall impact is
estimated to be up or down by 5%,” says Scott Arnold, vice president.

You’re likely to see an even
bigger jump in premiums, but it has little to do with COMBO, economists say.
The insurable value of your crops is now much higher than last year’s levels of
$3.99 a bushel on corn and $9.23 a bushel on beans, says Edwards.

“I would agree that the
higher commodity prices and higher volatility could result in higher premiums,”
says Gary Schnitkey, a University of Illinois economist who puts together a
popular premium calculator for the website,


For example, he estimated
around the start of this year that insuring corn at the 80% coverage level on a
basic unit in Champaign County, Illinois, could cost $27 an acre. Schnitkey
says the savings from switching to an enterprise unit is even greater under
COMBO. For that Champaign County example, it cost $12.50 an acre. Also consider
Whole Farm coverage (on all of your crops combined), Edwards says. Not widely
used, it has the highest premium subsidy (80% for 75% coverage).

Whatever you decide, says
Johnson, see your agent soon. “Don’t wait until March,” he says. If you're
outside the Corn Belt, that's even more important because COMBO is a big change
in some states, Barnaby adds. 

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