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Crop insurance costs shooting skyward

Iowa State University Extension economist William Edwards says crop insurance will be more costly in 2008, due to the increasing value of the crops that will be insured.

The last day to make any changes in coverage for this year is March 17, two days later than the usual March 15 deadline, which falls on a Saturday.

The corn indemnity price for yield insurance (APH) is up to $4.75 this year, which is a considerable increase from last year, Edwards notes. Revenue insurance policies are at $5.40 for corn this year, up from $4.06 last year. Soybeans are at $11.50 per bushel for yield insurance this year, and the revenue insurance soybean price is at $13.36, up from $8.09 last year.

Simply put, each bushel is worth a lot more this year, and insurance prices rise right along with the market value, Edwards says. With these numbers, an approved yield of 150 bushels of corn and 50 bushels of soybeans, at maximum coverage levels, would guarantee $600 to $700 per acre.

Over the last decade since revenue insurance was introduced, the market gradually has been shifting away from traditional yield insurance and toward revenue insurance, a trend that most likely will continue this year, Edwards says. This is due to the fact that farmers see more price risk than they do yield risk, according to an Iowa State University report.

One question farmers ask is whether they should get the type of revenue insurance that increases the guarantee if prices increase by harvest time. Any disturbance with current tight supplies could send prices considerably higher, Edwards says. Crop Revenue Coverage comes standard with increasing price coverage, but it comes with a limit on how much it can go up.

We have never had a year where prices have gone up more than what those limits are, but it could still be a factor this year, Edwards says. Revenue Assurance has no limits for increasing the guarantee.

It's important to look at just how much coverage you need. Input prices are up, so take a look at your break-even cash flow to see what percentage of coverage would be best. Seventy-five percent coverage has been the most common in the past, but 65% or 70% coverage may cost as much as 75% cost last year. This is a very important variable to look at in order to avoid large increases in premiums, Edwards adds.

Another way of looking at insurance options is to use them to lock in high revenue levels per acre. However, you still need to market crops at the current prices to receive that revenue. Even at best, there is a 15% or maybe 20% to 25% deductible. In short, crop insurance does not replace a good marketing plan, Edwards says.

The U.S. Department of Agriculture has implemented a new biotech yield endorsement this year, which applies to certain hybrid technology. Data have shown these hybrids to reduce production risk, leading to a discount on crop insurance premiums if you plant at least 75% of the corn in an insured unit to hybrids covered by the endorsement. The savings in premiums could be as much as 10% to 30%, Edwards says. Be sure to look at all the variables involved, such as the cost of hybrid seed, the protection it gives, and the weed or insect problems that are likely to arise.

Additionally, the USDA requires seed dealer verification and veification that the seed was planted. Farms are subject to spot checks during the year.

Edwards says the good news in the crop insurance picture is that if farmers who were insured last year don't do anything by March 17, they won't lose coverage. Their insurance plan from last year will continue, though at a higher price.

Iowa State University Extension economist William Edwards says crop insurance will be more costly in 2008, due to the increasing value of the crops that will be insured.

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