Insure Your Revenue
Insurance tools have become an integral part of managing your farming operation. Stay current on insurance tools and how to incorporate them with your current risk management strategies to market your grains throughout the year.
Quick Recap of Crop Insurance Revenue Guarantees for Corn and Soybeans
Nov 03, 2012
We now know what the Harvest Price is for Corn and Soybeans for the majority of the United States. Corn had a $7.50 Harvest Price compared to the Spring Price which was $5.68. Soybeans had a Harvest Price of $15.39 compared to the Spring Price of $12.55.
One of the nice things as far as calculating insurance payments is that when the Harvest Price is higher than the Spring Price a Revenue Policy turns into a Yield Policy in the sense that the producer gets paid out for every bushel below the approved APH.
Now is a good time to just do a quick recap of the tools that a producer can take advantage of. I will use our farm in Winnebago County, IL. In Corn, we have an APH of 167 and I will use an 80% policy as that is currently more common of a purchase than an 85% policy. I am also incorporating utilizing the Enterprise Unit Discount.
Revenue Protection policy vs. Revenue Protection policy with the Harvest Price Exclusion: Using the information above an RPHPE policy would have been about $5.37. To include the Harvest Price the cost was about $11.04. In this scenario by spending an extra $5.72 we increased our revenue per acre by $244.
Revenue Protection Policy vs. Trend Adjusted Yield: As mentioned above the RP policy would cost about $11.04. If we had elected to also purchase the Trend Adjusted Yield option (which increased my trigger yield by 8 bu) it cost about $15.15. In this instance by spending an extra $5.11 we increased our revenue per acre by $60.
By taking advantage of the Harvest Price Option and the Trend Adjusted Yield this year we spent $15.11 an acre or $.09 cents a bushel and locked in revenue of $1062.00 on 80% of our APH.
I will not run through a Soybean example as the results are comparable to the Corn scenario just described.
I have had many discussions with producers that feel that it is not worth paying the extra price to have the harvest price option as it does not happen very often. Since 1995 the Harvest Price has been higher than the Spring Price seven times for Corn and eight times for Soybeans but the amount of dollar coverage that it has added to the revenue per acre should make this option very attractive each year. The harvest price option gives the producer an opportunity to purchase a pseudo call option while having it subsidized by the government and it also helps alleviate some of the concern regarding when and how much grain I can sell before harvest.
In regards to the Trend Adjusted Yield this was the first year it was available and it was only for corn and soybeans and limited to certain counties. Overall the TA yield worked very well it has been expanded to cover wheat and the RMA should be expanding its availability.
The RMA has given us the tools to add both bushel and price coverage to our insurance policies at a subsidized rate. We can argue its viability and how effective it is but at least we have options. On top of this there are many private products that can be purchased for additional coverage that although they are not subsidized can be very beneficial.
Here is one of the most basic ways a producer can begin to market his grain each year and the government is helping to share the cost. Make sure you fully understand the opportunities that are in front of your within the insurance arena before you dismiss them because of a price tag or your disdain for government programs.
If you have any questions or would like to know more about how to incorporate insurance and grain marketing, feel free to ask me in the comment section of this blog, or contact me at Jamie@gulkegroup.com.
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