farmgate: USDA's Fine-Tuning Of Crop Insurance May Affect Your Choice In 2009
How are you planning to manage production and revenue risk in 2009? Some of your neighbors will be utilizing well-thought crop insurance and marketing plans. Some of your neighbors will be using “seat of the pants” marketing and hoping for the best when that feeling in their gut says they should sell. With markets below the levels of the past year and production costs higher, will you tailor a crop insurance program to fit your farm?
If you are waiting for new crop insurance programs to be announced for 2009, don’t wait any longer. You have the same choices you had last year, but some changes have been made that may make some more attractive and others less attractive. That is the essence of a newsletter prepared by University of Illinois Farm Management Specialist Gary Schnitkey. While he writes it for Illinois farmers, other Cornbelt farmers will be able to apply many of his principles to their farm as well. Schnitkey says CRC, RA, and GRIP were the top choices for farmers last year, and will probably be this year as well. But of course, GRIP is a county level product that pays an indemnity if a yield on a farm falls below the county average. CRC and RA are farm level policies that pay an indemnity if the yield falls below the farm average. Within the three, USDA has made some minor changes that could have major impact for some farmers, depending upon their state and how the various policies were rated for their states.
Changes to Enterprise Units for CRC and RA
Crop insurance veterans know that farms can be insured by basic, optional, or enterprise units, the latter of which combines all farming units in a county, but divided by crops. When the insurance is spread over a larger area, the cost declines. What USDA has done is raise the subsidy levels for enterprise units, meaning USDA will pay more of the cost of insuring a given crop in a single county than it did last year. For coverage of 70% or less, the subsidy will be 80% of the cost, and it declines to only 53% of the cost for an 85% policy. USDA will be paying about 15-20% more of the cost for enterprise unit insurance in 2009. Consequently, farmers using CRC or RA and selecting enterprise unit coverage will be paying a lower premium than last year.
Biotech Yield Endorsement
Monsanto’s BYE product for 2008 corn has been expanded to include Herculex by Pioneer and Dow AgroSciences, and Agrisure by Syngenta. The insurance is available for farmers who plant at least 75% of their corn to one of the eligible hybrids which feature triple stack technology for control of weeds, rootworm, and corn borers. While the BYE insurance was available to a limited number of farmers in 2008, it has been expanded to include the remainder of the Cornbelt for 2009. There is no requirement to stay with one hybrid, since any eligible hybrid among the three brands can comply. However, there is paperwork involved to certify the use of the eligible seed or USDA will not allow the premium discount for the program.
Subsidy decrease for GRIP
Schnitkey says the USDA will be paying less to subsidize GRIP policies compared to 2008. Most of the coverage levels will have USDA paying 4-6% less of the subsidy, however, because of other changes in the policy, the overall premium that farmers will have to pay will decline, anywhere from $3 for 70% level coverage to $20 for 90% level coverage. But again, that depends on your state.
Harvest price change limits
From the beginning of CRC and GRIP, the harvest price of corn could not rise or fall more than $1.50 above the spring guarantee and for beans the limit move was $3. But RA had no limits on moves. In 2008, the harvest price for soybean dropped more than the $3 limit for CRC and GRIP, forcing the USDA to make higher indemnity payments on RA policies than on CRC policies for the same yield and coverage level. The change for 2009 is to eliminate the limits on price declines if the spring guarantee is more than the harvest price, but place an upper limit on price rises of twice the spring guarantee. Schnitkey says this levels the playing field for CRC and RA when it comes to indemnity payment, so the only difference is the premium going into the season.
Summary:
Refinements have been made by USDA on several of the more popular crop insurance programs, which could impact both premium costs and potential indemnity payments for farmers who typically sign up for them. CRC and RA will have similar indemnity payments as a result, GRIP may have a lower premium cost, the Biotech yield program includes more hybrids and more states, and farmers using enterprise units will be paying a lower premium for CRC and RA.
Posted by Stu Ellis on February 17, 2009 10:02 PM to farmgate