Crop Insurance Policy Options
Every year farmers face the threat of damage to their crops from drought, hail, flood, insects, and other natural disasters. The USDA Risk Management Agency (RMA) and private crop insurance venders have developed a set of insurance programs to help control crop production risks at a reasonable cost. Crop insurance coverage is not mandatory, but it does provide a financial safety net in case of severe production losses or price declines.
Yield Protection (YP)
Yield Protection insurance protects against production losses from a wide range of natural causes. Producers can choose to insure their crops at levels ranging from 50 to 85 percent of their actual production history (APH) yield. These bushels can be insured at a price ranging from 55 percent to 100 percent of the projected price each year. The projected price level is the average new crop futures market price during the month prior to the sales closing date. Average prices during February are used for corn (December contract) and soybeans (November contract).
If the farm’s actual yield is less than the guaranteed yield, the YP payment is equal to the production deficit multiplied by the price election. Premiums increase in direct proportion to the price coverage level selected, and at an increasing rate for higher yield guarantees. The level of government subsidy of the YP premiums ranges from 100 percent at the lowest yield and price coverage level (catastrophic) to 38 percent at the maximum coverage level.
Prevented and delayed planting provisions have been very important to Indiana producers in recent years. When planting is delayed until after the final planting date set by RMA, the level for the yield guarantee on the insured crop is reduced by 1 percent per day for the next 25 days. Delayed planting provisions take effect on June 1 for corn and on June 16 for soybeans.
If no crop at all can be planted (prevented planting), the guarantee remains at 60 percent of the original level. Prevented planting provisions apply after the final planting date for the crop. Prevented planting coverage can also be raised to 65 or 70 percent of the original level, for an added premium, before the insurance sales closing date.
For more detailed information on Yield Protection crop insurance see Ag Decision Maker File A1-52/FM 1826 Yield Protection Crop Insurance.
Revenue Protection (RP)
Revenue Protection is available for major crops in Ohio and Indiana. The revenue guarantee is based on the APH yield and the average new crop futures market price during the month of February, just as for a Yield Protection policy. The insurable price times the APH yield times the level of coverage chosen equals the gross income guarantee. Coverage options are 50, 55, 60, 65, 70, 75, 80, and 85 percent.
If prices for the insured crop are higher by harvest time, the revenue guarantee increases accordingly, with no additional premium. The maximum increase in the insurable price is 100 percent of the February average price. The revenue guarantee cannot be lowered, however.
If the producer’s actual gross revenue, calculated as the actual yield times the average October futures price, is below the insured level an indemnity payment equal to the difference is paid. Thus, indemnity payments can be triggered by various combinations of low prices and low yields. The harvest price used to calculate the actual revenue cannot be more than 100 percent higher than the February price (double).
Supplemental Coverage Option
The Supplemental Coverage Option (SCO) is a crop insurance option that provides additional coverage for a portion of your underlying crop insurance policy deductible. You must buy it as an endorsement to the Yield Protection, Revenue Protection, or Revenue Protection with the Harvest Price Exclusion policy or to the Actual Production History policy for crops that do not have revenue protection available. The Federal Government pays 65 percent of the premium cost for SCO.
Catastrophic Risk Protection (CAT)
Catastrophic coverage insurance provides low-cost crop insurance protection and offers the minimum level of coverage offered by FCIC which meets the requirements for a person to qualify for certain other USDA program benefits. CAT insures 50% of production at 55% of the base price for a fee of $300 per crop. CAT has no optional units and does not pay for replants.