2012 Crop Insurance Update Overview Feb. 21, 2012 George Patrick Purdue University For specific information, contact a crop insurance agent

Reference cropins/index.asp 1.Premium calculator 2.“What if?” 3.Analysis of developments 4.RMA/FCIC Handbook

Changes in 2011 Reduced insurance programs available for corn and soybeans Combined CRC and RA (COMBO) Eliminated Income Protection Plan (IP) Established uniformity in prices used across policies

2011 Prices used in IN Corn Projected – Dec. futures in Feb. $6.01 Harvest – Dec. futures in Oct. $6.32 Soybeans Projected – Nov. futures in Feb. $13.43 Harvest – Nov. futures in Oct. $12.14 Use the hlgher of projected or harvest prices Limit of 2X price increase

Effects of price increases on revenue products Corn price increased by $0.31 to $6.32/bu. (4.9% increase) Volatility affects price changes – greater volatility-larger changes Higher price increases the insurance guarantee level (bushels X price) Any indemnity is paid at higher price

Effects of price reductions on revenue products “Use higher of projected or harvest price” Soybean price decrease of $1.29 (9.6%) from spring (projected) to harvest results in guarantee level using $13.43 Producer has nearly a 10% revenue loss on price alone Any indemnity is paid at the $13.43 rate

Premium subsidy increased for enterprise unit Insurance unit Basic unit (land owned or share leased from a landowner) Optional (divides into smaller units) Enterprise unit all of crop within the county

Premium Subsidies – 2012

Changes for Price change effect on crop insurance costs 2.Premium rate changes 3.Effect of trend yield adjustment Effect on insurance in 2012

‘12 Premium Rate Changes Loss ratio has been below target rate for much of the Corn Belt IN premium rates have been adjusted downward an average - 11 % for corn - 7 % for soybeans

2012 Projected Prices Based on settlement prices for Feb. Have only first two weeks of Feb. Corn $5.74 v. $6.01 Beans $12.35 v. $13.39 Trend adjusted coverage in ‘12 Corn slightly up, beans slightly down

Trend Adjusted Yield Indiana Corn Yields Yields increase about 2 bu./yr 10-year average of actual yield underestimates next year’s corn yield by about 10 bushels % coverage level is over stated

Trend Adjusted Yield Corn producer with a 10-year APH yield of 175 bu. and county yield trend of 2 bu./yr. has expected yield of 185 bu. 75% of 185 bu. = bu. 75% of 175 bu. = bu.

Figure 1. Actual Corn Yields in Bu/Acre, Randolph County,

Figure 2. Actual and Trend Corn Yields in Bu./Acre Randolph County (trend 1.7 bu/year)

Figure 3. Actual Corn Yields as a Percent of Trend, Randolph County

Detrending Procedure Does a good job of helping a producer better understand the magnitude and frequency of losses. Does not correct very well for the decreasing level of protection

Procedures 1.Get about 40 years of county yield data 2.Estimate regression to determine trend for farms in the county 3.Adjust past crop insurance yields 4.Recompute yield guarantee and insurance premium

TA Yield Determination Assume 170 bu. average yield with 2 bu./yr. trend Have yields for 7 years – 2005 to 2011 Determine TA yield for 2012

TA Yield Determination YearActual YieldYield Adjustment TA Yield X 7 = X 6 = X 5 = X 4 = X 3 = X 2 = X 2 = 2185 Average Increase in APH8 bu. or 4.7%

TA Yield – Trigger Yield and Increased Premium Regular yield 75% bu. TA yield 75% bu. Yield prot 75% v COMBO 75% v

Crop Insurance, Indiana 2006 and 2011 Type of Insurance APH CRC IP RA GRP GRIP COMBO TOTAL ACRES (1,000) Corn % of insured acres ’06 ’ NA 0.6 NA 27.7 NA NA , Soybeans % of insured acres ’06 ‘ NA 0.7 NA 2.6 NA NA , ,833.1