Department of Economics GRP and Insurance Prices Iowa Falls, Iowa Apr. 9, 2010 Chad Hart Assistant Professor/Grain Markets Specialist

Department of Economics Group Risk Plan  Was set up as an alternative to APH  Covers county yield risk, not farm yield risk  Started in 1993 with soybeans  Expanded quickly to other crops  Less paperwork and cost than APH

Department of Economics Group Risk Plan (Original Set-up)  Offered at yield coverage levels between 70 and 90 percent  Insureds also pick scale between 90 and 150 percent  Define Cov = coverage level Ye = expected county yield (based on data since 1956) Y = actual county yield (as measured by USDA) Yc = Cov*Ye  Indemnities = Max(0, scale*Ye*(Yc-Y)/Yc) *Insurance Price

Department of Economics Group Risk Plan (Current Set-up)  Offered at yield coverage levels between 70 and 90 percent  Maximum protection level (MPL) defined as 150 percent*Insurance Price*Ye  Insureds pick value of protection, from 60 to 100 percent of MPL  The terms are rearranged, but the indemnity is the same as before

Department of Economics Group Risk Plan  Insurance price for GRP is set at the “Established Price” for APH  The Established Price is set during November before planting  Given price, maximum protection level is set and is not readjusted

Department of Economics GRP Maximum Protection Levels  For Hardin County, Iowa corn  2008: $982.69/acre =150%*$3.75/bu*174.7 bu/acre  2009: $1,081.80/acre =150%*$4.00/bu*180.3 bu/acre  2010: $960.10/acre =150%*$3.55/bu*180.3 bu/acre

Department of Economics Corn Yields (bushels/acre) Expected Actual154.7*157**??? *Official **My estimate, Production/Planted Acres 90% coverage level paid in 2008 and probably will in Lower coverage levels did not.

Department of Economics Insurance Prices CornSoyCornSoyCornSoy ($ per bushel) Revenue APH GRP

Department of Economics Insurance Prices  For the 2011 crop year, APH and the individual revenue insurance products (CRC, RA, etc.) will have the same price  GRP pricing may be set the same way in coming years (2012 at the earliest)

Department of Economics Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: