1. Department of Economics GRP and Insurance Prices Iowa Falls, Iowa Apr. 9, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. 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

3. 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

4. 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

5. 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

6. 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

7. Department of Economics Corn Yields 200820092010 (bushels/acre) Expected174.7180.3 Actual154.7*157**??? *Official **My estimate, Production/Planted Acres 90% coverage level paid in 2008 and probably will in 2009. Lower coverage levels did not.

8. Department of Economics Insurance Prices 200820092010 CornSoyCornSoyCornSoy ($ per bushel) Revenue5.4013.364.048.803.999.23 APH4.7511.504.009.903.909.15 GRP3.758.704.009.903.558.55

9. 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)

10. Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/