Purdue News
Purdue News
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March 3, 2004 Economist: No time like present to purchase crop insuranceWEST LAFAYETTE, Ind. - Crop insurance can soften the blow of weather and pest problems like those that plagued many farmers a year ago. But unless producers act quickly, they'll feel the full brunt of any crop-threatening calamity this year. March 15 is the deadline for farmers to insure their spring-planted 2004 crops. Growers should carefully weigh the various insurance policy options and decide if crop insurance is worth the investment, said George Patrick, a Purdue University agricultural economist. "Here in Indiana there are a bunch of different types of policies that are available," Patrick said. The Federal Crop Insurance Corp. reinsures each plan, he said. Policies based on a farmer's historical crop yields and revenue are the coverage options selected most often, Patrick said. "There's the yield-type coverage that started out being called multi-peril crop insurance and is now often referred to as the Actual Production History (APH) plan," he said. "In that kind of plan the yield guarantee is based on the farmer's own yields over at least the past four years, and up to 10 years." Actual Production History covers most physical losses in crop production. APH also pays out when field conditions are so poor a farmer is unable to plant or the farmer must replant because of environmental factors, like the July 2003 floods that washed away crops on thousands of Indiana acres. APH covers up to 85 percent of a farmer's historical yields. "The revenue-related products have become a lot more popular," Patrick said. "The Crop Revenue Coverage and the Revenue Assurance program both have had significantly higher sales in the last couple of years. "One of the differences with these plans is that the farmer has some protection against declines in commodity prices. Right now we have relatively high prices. If we had a boom year and prices declined from this point until harvesttime, the insurance would be based on the higher spring prices." Commodity prices affect both the level of insurance coverage and a farmer's premiums, Patrick said. "The price of corn for the Actual Production History coverage, for example, was $2.20 per bushel last year. That's jumped up to $2.45 this year," he said. "We've had a similar increase in the soybean prices. The premiums are going to jump by about the same percentage amount to reflect those higher prices. Of course, the coverage levels increased, too. "This is one of those years when farmers may want to look at insurance a little more carefully, because for a number of years prices were below the loan level, and there really wasn't any downside price risk that farmers faced. This year our commodity prices are a lot higher, so unless they do something in the marketing or crop insurance areas they open themselves up to the risk that there may be a decline." Two other common crop insurance plans are the Group Risk Plan (GRP), which provides coverage based on expected and actual average county yield levels rather than an individual farmer's yields, and Group Risk Income Protection, a revenue-based version of GRP. Farmers should consider crop insurance an important part of any risk-management strategy, Patrick said. He advised producers to contact their insurance agent to learn more. An online tool also can help farmers with their crop insurance decisions. The University of Illinois and Purdue developed the iFARM Crop Insurance Evaluator and Premium Calculator. A free Web-based resource is available online. "The calculator figures the premiums per acre for the different types of coverage, while the evaluator provides estimates of what the returns may be, how often a farmer would collect on the various types of insurance, how large the indemnities would be and how much downside protection they'd get," Patrick said. "It then comes up with what is called a 'net cost of insurance,' which is the premiums minus the indemnities that would be paid over a number of years." Additional information about crop insurance can be found in the Purdue Agricultural Economics Report, located online. The September 2001 issue includes an overview, titled "Crop and Revenue Insurance Alternatives." The December 2001 issue contains the article "Protecting Farm Revenues with Pre-harvest Pricing and Insurance." In 2003, Hoosier farmers insured about 7 million crop acres, including 3.6 million acres of corn and nearly 3.3 million acres of soybeans. About 67 percent of the state's corn and 56 percent of the soybean acres were covered by crop insurance. Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu Source: George Patrick, (765) 494-4241, gpatrick@purdue.edu Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu Related Web site:
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