Crop Insurance Changes For 2012

Farmers will encounter two pleasant changes when they renew their crop insurance policies for 2012—trend adjusted APH yield and lower premiums.

Published on: Dec 30, 2011

Farmers will experience two pleasant changes when they renew their crop insurance policies for 2012. They'll have a chance to adjust their production histories to reflect current yield potentials. And, they'll see an overall reduction in premiums or cost for the insurance.

Federally subsidized crop insurance indemnity payments on 2011 crops are well on their way to breaking 2008's record payouts of $8.6 billion. One reason for the big payouts is relatively high 2011-crop futures prices a year ago set high spring revenue guarantees for revenue products. Indemnity payments farmers are now receiving on 2011 crops represent what would have been a lot of lost revenue.

Crop insurance sign-up deadline for 2012 is March 15

While crop prices have retreated from highs set in August, they remain at lofty levels. With a March 15 deadline looming for farmers to buy crop insurance for spring-planted crops, many will want to push a pencil on projected revenue guarantees on their 2012 crops.

Some marketing experts are predicting lower corn and soybean prices in 2012. Suppose bumper 2012 crops do let prices drift lower into harvest. Buying insurance products that base indemnity payments on planting time prices could be wise. "Buying up to higher levels of coverage may be a strong consideration, especially for corn and soybean producers," says Jan Eliassen, a consultant who works in risk management education for the crop insurance industry, USDA's Risk Management Agency and some state departments of agriculture.

Thirteen Iowa crops share the March 15 deadline: corn, wheat, oats, forage seeding, sweetcorn, popcorn, dry beans, grain sorghum, hybrid seed corn, green peas, soybeans, potatoes and barley. For more information on crop insurance choices in your area, contact a crop insurance agent well before the deadline.

Other changes for 2012 include trend-adjusted APH yields

"Farmers will encounter two pleasant changes when they renew their crop insurance policies for 2012," says William Edwards, an Iowa State University Extension ag economist. "They'll have a chance to adjust their production histories to reflect current yield potentials. Also, they'll see an overall reduction in premiums."

Many farmers have felt the 10-year average actual production history or APH yields used to determine multiple peril crop insurance guarantees did not accurately reflect their current yield potential due to improved crop genetics and practices introduced in recent years. A new feature called the trend-adjusted APH will address this concern.

"Trend-adjusted APH has been approved for both corn and soybeans in most of the Corn Belt, including all counties in Iowa," says Edwards. "Basically, a trend-adjustment factor has been estimated for each county. This factor is equal to the estimated annual increase in yield."

How the trend-adjusted APH yield can benefit farmers

Edwards provides the following example, for an insurance unit with 10 years of yield history for corn and an average yield of 163 bushels per acre. Assume the trend adjustment factor in the county where the unit is located is 2 bushels per acre per year.

So 2 bushels are added to each yield for every year since it was recorded. Adjustments range from 2 bushels per acre for the immediate past year to 20 bushels for a yield that was recorded 10 years ago. The adjusted APH yield is now the average of the adjusted fields, 174 bu. per acre, instead of the unadjusted average of 163 bushels per acre. That 174 bu. yield will be used to calculate the unit's crop insurance guarantee in 2012. Maximum adjusted average yield is equal to the highest yield in the years of yield history for the unit, plus the annual trend adjustment.

The trend adjusted APH is available for either yield protection policies, at all levels of guarantee except catastrophic or CAT coverage (50% yield guarantee). Group policies, such as GRP and GRIP, have used trend adjusted county yields since they were introduced and that procedure won't change.

Premium rates lowered for crop insurance policies in 2012

A study of historical crop insurance payments has concluded that loss payments in the Midwest have been decreasing in recent years, and a general reduction in premium rates is justified.

Changes in technology and weather trends are responsible for lower loss ratios, notes Edwards. Thus, USDA's Risk Management Agency says 2012 rates in Iowa will be 13% lower for corn and 9% lower for soybeans, on average. Adjustments will vary by county. Rates for other crops are being studied and possible adjustments will be made in 2013.

Biotech discount for planting certain hybrids has ended

Four years ago, the Federal Crop Insurance Corporation started a pilot project called the Biotechnology Endorsement. It provided a reduction in crop insurance premiums to farmers who planted certain approved corn hybrids. Generally, hybrids with traits that made them resistant to certain insects and glyphosate herbicides were deemed to be less likely to suffer a yield loss.

Farmers had to plant at least 75% of their corn acreage on the insurance unit to the approved hybrids to qualify for the discount. Now, the pilot project has ended, and the FCIC has determined that the approve hybrids are now prevalent enough in the states that were included in the project that it is no longer necessary to maintain a separate premium schedule for them.

Also, note that the biotech discount has ended. The Federal Crop Insurance Corporation Board has determined that the approved corn hybrids which qualified for the discount when the program started four years ago are now prevalent enough in states that were included in the project that it is no longer necessary to maintain a separate premium schedule for them.

Summing up: The deadline to buy federal crop insurance in Iowa is March 15. Relatively high planting time prices for 2012 crops can boost revenue guarantees provided by crop revenue insurance. Your crop insurance agent can provide you with more details to make the best decisions for your farming operation regarding crop insurance coverage.

For farm management information and analysis, go to ISU’s Ag Decision Maker site www.extension.iastate.edu/agdm and ISU Extension farm management specialist Steve Johnson’s site www.extension.iastate.edu/polk/farmmanagement.htm.