Farmers who decided last spring to buy the Revenue Protection, or RP, type of crop insurance for 2012 and who chose to take the harvest price option will receive $7.50 per bushel for corn and $15.39 per bushel for soybeans. On November 1 USDA's Risk Management Agency released these final harvest prices. These prices are the average December corn futures price during the month of October and the average for the November soybean futures price during October.
Farmers who elected to buy the less expensive, non-harvest price coverage with their RP policy (the less expensive version is called Revenue Protection with Harvest Price Exclusion, or RP-HPE) may not receive any indemnity payments. "That is because with the RP-HPE policy their guaranteed revenue is based on the average February futures prices times their APH yield times the level of guarantee selected," explains William Edwards, Iowa State University Extension ag economist. The February price is called the "spring projected price" for crop insurance purposes. The APH yield is the actual production history yield.
Takes a fairly large bushel loss to trigger indemnity payment with RP-HPE type of crop insurance policy
For farmers with the RP-HPE type of crop insurance policy, the "actual" revenue (for crop insurance purposes) is their actual yield times the average October futures price. Edwards says since prices increased from February to October, it would take an actual corn yield at least 25% below the APH yield times the guarantee elected by the farmer, and an actual soybean yield at least 19% below the APH yield times the guarantee selected, to trigger an indemnity payment.
The indemnity payments under a RP-HPE policy will depend on the actual gross revenue or harvest price times actual yield. So it takes a fairly large bushel loss to trigger a payment under the RP-HPE type of policy, notes Edwards.
In Iowa, over 90% of all insured corn acres as well as over 90% of insured soybean acres are covered by Revenue Protection or RP insurance with the harvest price option. Most farmers elected to choose the fall harvest price option instead of using the spring projected price.
Higher grain prices during the harvest period reflect summer 2012 drought
The other type of crop insurance is a Yield Protection policy. Farmers who chose to insure their crops with a YP policy may also receive a yield indemnity payment for yield loss but the loss will be paid at the February price level, which is $5.68 per bushel for corn and $12.55 per bushel for soybeans.
The higher harvest prices announced by RMA on November 1 reflect the increase in cash prices for corn and soybeans which has occurred since March as the historic drought this summer reduced the size of the 2012 U.S. corn crop as much as 4 billion bushels compared to early projections.
These harvest prices are the final piece of information needed to determine crop insurance indemnity payments farmers will get for revenue protection crop policies in 2012, says Steve Johnson, an ISU Extension farm management specialist. Farmers will be receiving their crop insurance checks sometime in the next few months. The timing as to exactly when you will receive your indemnity payment is determined largely by when you provide your yield information to your crop insurance agent. "If you haven't done that yet, do it as soon as possible," Johnson advises.
Crop insurance agents are very busy these days, but be sure to ask questions
Whenever the harvest price that's determined in October is higher than the projected spring price set during February, an insured farmer can collect an indemnity payment reflecting the harvest price. "2012 is a unique year in that we have extremely high harvest prices that will create much larger indemnity payments," says Johnson. "Anyone who has RP coverage in 2012 should be working with their crop insurance agent regarding harvest prices and collecting their indemnity payment."
Now that you know what the fall harvest prices are for crop insurance purposes, what should you do next? Hopefully, insured farmers have already submitted their final crop insurance yield on all the insured farms to their crop insurance agent, says Johnson. Once that is done, the indemnity payments can be calculated so you and your agent will be able to proceed with the claims process.
It's time to determine final 2012 crop indemnity payments farmers will receive
A reminder: Anyone who has over $200,000 in loss per crop per county in 2012 will be subject to an APH review of their actual production history yields all the way back to the 2009 crop. "Again, it is important to work with your crop insurance agent," emphasizes Johnson. "They are very busy these days but be sure to ask questions if you are unsure of something. And make sure your premiums are paid for the 2012 crop. Those payments were due October 31 without penalty."
Now it's time to determine what the final indemnity payments will be for crop insurance, sums up Johnson. With the fall harvest price for corn at $7.50 and soybeans at $15.39 as announced by USDA's Risk Management Agency, those indemnity payments for 2012 look pretty big.
That brings up another timely point. Crop insurance income is taxable in the year received. You can defer a check received in 2012 to the year 2013 but you have to provide proof you normally don't sell more than half your crop in that year, says Johnson. A lot of farmers are going to get their crop insurance indemnity check either in December or likely in January or February. "The main point now is to be working with your crop insurance agent," he adds. "If you have tax questions, contact your income tax preparer."
For farm management information and analysis go to ISU's Ag Decision Maker site and Extension farm management specialist Steve Johnson's site.