Study Predicts Higher Crop Insurance Premiums in 2007

According to a University of Illinois study, revenue crop insurance could be over 40% higher than in 2006.

Published on: Jan 26, 2007

Revenue crop insurance products' premiums will be at least 40% higher in 2007 than in 2006, a University of Illinois Extension study says. Revenue products' coverage offered will also be much higher than previous years, however, says the study's author, U of I farm financial management specialist Gary Schnitkey.

Schnitkey says base prices are likely to be much higher in 2007. Base prices, which are used to set guarantees in revenue crop insurance products, are set by the average daily settlement prices during February Chicago Board of Trade contracts - the December contract for corn and the November contract for soybeans.

"On many farms, it will be possible to insure revenues at levels assuring profits, a situation that occurs rarely when using crop insurance," Schnitkey says.

"In 2006, base prices were $2.59 for corn and $6.18 for soybeans," says Schnitkey. "At the time this report was prepared, the respective futures contracts were trading in the high $3 range for corn and in the mid-to-high $7 range for soybeans. It is likely that 2007 base prices for both corn and soybeans will be more than $1 higher than 2006 levels.

"Higher base prices will result in higher guarantees for revenue products, a positive for farmers purchasing insurance. However, higher prices will result in higher insurance premiums, a negative for individuals purchasing insurance."

The study, called "Higher Prices and Crop Insurance: A Double-Edged Sword," is available at http://www.farmdoc.uiuc.edu/manage/newsletters/fefo07_02/fefo07_02.html.  

Source: University of Illinois release