FOCUS ON AG
February 7, 2022
2022 CROP INSURANCE DECISIONS
The deadline for farm operators to purchase crop insurance for the 2022 growing season is March 15. The 2022 Spring prices for corn and soybean are likely to be near or above the highest base price levels in the past decade which will enhance the available crop insurance guarantees for 2022 compared to recent years. However, due to the higher insurance guarantees, premium costs are also likely to be higher than a year ago for similar crop insurance products. Producers have several crop insurance policy options to choose from, including yield protection (YP) policies and revenue protection (RP and RPE) policies, supplemental crop option (SCO), enhanced coverage option (ECO), and other private insurance policy options.
In recent years, most farm operators have chosen revenue protection (RP) insurance policy options, which provide a guaranteed minimum dollars of gross revenue per acre (yield x Spring price). This minimum guarantee is based on yield (APH) history on a farm unit times the Spring (base) price, which is the average of the CBOT prices during the month of February for December corn futures and November soybean futures. As of February 7, the 2022 estimated crop insurance Spring prices in the Upper Midwest for YP, RP, and RPE policies were estimated at $5.73 per bushel for corn and $13.90 per bushel for soybeans. The 2021 crop insurance Spring prices will be finalized on March 1. The current 2022 base price estimates compare to 2021 base prices of $4.58 per bushel for corn and $11.87 per bushel for soybeans. The final crop revenue for 2022 will be the actual yield on a farm unit times the final crop insurance harvest price, which is the average CBOT prices in the month of October for December corn futures and November soybean futures.
Another insurance option that is a lower premium than a typical RP policy with harvest price protection is a RPE (harvest price exclusion) policy, which functions similarly to a standard RP policy except that the guarantees on RPE policies are fixed at the base price level and are not affected by harvest prices that exceed the base price. The revenue guarantee for standard RP policies is increased for final insurance calculations, if average CBOT prices during the month of October are higher than the February CBOT prices, which is what occurred for corn and soybeans in both 2020 and 2021. Producers may purchase RP and RPE insurance coverage levels from 50% to 85%, and losses are paid if the final crop revenue falls below the revenue guarantee.
A historical analysis for the past fourteen years (2007-2021) shows that the final crop insurance harvest price for corn has been lower than the Spring base price in ten of the fifteen years, including from 2013-2019. That trend was reversed in 2020 when the harvest price for corn was $3.99 per bushel, which was $.11 above the Spring price. This occurred again in 2021 when the Spring price was $4.58 per bushel, compared to a harvest price of $5.37 per bushel which was an increase of $.79 per bushel. The only other years that saw an increase in the harvest price were 2010, 2011 and 2012. The range has been from an increase in the harvest price of +$1.82 per bushel in 2012 to a decline of ($1.27) per bushel in 2008 and ($1.26) per bushel in 2013.
For soybeans, the harvest price has increased in seven years (2007, 2009, 2010, 2012, 2016, 2020 and 2021), decreased in seven years (2008, 2011, and 2014-2019) and stayed the same in 2013. The range has been from an increase of +$2.84 per bushel in 2012 to a decline of ($3.00) per bushel in 2008. In 2021, the final harvest price was $12.30 per bushel, which was an increase of +$.43 per bushel from the Spring price of $11.87 per bushel.
Many producers in the Upper Midwest have been able to significantly enhance their insurance protection in recent years by utilizing the trend-adjusted yield (TA-APH) endorsement, with only slightly higher premium costs. The APH yield exclusion (YE) option allows specific years with low production to be dropped from crop insurance APH yield guarantee calculations. For information on which counties, crops, and years are eligible for YE, go the RMA web site.
SCO and ECO Insurance Coverage
The Supplemental Coverage Option (SCO) coverage is only available to producers that choose the Price Loss Coverage (PLC) farm program option for the 2022 crop year. The deadline for 2022 farm program sign-up is March 15, 2022, which is the same as the enrollment deadline for 2022 crop insurance. As a result, farm operators will need to consider SCO insurance coverage at the same time that they are finalizing their 2022farm program choice. The federal government subsidizes 65% of the premium for SCO coverage, so farm-level premiums are quite reasonable, which may make SCO a viable option for producers that choose the PLC farm program option.
SCO allows producers to purchase additional county-level crop insurance coverage up to a maximum of 86 percent coverage. For example, a producer that purchases an 80% RP policy could purchase an additional 6% SCO coverage. SCO is a county revenue-based insurance product that is somewhat similar to some of the area risk protection crop insurance products that are available. The calculations for SCO function very similarly to RP insurance policies, since they utilize the same crop insurance base price and harvest price. The biggest difference is that SCO uses county level average yields, rather than the farm-level APH yields that are typically used for most RP and YP policies. As a result, the SCO and RP insurance policies may achieve different results.
The Enhanced Coverage Option (ECO) was a new crop insurance option in 2021 that will again be available for 2022. ECO provides area-based insurance coverage from 86 percent up to 95 percent coverage, utilizing county yields similar to SCO coverage. Producers can choose between 90 or 95 percent ECO coverage. Unlike SCO coverage, the purchase of ECO coverage is available with selection of either the PLC or ARC-CO farm program choice for 2021. Producers can utilize both ECO and SCO together, in addition to their underlying RP, RPE, or YP insurance policy.
It is possible for a producer to collect on an individual RP policy, but not collect on a SCO or ECO policy, or vice versa. For example, a producer with an 80% RP policy may have a loss that qualifies for an insurance indemnity payment on a farm unit, while the county as a whole may not meet the threshold to qualify for a SCO or ECO payment. It could also be possible to collect a SCO or ECO payment for a county-level revenue loss, while not qualifying for a RP insurance indemnity payment at the farm-level. Interested producers should check with their crop insurance agent for details on SCO and ECO insurance coverage and premiums for 2022.
“Bottom-Line” on Crop Insurance Decisions
Given the likely higher crop insurance Spring base prices for both corn and soybeans, most producers should be able to provide a very desirable level of risk protection for corn and soybean production in 2022. At current Spring price levels, many producers will be able to guarantee near $700.00 to over $900.00 per acre for corn, and near $500.00 to over $700.00 per acre for soybeans by utilizing 85% RP insurance coverage level in 2022. Producers can further enhance their revenue guarantees through “buy-up” crop insurance coverage and “wind” and “hail” endorsements offered by private insurance companies, or through the purchase of SCO or ECO insurance coverage. Sometimes crop insurance decisions can be more difficult in years such as 2022 with increased Spring base prices and insurance guarantees but also with higher crop insurance premium costs.
A reputable crop insurance agent is the best source of information to find out more details about the various crop insurance products that are offered, to get premium quotes, and to help finalize 2022 crop insurance decisions. To receive a free copy of an information sheet titled: “2022 Crop Insurance Decisions”, written by Kent Thiesse, Farm Management Analyst, please forward an e-mail to: kent.thiesse@minnstarbank.com.
Following are some web sites with very good crop insurance information:
> USDA Risk Management Agency (RMA) : http://www.rma.usda.gov/
> University of Illinois FarmDoc : http://www.farmdoc.illinois.edu/cropins/index.as
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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960)
E-mail — kent.thiesse@minnstarbank.com) Web Site — http://www.minnstarbank.com/