October 9, 2023
CALCULATING POTENTIAL 2023 CROP INSURANCE PAYMENTS
Based on early yield reports from many areas of the Upper Midwest, it is likely that a significant number of corn and soybean producers may qualify for crop insurance indemnity payments in 2023. The lack of rainfall and drought conditions during much of the growing season, together with the price declines from the crop insurance base prices on March 1, increases the likelihood of 2023 crop insurance indemnity payments. Given the much tighter breakeven margins in corn and soybean production in 2023, farmers and ag lenders are now trying to estimate the amount potential crop insurance indemnity payments that may occur following harvest this year.
With Federal Crop Insurance, every year is different, and with the multiple options available to producers, there are many variable results from crop insurance coverage at harvest time. The 2023 crop year will be no different, with some producers choosing Yield Protection (YP) policies (yield only) versus Revenue Protection (RP) policies (yield and price), and producers having different levels of coverage on various crops. Producers also vary on having “optional units” versus “enterprise units” for their crop insurance coverage. In addition, some producers also have enhanced insurance coverage through private insurance companies, or through the “Supplemental Crop Option” (SCO) and Enhanced Coverage Option (ECO) policies that were available in 2023.
In the Midwest, most corn and soybean producers in recent years have tended to secure some level of revenue protection (RP) crop insurance coverage, in order to have the flexibility of insurance coverage for reduced yields, as well as in instances where the harvest price drops below initial base price. The established base prices for 2023 RP crop insurance policies were $5.91 per bushel for corn and $13.76 per bushel for soybeans. These base prices will serve as the final price to calculate revenue guarantees for determining potential RP crop insurance indemnity payments for corn and soybeans in 2023.
The final harvest price for RP insurance policies is based on the average CBOT December corn futures and CBOT November soybean futures during the month of October, with prices finalized on November 1, 2023. The harvest price is used to calculate the value of the actual harvested bushels for all RP insurance policies. As of October 9, the crop insurance CBOT price estimates were $4.90 per bushel for December corn futures and $12.76 per bushel for November soybean futures, which are well below the spring base prices.
The lower crop insurance harvest prices greatly increase the likelihood of crop payments for Upper Midwest corn and soybean producers that have 80% and 85% RP insurance policies for 2023. Based on current CBOT December corn price projections, 2023 indemnity payments for corn could begin at final yields that are slightly above the 2023 APH yields for farmers with 85% RP insurance policies. For example, with an 85% RP policy on corn with a 200 bushel per acre APH yield and a $4.90 per bushel harvest price, 2023 crop insurance indemnity payments would begin at a yield below 205 bushels per acre. If the harvest price increases to $5.10 per bushel, the payments would begin at a yield below 197 bushels per acre. For soybeans with an 85% RP policy and a 60 bushel per acre APH and a $12.76 per bushel harvest price, crop insurance payments would begin at 55 bushels per acre or approximately 92 percent of the APH yield.
Farmers had the option of choosing RP crop insurance coverage levels from 60% to 85% for corn and soybeans. in 2023. Many Midwest corn and soybean producers utilize “enterprise units” for their crop insurance coverage, which combines all acres of a crop in a given county into one crop insurance unit, rather than choosing “optional units” that allow producers to insure crops separately in each township section. The level of insurance coverage and the type of crop insurance units that were selected will greatly affect the potential crop insurance indemnity payments for 2023.
Simple Method to Estimate Potential 2023 Crop Insurance Payments
Many farmers and ag lenders would like to estimate potential 2023 crop insurance indemnity payments. One simple method to estimate potential insurance payments is to calculate the estimated 2023 “threshold yield” for crop insurance payments to begin for corn and soybeans with Revenue Protection (RP) crop insurance policies. If the final farm yield is lower than the “threshold yield”, there is potential for 2023 crop insurance indemnity payments, depending on the final harvest price for corn or soybeans.
Following is the formula to calculate the “threshold yield” at different APH yields and levels of insurance coverage, as well as the potential gross insurance indemnity payment:
Multiply the APH yield on a farm times the crop insurance spring price times the crop insurance coverage level to get the crop insurance guarantee, and then divide by the estimated fall harvest price to arrive at the “threshold yield” where RP crop insurance payments are initiated. (The spring prices were $5.91 per bushel for corn and $13.76 per bushel for soybeans.)
Following that calculation, subtract the actual farm yield from the “threshold yield” and multiply the difference times the projected harvest price to arrive at the estimated gross crop insurance indemnity payment. Be sure to account for the differences in “enterprise” and “optional” units. Remember that this is just an estimate of gross payments, and that this calculation does not account for deductions for crop insurance premium payments. The calculation will vary as the estimated crop insurance harvest prices change from day-to-day. Harvest prices will be finalized on November 1, 2023. The estimated crop insurance harvest prices are available on the RMA website at: https://prodwebnlb.rma.usda.gov/apps/PriceDiscovery.
Following are examples of calculations for crop insurance payment estimates for corn and soybeans:
Corn (85% RP Policy; 190 APH; 185 bu./A farm yield; projected harvest price of $4.90/bu.)
190bu./A APH x $5.91/bu. x .85 = $954.47 guarantee divided by $4.90/bu. = 194.79 bu./A. “threshold yield”. 194.79 bu./A. – 185 bu./A = 9.79 bu./A x $4.90/bu. = $47.98/A. est. insurance indemnity payment
Soybeans (85% RP Policy; 55 APH; 45 bu./A farm yield; projected harvest price of $12.76/bu.)
55bu./A APH x $13.76/bu. x .85 = $643.28 guarantee divided by $12.76/bu. = 50.42 bu./A. “threshold yield”.
50.42 bu./A. – 45 bu./A = 5.42 bu./A x $12.76//bu. = $69.16/A. est. crop insurance indemnity payment
Producers that have crop revenue losses in 2023, which could result in potential crop insurance indemnity payments, should properly document the yield losses, regardless of their type or level of insurance coverage. A reputable crop insurance agent is the best source of information to make estimates for potential 2023 crop insurance indemnity payments, and to find out about documentation requirements for crop insurance losses. It is important for producers who are facing crop losses in 2023 to understand their crop insurance coverage and the calculations used to determine crop insurance indemnity payments.
Kent Thiesse has prepared an Information Sheet titled “2023 Crop Insurance Payment Potential”, as well as a spreadsheet to estimate potential 2023 crop insurance indemnity payments. Both are available by contacting: kent.thiesse@minnstarbank.com. The University of Illinois FarmDoc web site also contains some good crop insurance information and spreadsheets to estimate crop insurance payments. The FarmDoc web site is located at: https://farmdoc.illinois.edu/crop–insurance.
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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/