There are two basic types of coverage - Yield Protection (YP) with a fixed price - or Revenue Protection (RP) which also protects bushel prices. Both plans have the same base or minimum bushel price which is derived directly from averaging the February close of harvest contracts on the CBOT. There are private company plans which allow for supplemental pricing using different months to “hopefully” set a higher base price – we haven’t found any of those that we’d recommend.
YP - This is strictly a yield guarantee. Either plan is based on your own average production - your Actual Production History (APH) - and it guarantees you a selected percentage of that yield. For example, if you averaged 130 bu/a APH, and you selected 70% YP coverage, you’d be guaranteed 91 bushels per acre and be paid a loss on any production yielding below that guarantee. For 2020, the bushel price for corn was $3.88 . With YP you’d be guaranteed 70% of the 130 or 91 bu. and be paid the $3.88 for anything short of the 91 bushels – no matter where the markets prices end.
RP (with Harvest Option)- This is actually a dollar policy rather than just a yield guarantee. It does not guarantee you a market price for your crops! But it does have a lot of value in the mechanics of how it works. You still have to market the grain, but RP will guarantee that you have bushels to fill a contract – you’ll either grow them or be paid 100% of CBOT prices at harvest! You have the same base or minimum price as set for YP. But, they then take your APH times that base price, and give you a minimum value per acre. Same example, with 91 bu/A. guaranteed, and using a $3.88 base price, you’d be guaranteed a minimum income of $ 353.08 per acre. Strange year that we’ve had, the harvest price from the October average of the Dec corn closes was $3.99 per bushel. No change in premium ,but your “liability” automatically increased in this situation to $3.63.09 per acre. Look at beans – 2020 is a great example. Base price from February was $9.17 – harvest it ran up to $ 10.55 per bushel. If you opted to forward contract all your guaranteed beans when prices got to $10.00 in early November, and then didn’t grow that many beans, the policy will pay you that much per bushel on your shortage. Not a perfect plan, but far better than getting just the base price of $9.17. The revenue plan automatically takes care of a lot of problems – and the premium difference has been very minimal for that increased options it afford. Bankers are especially fond of the concept – RP has a higher premium than YP, but usually is a far better plan.
Enterprise Units (EU) - A wrinkle that “muddies the waters” is this election of unit structure for your coverage. EU is not a new concept, but starting in 2009, there has been a significant extra premium subsidy applied to EU. Maybe a little over-simplified, but this extra subsidy reduces the premium to around 1/3 the cost of the same coverage with optional or separate units. After years of recommending that we separate coverage as much as possible, the savings have been too much to ignore - you have to consider EU. Talk with your agent!
From a perspective of actual insurance coverage, we like the EU – for the same premium dollars, you can cover and guarantee far more bushels than with any other structure! If you are looking to try and generate income from crop insurance, move on!! It shouldn’t and doesn’t work that way. EU lumps all of your share of the crop together for loss purposes, and isolated losses from some of your farms may not pay a loss with EU, but,…… at the end of the day you can guarantee more bushels of your crops, and “insure” your continued operation. The same premium dollars with EU will buy 10-15% more coverage than the other basic or OU structure. It’s insurance – and like most insurance, it’s only as good as your agent.
We will admit EU is not fair to smaller operators – it’s sometimes harder for them to meet the requirement to qualify for EU. You must be eligible for at least two separate sub-units to qualify for the subsidy (premium reduction) . Depending on the county you’ll need at least 20% of your crop or 20 acres of it planted in tat least wo different sections and/or FSA farm numbers. This qualification is something you need to clarify with your agent well before planting – you can elect the EU option by sales closing date (15 March) and have it added to your policy, but at acreage reporting time, if the planted acres don’t meet these 20/20 rules, you’ll end up with a bill for the far more expensive basic or optional unit coverage!! Again, with a lot of acres qualifying may not be as much of an issue, but the premium dollars are well worth understanding these 20/20 rules and how they apply to your operation.
We should mention that these rules also carry over to Prevented Planting - with the ugly spring weather we get in this part of the world, PP is certainly not un-common. PP is a very valuable part of the policy - obviously more so for some areas and operations than others. One factor you should remember is that to get the cheaper EU rates on all of your PP acres, you still must plant enough to qualify for EU. We had instances where farmer only mudded in 20 acres on one farm out of an intended 600 acres “before the end of the late planting period”. He didn’t qualify for EU - his PP claim amount was not affected, but his premium billing was basically tripled!
