The Impact of Asian Soybean Rust on the 2004 Crop Insurance Decision

1
The Impact of Asian Soybean Rust on the 2004 Crop
Insurance Decision

• Ray Massey
• University of Missouri
• Commercial Ag Program

2
RMA official statement on Rust and Insurance
Payments

• losses to soybean production due to soybean rust
  disease is an insurable cause of loss provided
  the insured can verify that the cause was natural
  and available control measures were properly
  applied.
• It will be critical for RMA and insurance
  providers to monitor when outbreaks are detected
  in an area to determine if an insured could have
  applied recommended fungicides in a timely manner
  and did not.

3
RMA official statement on Rust and Insurance
Payments

• Producers are responsible to keep informed of
  soybean rust outbreaks in their area. RMA expects
  producers to take recommended measures to control
  or prevent the disease impact if an outbreak is
  anticipated or already in the area.
• Document all prevention and remediation attempts.

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Crop Insurance Alternatives Yield Insurance

• Actual Production History (APH)
• Also called Multiple Peril Crop Insurance (MPCI)
• Catastrophic (CAT)
• Buy-up
• Group Risk Plan (GRP)

5
Crop Insurance Alternatives Revenue Insurance

• Group Risk Income Plan (GRIP)
• Revenue Assurance Base Price (RA-BP)
• Revenue Assurance Harvest Price
• Option (RA-HPO)
• Crop Revenue Coverage (CRC)

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Actual Production History (APH)

• Pays an indemnity when your yield is lower than
  the insured yield level.
• Farmer chooses
• percent of historical yield to insure,
• Percent of government price option that will be
  paid if an indemnity is paid.
• Catastrophic is 50 yield, 55 price election.
  100 subsidized.

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Group Risk Plan (GRP)

• Pays an indemnity when your countys yield is
  lower than the countys insured yield level.
• Does not insure your individual production.
• Farmer chooses
• Yield election 70-90 of expected
• Protection level 60-90 of maximum.
• Does not equal commodity price

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Group Risk Income Plan (GRIP)

• Pays an indemnity when your countys revenue is
  lower than the revenue guarantee.
• Does not insure your individual production or
  revenue.
• Farmer chooses
• Coverage level 70-90 of expected revenue
• Protection level

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Revenue Assurance Base Price Option

• Pays an indemnity when your actual revenue is
  less than your guaranteed revenue.
• Actual revenue is your actual yield times the
  harvest price.
• Guaranteed revenue is percent of historical yield
  insured times planting time price.
• Farmer chooses revenue coverage level
• Based on historical yields

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Crop Revenue CoverageRevenue Assurance Harvest
Price Option

• Pays an indemnity when your actual revenue is
  less than your guaranteed revenue.
• Actual revenue is your actual yield times the
  harvest time price.
• Guaranteed revenue is percent of historical yield
  insured times the higher of planting time price
  or harvest time price.
• Allows you to benefit from price increases during
  the growing season.
• Farmer chooses revenue coverage level
• Based on historical yields

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MO Soybeans Acres Planted in 2003
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MO Soybeans Acres Insured in 2003
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Farmer Loss Ratio
Farmer Loss Ratio Indemnity/(Premium-Subsidy) Da
ta from 1999-2003 RMA http//www3.rma.usda.gov/app
s/sob/stateCrop.cfm
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Crop Insurance Choices with Soybean Rust Risk

• What products will offer better protection in the
  treat of Asian Soybean Rust?

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Actual Production History (APH)

• 2005 Premiums will not take into account the
  increased risk associated with Rust. Cost/Unit of
  protection is more affordable.
• If you purchased APH in the past, it should be as
  good or better of protection than it has been.
• Discuss with your insurance professional
  appropriate yield and price elections. Changes
  may be appropriate.

16
Group Risk Plan (GRP)

• GRP premiums are usually lower than other
  insurance plans.
• Historical loss ratio of GRP-buyup is above 1 in
  MO.
• Good investment potential.
• GRP-CAT has never paid
• If you believe that any Rust infestation is
  likely to affect the whole county and its average
  yield, GRP-buyup becomes more desirable.

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Group Risk Income Plan (GRIP)

• We have no experience with the usefulness of GRIP
  in MO
• IF
• you believe that any Rust infestation is likely
  to affect the whole county and its average yield,
  and
• you believe that Rust will affect US prices for
  soybeans, and
• your farm yields track with county yields,
• THEN GRIP may be an appropriate crop insurance
  tool.

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Revenue Insurance

• If you believe Rust will be severe enough to
  raise US harvest time prices, CRC and RA-HPO
  becomes more desirable
• Note that CRC and RA-HPO use CBT prices rather
  than local prices local price movements could
  create problems.
• RA-BP will not cover any price increases that
  might occur from Rust reducing national supply.

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The Impact of Asian Soybean Rust on the 2004 Crop
Insurance Decision

• Ray Massey
• University of Missouri
• Commercial Ag Program