Crop Insurance for the American Farmer

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Crop Insurance for the American Farmer
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The History of Crop Insurance

• Congress first authorized Federal crop insurance
  in the 1930s to aid in recovery from the Great
  Depression and the Dust Bowl.
• The Federal Crop Insurance Corporation (FCIC) was
  created in 1938 to carry out the program.
• Limited to major crops
• Remained experimental until Federal Crop
  Insurance Act of 1980.

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The History of Crop Insurance

• The 1980 Act expanded the crop insurance program
  to more crops and regions in the country to urge
  greater participation.
• The 1980 Act allowed the private sector to issue
  MPCI policies and to participate under a
  financial partnership program. The government
  continued to compete, selling and servicing their
  existing policies.
• 1980 Act authorized subsidy equal to 30 of the
  crop insurance premium limited to the dollar
  amount at 65 percent coverage.

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The History of Crop Insurance

• Participation Levels still not as desired.
• Units Less Than Entire Farm was introduced A
  UnitThe guarantee is determined by the yield
  from each unit.
• Producers felt that average yields for the county
  did not reflect actual yields from their farms.
  Actual Production History (APH) was introduced.
• Major drought in 1988 lead to ad hoc disaster
  assistance to provide relief to needy farmers.
• Ad Hoc disaster bill in 1989 and again in 1992
  gave farmers option of claiming disaster losses
  on a farm-by-farm basis for any year between
  1990 and 1992.
• Congress passes yet another Ad Hoc disaster bill
  in 1993 due to wet and cool weather.

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The History of Crop Insurance

• The 1994 Act made participation in the crop
  insurance program mandatory to be eligible for
  deficiency payments under specific conditions.
• Catastrophic Coverage (CAT) was created to
  compensate for 50 percent of an average yield
  paid at 60 percent of the price established for
  the crop for that year.
• 50 per crop, per county subject to max fees.

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The History of Crop Insurance

• Program participation increased significantly
  following 1994 Act.
• 1996 A private company submitted and received
  approval from FCIC for the first revenue
  guarantee policy. This policy allowed producers
  to insure their yield and a price per bushel
  determined by averaging one months average price
  from the Chicago Board of Trade (CBOT)
• In 2000, Congress enacted legislation allowing
  private sector to participate in research and
  development of new products. If approved, these
  products could receive reimbursement for
  operating, development and reinsurance.
• The percentage of the units yield was increased
  to two new levels 80 85.

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TWO MAIN CATEGORIES OF CROP INSURANCEIN CURRENT
MARKET

• Group (county) products
• GRPGroup Risk Plan
• GRIPGroup Risk Income Protection
• APH (yield history) products
• MPCIMulti-Peril Crop Insurance (includes CAT)
• CRCCrop Revenue Coverage
• RARevenue Assurance

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ADDITIONAL CATEGORIES OF CROP INSURANCEIN
CURRENT MARKET

• Pasture, Rangeland and Forage (PRF)
• Pilot program available in select states
• Insures against lack of rainfall or vegetation
• Livestock
• Livestock Gross Margin (LGM) Cattle and Swine
• Provides protection against loss of Market Value
  of Cattle minus cost of Feeder Cattle and Feed
  (Gross Margin)
• Does not insure against death or other loss or
  destruction of
• Cattle
• Livestock Risk Protection (LRP) Cattle and
  Lamb
• Provides protection against decrease in price
• Does not insure against death or other loss or
  destruction of
• Cattle

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Premium Subsidy Schedule
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GROUP RISK PLAN - GRP

• Insures against widespread losses that effect the
• County yield as determined by National
  Agricultural
• Statistics Service (NASS).
• This plan does not insure for your individual
  crop
• losses, it only pays you if the whole Counties
  crop
• does poorly.

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GROUP RISK INCOME PROTECTION (GRIP)

• Insures for widespread losses in the County yield
  as
• determined by NASS, and also protects against
  losses
• due to large drops in market prices.
• This plan does not insure your individual crop
  losses, it
• only pays you if the counties expected yield
  does
• poorly, or if the grain market does poorly, or a
• combination of these two risks.

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APH (yield history) products

• This program insures against natural
• disasters including

• Frost
• Insects
• Disease
• Price

• Drought
• Excessive Moisture
• Hail
• Wind

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MPCIMulti-Peril Crop Insurance (includes CAT)

• Actual Production History (APH)
• These policies insure producers against yield
  losses due to natural causes. Farmer chooses
  percent of yield and predicted price he wants to
  insure. If harvest is less than the yield
  insured, the farmer is paid an indemnity based on
  the difference.

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Revenue Insurance Plans

• Why was CRC needed by producers and lenders?
• How was the need for CRC determined?
• Initial proposal was to cover down-side risk
  only.
• Producers unanimously supported both up-side and
  down-side price protection.
• Producers can deliver a copy of their insurance
  policy to lenders as evidence of a revenue
  guarantee.

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What if?
Harvest Price and Harvest Yield go down?
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What if?
Harvest Price goes up, Harvest Yields goes down?
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Revenue vs. APH
Harvest Price stays the same, Harvest Yield goes
down?
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Revenue vs. APH
Harvest Price goes up, Harvest Yield goes down?
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Revenue Insurance Plans

• Revenue Assurance (RA)
• Insures for losses in yield based on your APH
  history by unit. Also insures against commodity
  price changes by increasing revenue guarantees
  when prices rise, or by raising bushel guarantees
  when prices drop. This plan also covers prevented
  planting, replanting, and grain quality losses.
• Producer agrees to accept the base guarantee for
  the crop even if prices rise at harvest.
• Allows for the collateralization of operating
  loans

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Revenue Insurance Plans

• Crop Revenue Coverage (CRC)
• Spring market price (SMP) will be based on the
  February average of the December CBOT corn
  contract
• Harvest market price (HMP) will be based on the
  October average of the December CBOT corn
  contract
• Prices and guarantees are determined by unit.
• Farmers paid on the higher of
  SMP x APH or HMP x APH (APH
  their actual production history)
• CRC has HMP movement limits 1.50 on Corn and
  3.00 on Soybeans

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2006 Program Statistics

• 20 Crop Insurance Plans
• 49 Billion Liability
• 242 Million Acres
• 360 Commodities

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2006 Program Statistics
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2006 Program Statistics
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2006 Program Statistics