Managing Field Crop Risk

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• Managing Field Crop Risk
• with Crop Insurance

Jayson K. Harper Professor of agricultural
economics Department of Agricultural Economics
and Rural Sociology The Pennsylvania State
University Penn State is committed to
affirmative action, equal opportunity, and the
diversity of its workforce
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Types of Agricultural Risks

• Production
• Marketing
• Financial
• Legal
• Human resource
• Environmental

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Risk Management Strategies

• 1) Retain
• 2) Shift
• 3) Reduce
• 4) Self-insure
• 5) Avoid

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Yield Risk Sources and Solutions

• Sources
• ? Adverse weather
• ? Pest damage
• Solutions
• Pest management practices
• Site selection
• Variety/hybrid selection
• Rotation/diversification
• Irrigation
• Crop insurance

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Multi-Peril Crop Insurance (MPCI)

• Causes of losses covered
• drought
• excess rain
• excess wind
• fire
• freeze
• hail

• tornado
• earthquake
• insects
• disease
• wildlife
• failure of irrigation supply

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Crops covered by MPCI in Pennsylvania

• apples (43)
• barley (54)
• processing beans (10)
• cabbage (1)
• corn (grain and silage) (66)
• forage production (29)
• forage seedling (13)
• grain sorghum (57)
• grapes (1)
• green peas (10)
• nursery (67)

• oats (66)
• peaches (23)
• potatoes (10)
• soybeans (49)
• fresh-mkt. sweet corn (67)
• processing sweet corn (12)
• tobacco (3)
• fresh-market tomatoes (4)
• processing tomatoes (12)
• wheat (57)
• winter squash (2)

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Crop Insurance Program Basics

• 1) Determine actual production history (APH)
  yield
• minimum of 4 successive years of records
• maximum of 10 successive years of records (5
  years for tree fruits)
• lt4 years of records ? T-yields
• Transitional yields vary by county and production
  practices
• 0 years of records 65 of county T-yield
• 1 year of records 80 of county T-yield
• 2 years of records 90 of county T-yield
• 3 years of records 100 of county T-yield

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Figuring Your APH Yield (corn grain example)
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Crop Insurance Program Basics

• 2) Select desired coverage level
• 50, 55, 60, 65, 70, or 75 of APH yield
• 80 and 85 coverage levels available for corn and
  soybeans in some counties
• 50 for catastrophic (CAT) coverage
• 3) Select desired price election
• Up to 100 of indemnity price
• 55 for catastrophic (CAT) coverage

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Crop insurance calculations

• Yield guarantee APH coverage level
• Premium/acre yield guarantee premium rate
  price election
• Notes
• CAT program has a 100/crop/county administrative
  fee.
• MPCI has a 30/crop administrative fee.
• These fees have been paid by the Commonwealth of
  Pennsylvania since 2000.

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Crop insurance calculations

• If actual yield is less than the yield guarantee
• Loss payment (yield guarantee actual
  production) price election
• If actual yield is equal to or greater than the
  yield guarantee
• Loss payment 0

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Other types of policies

• Crop Revenue Coverage (CRC)--provides revenue
  protection based on price and yield expectations
  by paying for losses below the guarantee at the
  higher of an early-season price or the harvest
  price.
• Available in 66 counties for corn and 49 counties
  for soybeans
• Not available as CAT coverage

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Other types of policies

• Indexed Income Protection (IIP)--protects
  producers against reductions in gross income when
  either a crop's price or yield declines from
  early-season expectations.
• Available in 66 counties for corn
• IIP can be purchased at the CAT level

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Other types of policies

• Dollar Planprovides protection against declining
  value from damage that causes a yield loss.
  Losses are paid when the value of the crops is
  less than the amount of insurance.
• Available in 66 counties for fresh-market sweet
  corn maximum amount of insurance 758 (279
  CAT)
• Available in 13 counties for forage seeding
  maximum amount of insurance 155 (57 CAT)

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Other types of policies

• Group Risk Plan (GRP) a county-based insurance
  product
• If county yields are lower than selected coverage
  level, then the farmer receives a loss payment
• Uses National Agricultural Statistics Service
  data adjusted for a yield trend to establish
  county yields

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GRP Availability in PA

• Forage Production (29)
• Adams, Armstrong, Bedford, Berks, Bradford,
  Butler, Centre, Chester, Clarion, Crawford,
  Cumberland, Erie, Fayette, Franklin, Greene,
  Huntingdon, Indiana, Jefferson, Lancaster,
  Lycoming, Mercer, Perry, Somerset, Susquehanna,
  Tioga, Washington, Wayne, Westmoreland, and York

• Corn (13)
• Adams, Berks, Chester, Columbia, Cumberland,
  Dauphin, Franklin, Lancaster, Lehigh,
  Northampton, Northumberland, Schuylkill, and York

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Other types of policies

• Adjusted Gross Revenue (AGR)--insures the revenue
  of the entire farm rather than an individual crop
  by guaranteeing a percentage of average gross
  farm revenue, including up to 35 livestock
  revenue. Uses information from a producer's
  Schedule F tax forms to calculate the policy
  revenue guarantee. Maximum liability is 6.5
  million.

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Pennsylvania AGR Counties

• Authorized in 2000
• Berks Co.
• Carbon Co.
• Lackawanna Co.
• Lehigh Co.
• Monroe Co.
• Northampton Co.

• Added for 2003
• Crawford Co.
• Columbia Co.
• Erie Co.
• Fayette Co.
• Lancaster Co.
• Schuylkill Co.
• Westmoreland Co.
• York Co.

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Other types of policies

• AGR-Lite--insures the revenue of the entire farm
  rather than individual crops by guaranteeing a
  percentage of average gross farm revenue. All
  farm raised crops, animals, and animal products
  are eligible for coverage. Uses information from
  a producer's Schedule F tax forms to calculate
  the policy revenue guarantee. Limited to a
  maximum liability of 250,000 per farm.

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Should I buy crop insurance?

• Yield variability
• Cash flow requirements
• Self insurance
• CAT coverage
• Premium discounts for higher levels of coverage

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Sales closing dates

• JANUARY 31-- AGR insurance
• MARCH 15-- spring seeded crops
• MAY 31 nursery crops
• JULY 31-- forage seedings
• SEPTEMBER 30-- fall seeded crops
• NOVEMBER 20-- fruit crops
• NOVEMBER 30-- GRP insurance
• For more information, visit the
• Penn State Crop Insurance Education Web Site
• http//cropins.aers.psu.edu