Spring 2008

Spring 2008
Insuring
the
Farm
Insurance Knowledge for Local Farmers
Inside This Issue . . .
Crop Insurance Rates
Important Deadlines
Biotech Certification
MPCI Facts
Conflict of Interest
Globalization
Farm Profit/Loss
GRIP Loss Grid
Crop Insurance Rates
The boxes below are rates as of February 20, 2008.
Once again these are estimated rates since Risk
Management Agency (RMA) does not issue final rating
factors until the end of February.
These rates will be pretty close and
the bushel pricing is also as of
today. The rates below are based
on 170 average for corn and 49 for
soybeans. If your ten-year average
for corn or beans is more or less
you will see a difference, but not
much as a 15 bushel yield spread
either side of this figure represent
only about $1.00 per acre
difference.
Some options for this year:
1. If you farm a lot of land in a
single county -- I would consider
a lot of land to be over 5,000 acres -- choose GRIP
and set a budget for the premium per acre you want
to spend. Buy the amount of coverage per acre that
this will buy. The maximum coverage for GRIP this
year will be around $1,319 per acre.
2. If you farm less than 5,000 acres, I would choose one
of the revenue products leaning to CRC. This product
is priced lower than RA. I would choose a decent
level at least 80%.
3. Another option that has been somewhat forgotten
about is to buy guaranteed bushel coverage at the
highest level. One of the biggest features of CRC and
RA was the ability to guarantee price as well as
bushels. If you don‟t think prices will go down or up
significantly and want to save money, this may work
for you. With a guarantee of $4.75 per bushel for corn
and $11.50 for soybeans this is also an option.
4. Use Enterprise Unit Discount for RA or CRC. With
Enterprise Units, all units are thrown together and you
have one basic unit. Loss is determined by the
Corn cost per acre, Lee County
Price APH
Levels
RA,CRC
70%
75%
80%
6.07
8.83
13.27
14.20
20.90
32.04
15.73
25.98
42.62
Yield 170
65%
APH
4.46
CRC
10.42
RA
9.57
4.75
5.29
85%
20.19
50.36
69.38
GRIP Coverage per acre
Prem.
850
29.04
1010
34.51
1150
39.29
1319
45.06
For this Example Biotech Yield Endorsement rates
are 9% lower for RA and 14% for CRC at 85% level.
revenue from all the acres in the county. All your
acres are thrown in as one single unit. The premium
discount is about 30%.
Remember, you can chose
different plans by crop and by
county.
There may be a tendency among
farmers to cut back on crop
insurance this year. With record
prices and coming off two very
good years of crops, it was hard
to make that check out last fall.
However, this crop has the
largest value in history including
the highest input costs.
Any
banker or financial adviser will tell
you to protect your investment.
If you are selling your new crop now and not covering
your sales, you are pretty much picking up a loaded gun,
spinning the chamber and pulling the trigger. The single
bullet inside is the weather. If you calculate premiums
based on current prices and are harvesting an average
175 bushels, the cost per bushel is only .25 for the
maximum CRC coverage.
If you continue to carry GRIP coverage it is still important
to report your yields so that if this program ever goes
away or is changed we don‟t have to go back and rebuild
the data.
Rates are subsidized by the government in varying
amounts at different levels. For example, if you have
75% level CRC, RA or APH the government pays 55%
of the premium. If you have GRIP at the same level, the
government pays 59% of the premium.
Ogle County APH, CRC and RA rates are similar in
price. However the GRIP County yield is 158.0 instead
of 166.3 for Lee County. Ogle County GRIP rates are a
little less.
Soybean cost per acre, Lee County
Yield 49
APH
CRC
RA
65%
3.94
8.38
8.16
Levels
70%
5.62
11.82
12.66
Price APH
CRC, RA
75%
80%
8.63
13.62
18.11
28.71
20.20
32.44
11.50
12.91
85%
21.79
46.46
51.94
GRIP Coverage per acre
Prem.
570
21.16
690
25.62
795
29.52
915
33.97
Important Deadlines
March 15
Changes to crop insurance.
April 30
Last year’s yields must be
reported.
July 15
Report of acres planted.
Dec. 15
Last date to report a claim
for APH and CRC.
Jan. 15
Last date to report a claim
for RA.
Biotech Yield Endorsement
Remember, the Biotech Yield Endorsement Discount is
available. Please be aware of the penalties for noncompliance. Possible voidance of policy if the
planted corn does not pass tests. A certain amount of
planted acreage will be checked.
Below are two
certifications, one from the seed corn dealer and one by
you that has to be signed. This endorsement does not
apply to irrigated corn.
Did you know?
It used to be that Multi-Peril Crop Insurance was an “Allrisk” type of policy. It would pay for pretty much any
damage to your crop but did not cover poor farming
practices. Now it has evolved into a “named peril”
policy.
It will only cover losses caused by the following:
1. Adverse weather conditions.
2. Fire
3. Insects, but not damage due to insufficient or
improper application of pest control measures
4. Plant disease, but not damage due to insufficient
or improper application of disease control
measures
5. Wildlife
6. Volcanic eruption
7. Earthquake
The policy specifically excludes:
1. Negligence or mismanagement
2. Failure to follow recognized good farming practices
3. Failure of water supply due to failure or breakdown
of irrigation equipment (except by fire) or failure to
carry out good irrigation practice where applicable
Who Is Your Agent?
Many farmers insure their crops with the same institution
that lends them money, but is this a good idea or does it
represent a conflict of interest? With GRIP coverage it
does not appear to be a conflict because these losses
are based on county averages issued by NASS. But
with the individual farm specific plans such as
Guaranteed Bushel (APH) or either of the Guaranteed
Revenue (CRC or RA) plans this could represent a
problem. A little background may help.
In the beginning, insurance companies were paid an
Administrative and Operating (AO) fee and the Federal
Government insured the risk. This fee was high enough
for companies to earn a profit by watching their
expenses.
As each year passed, the AO fee was
reduced and the companies were then able to take on
some of the actual risk to try make a profit or loss from
this additional risk. Not long after CRC was introduced
the insurance company that piloted it took on too much
risk and went bankrupt.
With another reduction in the AO fee this year,
companies must take additional risk to make a profit.
How does this relate to a conflict of interest?
Let‟s say, unlike last year, we had a severe drought year
like the Southeast. What happens then? Companies
and adjusters know what agent the customer is insured
with. What if a farmer who is insured with his lending
institution doesn‟t feel he is getting treated fairly on his
claim. Is he going to protest?...probably, but how much?
Does he want to risk higher interest rates especially in a
bad year when money is tight? Since Federal Crop is a
federally subsidized program, the system is set up so
this should not happen. There are appeal processes set
up but who wants to go through that? How many times
have you read about problems that cause the next round
of Senate Investigation?
My point is that since there is no premium difference
between agents/companies why take the chance? Is it
to get that low interest rate? Is this a conflict? You
decide.
Informative Worksheet Enclosed
Enclosed is a worksheet that has some historical
yields along with current estimated numbers. This
information came from the University of Illinois
website. I have this on a Microsoft Office 2000
spreadsheet if anyone is interested. Call me at 815288-2541. I can email it or get it to you on a disc. You
can play a lot of „what-ifs‟ by modifying the numbers.
Who Owns What?
There was an interesting article by in AgNews. Alan
Guebert cited some interesting facts about how global
our economy is getting.
According to USDA estimates, farmers
spent a record $254 BILLION (that‟s 9
zeros) last year to grow our food and fiber.
Those same farmers pocketed a record net
$87.5 billion more in 2007. Congratulations!
Who needs it more than farmers after
coming off many years of LDP‟s and trying
to market grain to get the last few pennies
that could mean the difference between
profit and loss. Besides, most farmers keep
money flowing back into the economy with
equipment purchases, etc.
But where does the money go? Here are a few places.
Deere and Company made a $1.8 billion profit on sales
of $24 billion in 2007. $85 million went to purchase
Insuring the Farm
Is Created by Dave White
Copyright 2008-2010
Nihgbo Benye Tractor and Automobile Manufacturing,
the largest tractor maker in Southern China.
CHS, Inc., formerly know as Cenex Harvest States
Cooperative, had record sales of $17.2 billion
resulting in a record profit of $750 million. Among
other things, they purchased a grain trading office
in Switzerland and increased investment in
domestic petroleum and biofuel businesses.
Some cash was received from a new Japanese
partner, Mitsui & Co, and a current Brazilian
partner, Multigrain AG, to buy 247,000 acres or
386 square miles of Brazilian farmland.
Monsanto had a great 2007. Left for dead by
some five years ago, Monanto saw NET income
increase 44% to $1 billion on sales of $85 billion.
According to Business Week most of this profit will be
spent on perfecting, then marketing new seeds for
American, Indian, Chinese and Brazilian farmers.
Sauk Valley Insurance
Services, Inc.
109 W Sixth Street, Dixon, IL 61021
Jack Swanson
Agency
811 Main Street, Ashton, IL 61006
815-288-2541
815-453-2424
Email Dave White at
[email protected]
Email Dave Herrmann at
[email protected]