As most Nebraska producers recall, February was the month in which the corn and soybean prices used for crop insurance coverage were determined. USDA’S Risk Management Agency must establish a price per bushel prior to insurance sign-up, and for corn and soybeans RMA uses the February averages of harvest-time futures prices. These average prices are now set, and producers and their insurance agents can finish crop insurance sign-up now before the sales deadline of March 15.
For corn, the February average closing price of the December 2013 corn futures contract was $5.65 per bushel, 3 cents below last year’s price of $5.68. For soybeans, the February average closing price of the November 2013 soybean futures contract was $12.87, about 32 cents higher than the 2012 price of $12.55.
A price volatility measure is also needed to establish the premiums for revenue coverage. Because revenue coverage protects insured producers from price declines as well as yield losses, an indicator of price variability is needed to estimate the risk of changing prices (and hence, greater insurance pay-out). A higher volatility measure indicates higher price risk, and hence a higher premium.
For both corn and soybeans, the price volatility factor was determined using the last five daily prices in February. For corn in 2013, the price volatility factor was 0.20, slightly lower than 2012’s factor of 0.22. For soybeans, the 2013 price volatility factor was 0.17, compared to last year’s value of 0.18. Slightly lower price volatility factors should have a cheapening effect on this year’s premiums .
One issue facing producers in this year’s sign-up is the effect of last year’s poor yields on their average yields. Crop insurance utilizes a producer’s historical yields to help determine a producer’s yield potential for future coverage. This yield history, called the Actual Production History, or APH, goes back from four to ten years, and the current year’s coverage is based on the simple average of these records.
Naturally, adding in a low yield for 2012 will drag down a producer’s APH average for 2013 coverage. But RMA provides one rule, called the yield cup rule, which may help offset this drag. This yield cup rule limits a producer’s APH average from falling more than 10 percent from one year to the next. For example, the yield cup rule means a corn producer with a 2012 average yield of 140 bushels per acre would not have their 2013 APH average decline more than 10 percent, or 14 bushels per acre. Thus, if adding a low 2012 yield pulled their average yield below 126 bushels per acre, the yield cup rule could come into effect. Producers who think they may be helped by this rule should check with their insurance agent to see if they qualify.
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Premiums in 2013 should be fairly close to those from a year ago, in spite of the big losses experienced in 2012. Premium rates for crop insurance are set to reflect insurance gains and losses over many years, and a bad year every several years is expected. Going back 20 years or so, Nebraska’s overall loss experience has actually been relatively good. Nebraska producers may actually expect slightly lower rates for corn and soybeans in 2013. The overall premium amount reflects these rates, the crop prices, and the guaranteed yields.
Again, the sales closing date for crop insurance is March 15, so be in touch with your crop insurance agent to get signed up if you plan to insure this year. Another important date is the initial planting date, the earliest day a producer may begin planting if their insurance is to be effective. RMA sets initial dates because it views planting prior to those dates to increase the risk of crop loss from freeze, cold weather, or other risks.
For corn, the initial planting date in eastern, central, and southwest Nebraska is April 10. For north-central and Panhandle counties, the initial corn planting date is April 15. For soybeans, April 25 is the initial planting date for all counties in Nebraska where federal crop insurance is available for soybeans.