What Products Are Available & How Do They Work?

 

Individual Production Guarantees

 

Revenue Guarantees

 

County-Based Guarantees

 

Crop-Hail Coverage

 

 

Individual Production Guarantees

Actual Production History (APH) (The original MPCI plan)

  • It uses an average of your crop production for a minimum of 4 years and a maximum of 10 years.
  • You may qualify to use another’s records if you have they have a share in the crop or if you qualify as a successor-in-interest.
  • If 4 years of production records are not available, we must use variable T-yields. (Transitional yields)  These are in the actuarial documents for each county.
  • If you have kept no production records, you will have to start with an APH of 65% of the T-yield.
    • With one year of records, producer can use 80% of the T-yield.
    • With two years, 90% of the T-yield.
    • With three years, 100% of the T-yield.
    • With four years of production, take the simple average of the four years of production.

Variable T-Yield Example

    • T-yield = 115 Bu./acre
    • No records = 74.75 Bu./acre  (65% x 115)
    • One year = 92 Bu./acre  (80% x 115)
    • Two years = 103.5 Bu./acre  (90% x 115)
    • Three years = 115 Bu./acre

Spring Example (Corn)

    • APH (140) x Level (75%) = Guar./Acre (105) x Price ($2.10) = Covg./Acre ($220.50)
    • Covg./Acre ($220.50) x Acres in Unit (100) = Unit Guarantee ($22,050)

Harvest Example

    • Actual production = 80 Bu./acre (8,000 Bu. Farm Total)
    • Acres = 100
    • Bushel Loss = 2,500 (10,500 Bu. – 8,000 Bu.)
    • Indemnity = $5,250.00 [(10,500 – 8,000) x $2.10]

 

Revenue Guarantees

Crop Revenue Coverage (CRC)

  • Uses APH x Coverage Level x Share% x Market Price derived from Chicago Board of Trade futures
  • Base Price is set in the spring of the year and determines minimum guarantees
  • Harvest Price is set in the fall of the year and determines if a claim is earned and to what amount
  • If Harvest price is HIGHER than the spring price, then guarantee INCREASES to the higher price
  • Corn Spring Price uses a February average of December CBOT daily settlements
  • Soybeans Spring Price uses a February average of October CBOT daily settlements
  • Indemnity is paid if COMBINATION of CBOT Harvest price x harvested yield is less than revenue guarantee set in the spring
  • Works well with forward contracts, and/or futures and options marketing strategies
  • Price cap of $1.50/Bu. applies for Corn; $3/Bu. cap for Soybeans
  • Enterprise Unit is available to save premium, although it reduces the likelihood of a payable loss 

Spring Example (Corn)

    • APH (140) x Level (75%) = Guar./Acre (105) x Price ($2.40) = Covg./Acre ($252)
    • Covg./Acre ($252) x Acres in Unit (100) = Unit Guarantee ($25,200)

Harvest Example (Harvest Price Lower)

    • Actual production  = 80 Bu./acre   (8,000 Bu. Farm Total)
    • Acres = 100
    • Harvest Price = $2.00/Bu.
    • Revenue Loss = $9,200 [$25,200 – (8,000 x $2/Bu. Fall Price)]
    • Indemnity = $9,200 [$25,200 – $16,000]

Harvest Example (Harvest Price Higher)

    • Actual production  = 80 Bu./acre   (8,000 Bu. Farm Total)
    • Acres = 100
    • Harvest Price = $3.00/Bu.
    • Revenue Loss = $7,500 [$31,500 – (8,000 x $3/Bu. Fall Price)]
    • Indemnity = $7,500 [$31,500 – $24,000]

Revenue Assurance with Harvest Price Option (RA-HPO)

RA-HPO works exactly like CRC, except:

  • There are no price caps on the Harvest Price for RA
  • The Harvest Price for Corn is figured during November instead of October
  • You may remove the HPO to save premium, although this exposes you to great price risk
  • Whole-Farm Unit is available to save premium, although it reduces the likelihood of a payable loss

Income Protection (IP)

  • IP offers coverage similar to RA with Enterprise Unit, but without HPO
  • Available only in select crops, states, and counties

 

County-Based Guarantees

Group Risk Plan (GRP)

  • GRP offers coverage based on a percentage of the NASS Expected County Yield
  • GRP offers no coverage for replant or prevented planting
  • GRP is designed for those producers whose yield history tracks with county history
  • GRP does not provide adequate protection against localized perils (flood near rivers, wind damage, hail damage, etc.)
  • GRP is usually not considered as collateral by lenders
  • GRP is not normally recommended as a basis of protection for a grain marketing plan

Group Risk Income Protection with Harvest Revenue Option (GRIP-HRO)

  • GRIP offers coverage based on a percentage of the NASS Expected County Yield x Expected Price
  • GRIP-HRO offers combination of county-yield guarantee and price protection
  • HRO can be removed to save premium; then offers ONLY downside price protection
  • GRIP offers no coverage for replant or prevented planting
  • GRIP is designed for those producers whose yield history tracks with county history
  • GRIP does not provide adequate protection against localized perils (flood near rivers, wind damage, hail damage, etc.)
  • GRIP is usually not considered as collateral by lenders
  • GRIP is not normally recommended as a basis of protection for a grain marketing plan

 

Crop-Hail Coverage

Traditional Dollar-Per-Acre

Crop Hail Insurance provides coverage against loss to growing crops caused by hail.  Depending on the crop insured, a crop hail policy may also provide coverage for loss caused by any of the following perils: fire, lightning, wind (when accompanied by hail or by separate endorsement), vandalism and malicious mischief.  Crops may also be insured while being transported to a first place of storage and in the first non-commercial place of storage.

Companion

Companion hail coverage can be added as an endorsement to a MPCI policy.  This coverage insures against loss from the same perils as a traditional dollar-per-acre policy, but limits the coverage to ½, ⅓, ¼ of the total liability of the crop.  The idea here is to use the MPCI policy as a foundation of your crop coverage, with the deductible covered by a companion hail policy.  This offers an alternative solution to managing your crop risk, and usually offers a way to reduce total premium.

Production

Production hail coverage is a similar in concept to companion hail coverage, and can be added as an endorsement to a MPCI policy.  This coverage insures against loss from the same perils as a traditional dollar-per-acre policy, but limits the coverage to a percentage of the total liability of the crop.  The idea here is to use the MPCI policy as a foundation of your crop coverage, with the deductible covered by a production hail policy.  This offers an alternative solution to managing your crop risk, and usually offers a way to reduce total premium.