If you are planning on planting wheat this fall you will want to evaluate crop insurance on your wheat crop. The deadline to take out crop insurance for wheat is fast approaching. A colleague from University of Missouri Extension- David Reinbott, Ag Business Specialist in Benton, MO put the following information together on wheat crop insurance. For the most part, it is applicable for Tennessee. Please look it over. The deadline to sign up for crop insurance for wheat is September 30.  With the potential of lower commodity prices next summer, a farmer should take a close look at the revenue based crop insurance products Revenue Protection (RP) and Revenue Protection with Harvest Price Exclusion (RP-HPE).     

Revenue Protection (RP) is based on the Actual Production History or (APH), harvest yield, insurable prices, and the insurance coverage levels.  The insurable price is based on the higher of the average September Chicago futures prices during the price discovery periods.  For wheat, the fall discovery price period is from August 15 through September 14, and the harvest price period is the month of July.   The coverage levels are from 50 to 85% in 5% increments.  The Revenue Guarantee equals the insurable price times the APH yield times the level of coverage chosen.   

At harvest, the Actual Revenue is calculated by taking the actual crop yield times the average September futures price in the month of July.   

If the Actual Revenue is less than the Revenue Guarantee an indemnity payment is made. 

Revenue Protection with Harvest Price Exclusion (RP-HPE) is the same as RP except it does not include the option to use the July or harvest price to calculate the Revenue Guarantee.  This means you do not have the opportunity to raise the Revenue Guaranteeif the harvest price is higher than the fall price.  A good reason why RP should be chosen over RP-HPE is this year’s corn and soybean crop with yields down but harvest prices up. 

For 2013 wheat, the August 15 through September 14 price was established at $8.57 per bushel.   This is $0.37 per bushel more than last year. 

A minimum Revenue Guarantee based on a 75% RP coverage level at 60 bushel APH yield, and $8.57 projected price is $386 per acre (75% coverage level X 60 bushel APH X $8.57 projected price).  Based on my preliminary wheat budgets for 2013, this would guarantee a $119 per acre return over the variable costs and $8 for total costs.  

How the tracts of land in a county are combined or separated into insurance units is another important decision. 

Enterprise Units have the lowest premiums because it combines all the acres of a single crop within a county in which a policyholder has an interest into single unit.  This is done regardless of whether they are owned, rented or how many landowners are involved.

Basic Units divide the acres into units based on owned and cash rented as one unit and crop rent by landowner into additional units. 

Optional Units take the Basic Units one additional step and divide the units based on township sections in the county. 

The following examples using RP with enterprise units should help you better understand how crop insurance works under different price and yield scenarios. 

1. The wheat APH yield is 60 bushels per acre.  The actual harvest yield is 50 bushels per acre and the September futures price averaged $6.00 in the month of July. At the 75% coverage level the indemnity payment would be $86 per acre and at the 80% coverage level the indemnity payment would be $111 per acre. 

2. The wheat APH yield is 60 bushels per acre.  The actual harvest yield is 70 bushels per acre and the September futures price averaged $6.00 in the month of July. At the 75% coverage level the indemnity payment would be $0 per acre and at the 80% coverage level the indemnity payment would be $0 per acre. 

In this example, the price dropped $2.57/bushel but the yield was 10 bushels above the APH of 60.  The increase in yield made up for the drop in revenue from the lower price. The Actual Revenue is greater than the Revenue Guarantee so no indemnity payment is made. 

3. The wheat APH yield is 60 bushels per acre.  The actual harvest yield is 40 bushels per acre and the September futures price averaged $10.00 in the month of July. At the 75% coverage level the indemnity payment would be $50 per acre and at the 80% coverage level the indemnity payment would be $80 per acre. 

In this example, the price increased $1.43/bushel but the harvested yield was 20 bushels less than the APH of 60.  This resulted in the Actual Revenue to be less than the Revenue Guarantee and an indemnity payment is made. If the farmer had chosen RP-HPE (without the harvest price option), there will be no indemnity payment at the 75% coverage level, and only an $11 per acre payment at the 80% coverage level.

The premiums will vary depending upon the county, risk ratings, buy ups for preventive plantings, hail, and etc.  An approximate premium cost for enterprise units for RP at the 75% coverage level is $16/acre and $22/acre at 80% coverage level plus or minus $2 – $4. 

For detail information on crop insurance products including premiums, contact your crop insurance agent.

Crop Insurance links

David Reinbott’s spreadsheet –

http://extension.missouri.edu/seregion/spreadsheet.htm

University Illinois Crop Insurance Web Site

Iowa State University Crop Insurance Web Site

USDA Risk Management Agency (RMA)