CROP INSURANCE UPDATE

Dwight Aakre, Farm Management SpecialistSource: Doug Hagel, RMA Billings Regional Office

COMMON CROP INSURANCE (COMBO) POLICY

For 2011 Crop Year

Source: RMA

Source: RMA

YIELD & REVENUE POLICIES COMBINED

• Yield Protection or Revenue Protection is available for the following crops for 2011:

- Corn - Wheat- Cotton - Grain Sorghum- Rice - Soybean- Canola/Rapeseed - Barley- Sunflower - Malting Barley

• These crops with Commodity Exchange price discovery make up a significant portion of the Federal crop insurance program

Source: RMA

SUMMARY OF BUSINESS

Crops with Commodity Exchange price discovery

All Other

Total Liability = $89.9 billionMost Affected Crops = $65.8 billion

Source: RMA

PRICE DISCOVERYCOMMODITY EXCHANGE PRICE PROVISION

Crop Insured Exchange Used

CommodityUsed

Contract Month

Projected Price Avg Daily Close

Harvest Price1

Avg Daily Close

Barley CBOT Corn September February2 July2

Canola ICE Canola November February3 September3

Corn CBOT Corn December February October

Soybeans CBOT Soybeans November February October

Sunflower CBOT Soy Oil December February4 October4

Spring Wheat

MGE HRSW September February August

Durum5

1) Harvest price has upper limit of two times projected price2) Multiplied by factor determined by RMA3) Quotes in Canadian dollars per metric ton are converted to U.S. dollars per pound4) Divide each settlement price by two and add one cent5) Same as spring wheat but multiplied by a factor determined by RMA

REVENUE PROTECTION

Revenue Protection

Guarantee based on the higher of the projected or harvest price (similar to CRC or RA with Harvest Price Option)

Revenue Protection with Harvest Price Exclusion

Guarantee based on the projected price only (similar to RA without Harvest Price Option)

Source: RMA

YIELD PROTECTION

Yield Protection plan of insurance replaces “APH” plan for crops with Commodity Exchange price discovery

Uses Projected Price from Commodity Exchange price discovery NOT an RMA established price election.

Therefore, insured price for Yield Protection plans will be same as projected price for the Revenue Protection plans

• Better prices for yield based insurance?

In the past, projected prices for revenue insurance were often higher than RMA established APH prices.

ACREAGE THAT QUALIFIES FOR PREVENTED PLANTING COVERAGE

POLICY LANGUAGE

The Common Crop Insurance Policy in Section 9 defines insurable acreage as having been planted and harvested or insured (including insured acreage that was prevented from being planted) in at least one of the three previous crop years.

Section 17 states a prevented planting payment may be made to you for eligible acreage if you are prevented from planting the insured crop on insurable acreage by an insured cause of loss.

Section 17 also states that prevented planting coverage will not be provided for any acreage that exceeds the number of eligible acres physically available for planting.

PROCEDURAL LANGUAGE

Prevented planting handbook addresses acreage eligible for prevented planting coverage. Meets policy definition of insurable acreage; Be available for planting – available for planting means land

is free of trees, rocky outcroppings, or other factors that would prevent proper and timely preparation of the seedbed for planting and harvest of the crop for the crop year.

Acreage that in normal weather patterns is normally wet throughout the final and late planting period and that would only be available to plant in abnormally dry conditions is not eligible for prevented planting coverage.

11

PROCEDURAL LANGUAGE

Acreage not considered available for planting includes, but is not limited to, the following: Acreage enrolled in CRP; Perennial crop acreage (i.e., trees or vines visibly on the

acreage); Acreage where pasture or forage is in place; Acreage that has or recently had marsh vegetation; Acreage that has any other condition that would

prevent the proper and timely planting of the crop when weather and other conditions are normal for the area in which the acreage is located.

FINAL AGENCY DETERMINATIONS (FADS)

FAD-110 addresses acreage which in normal weather patterns is wet throughout the final and late planting periods, and would be acreage only available to plant in abnormally dry conditions. Limits prevented planting acreage to acreage that is

physically available for planting and specifically addresses the meaning.

States losses of the insured commodity must be due to drought, flood, or other natural disaster. Normal weather conditions are not a covered cause of loss.

13

PREVENTED PLANTING COVERAGE PERIOD

The following slides provide an example of the prevented planting timeframe for multiple weather events.

INSURED AND AIP RESPONSIBILITIES

It is the policyholder’s responsibility to prove the prevented planting loss was due to an insured cause of loss.

Procedures require the Approved Insurance Provider (AIP) to verify that an insured cause of loss prevented planting.

It is also the policyholder’s responsibility to prove acreage is available for planting.

The AIP verifies that the acreage is eligible for prevented planting coverage.

RMA’S EXAMPLE LANGUAGEIn accordance with section 17(f)(8) of the Basic Provisions, “physically available for planting” means land is free of trees, rocky outcroppings, or other factors that would prevent proper and timely preparation of the seedbed for planting and harvest of the crop for the crop year. Additionally, acreage not considered physically available for planting includes, but is not limited to, the following:

1. Acreage enrolled in CRP;2. Perennial crop acreage (i.e., trees or vines visibly on the acreage or not removed from the

acreage in a proper or timely manner to allow for planting a crop for the crop year);3. Acreage where pasture, rangeland or forage is in place (Refer to section 17(f)(6) of the Basic

Provisions for what constitutes established pasture, rangeland or forage acreage that is in place);

4. Acreage that has or recently had marsh vegetation (e.g., cattails, bulrushes, and pondweeds), coarse emergent plants, or submerged aquatics;

5. Any acreage not planted and harvested in at least one of the three most recent crop years, using recognized good farming practices, unless such acreage was planted to an insured crop that was damaged by an insured cause of loss and appraised for purposes of a claim under the Federal crop insurance program; or

6. Acreage that has any other condition, as determined by us, that would prevent the proper and timely planting of the crop when weather and other conditions are normal for the area in which the acreage is located. For example, acreage that is normally (e.g. more often than not) too wet to plant in the spring may be dry enough to till or plant and even insure a crop in the fall. Such acreage would not be available for planting a spring crop even though such acreage may have been tilled, planted and/or insured the previous fall.

20

MAXIMUM PREVENTED PLANTED ACRES

Maximum number of acres certified for APH purposes in one of the four most recent years less the number of acres that are timely and late planted

MINIMUM ACRES ELIGIBLE

Prevented planting coverage will not be provided for any acreage that does not constitute at least 20 acres or 20 percent of the insurable crop acreage in the unit; whichever is less

INELIGIBLE PREVENTED PLANTING ACRES

Prevented planting coverage will not be provided for any acreage on which the insured crop is prevented from being planted if: Any crop is planted within or prior to the late

planting period Any volunteer or cover crop is hayed, grazed or

otherwise harvested within or prior to the late planting period

INELIGIBLE PREVENT PLANT

Other than drought conditions, if it is possible for you to plant on or prior to the final planting date when other producers in the area are planting and you fail to plant, no prevented planting payment will be made

PREVENT PLANT AND DROUGHT

Prevent plant is available in drought situations when there is insufficient soil moisture for germination of seed or progress toward crop maturity due to a prolonged period of dry weather

Must be verifiable using information from sources whose business is to record and study the weather

LIMIT ON PREVENTED PLANTING PAYMENT RATES

Payments will be limited to the amount payable for the crop that was actually prevented from being planted, when there are insufficient eligible acres of that crop, but there are remaining eligible acres for a crop with a higher payment amount

ACREAGE COMING OUT OF CRP

If acreage has been adequately prepared for planting the fall before it is insurable

If too wet to plant in the spring it will be eligible for prevented planting

AFTER NOVEMBER 1

Cover crops on prevented planting acres may be hayed or grazed after November 1

PREVENTED PLANTING ELIGIBILITY - SUMMARIZED

First: Is this acreage insurable? Must have been planted and harvested or insured in at least one

of the three previous crop years

Second: Is this acreage eligible for Prevented Planting?

Must not have been prevented planting the two previous crop years

Meets all other prevented planting requirements

Third: Is this acreage normally wet? Acreage that in normal weather patterns is wet throughout the final

and late planting period and would only be available to plant in abnormally dry condition is not eligible

FARM BILL UPDATE

SURE 2008

Signup for 2008 SURE ended Sept. 30, 2010 N.D. payout was $313 million ($118 mil. was do to Stimulus leg.)

Drought in West Drop from high beginning prices (i.e. wheat $11.11, soybean $13.36)

2009 Signup started Jan. 10, 2011. Some payout likely: 2 mil. acre prevent plant & low heat units for row

crops. Payout because of corn? 2010

Maybe some payout because 1.7 mil. acre prevent plant. Not much payout because of good yields & lower beginning prices.

2011 (program is available and funded) 2012 (not available)

Adams$13.6 $4.9

Barnes$24.5$9.9

Benson$17.4$4.5

Billings$7.2$1.5

Bottineau$15.0 $11.1

Bowman$12.9 $5.5

Burke$4.7$3.3

Burleigh$8.3$3.0

Cass$24.4$7.7

Cavalier$17.3$6.6

Pembina$11.7$0.9

Walsh$9.5 $1.6Ramsey

$22.5$5.9

Nelson$11.7$4.8

GrandForks$10.1$1.9

Towner$6.7$1.2

Rolette$5.6$2.4

Pierce$8.3$3.7

Wells$11.6$2.7

Eddy$3.5 $0.8

Foster$9.5 $2.5

Griggs$8.0$2.3

Steele$11.7$4.2

Traill$11.0$3.2

Divide$6.7 $3.2

Williams$29.3$12.1

McKenzie$29.5$9.6

Mountrail$23.9$11.7

Ward$9.8$6.2

McHenry$7.0$3.9

Renville$5.2

$3.9

McLean$43.4$18.8

Sheridan$4.1$2.0

Kidder$5.8$1.9

Stutsman$37.7$12.3

Oliver$9.6 $3.8

Mercer$14.1$5.0

Dunn$33.4$9.1

Stark$50.7$15.1

Morton$23.2$10.1

Hettinger$41.9$16.6

Slope$25.3 $6.0

GoldenValley$8.9$4.2

Grant$9.8$5.5

Sioux$2.1 $0.9

Emmons$12.4$6.2

Logan$10.1 $4.0

McIntosh$8.9 $2.3

LaMoure$27.5 $11.3

Dickey$21.5 $9.6

Ransom$10.4$4.2

Sargent$21.4$8.9

Richland$24.4$8.3

2008 RMA INDEMNITIES PAID AND 2008 SURE BENEFITS PAID (MILLIONS OF DOLLARS)

Red = RMA paid indemnities Blue = 2008 SURE payments to date$848M 30,792 policies sold As of January 1, 2011 -- $312,679,352

SUREALL CROPS SUM:

Higher of APH & CCP yieldx Crop Insurance Pricex Coveragex 115% = SURE GUARANTEE*

*(Guarantee is limited to 90% of higher of APH & CCP Yield x Crop Insurance Price)

Actual Productionx Nat’l Avg Market Price+ 15% of Direct Payments+ Marketing Loan Benefits+ ACRE payments+ CCP payments+ Crop Insur. Indemnities+ Nap payments= Farm Revenue

SURE PAYMENT = 60% OF REVENUE SHORTFALL

CROP INSURANCE COVERAGELEVEL IMPACT ON SURE

CoverageLevel

Insurable Crops115%

NoninsurableCrops120%

50% 57.50% 60.00%

55% 63.25%

65% 74.75%

70% 80.50%

75% 86.25%

80% 90.00%*

85% 90.00%*

*SURE Guarantee is capped at 90 percent of expected Revenue.

Projected ACRE Payments for 2010, North Dakota

2010 2010 USDA 2010 ProjectedBenchmark Price State State Projected Projected Acre

Crop Yield Guarantee Guarantee Yield Price Revenue PaymentWheat 35.3 $ 5.83 $ 205.80 43 $ 5.70 $ 245.10 $ (39.30)Barley 55.0 $ 3.22 $ 177.10 65 $ 3.00 $ 195.00 $ (17.90)Oats 56.0 $ 2.59 $ 145.04 61 $ 2.40 $ 146.40 $ (1.36)Corn 118.0 $ 3.81 $ 449.58 132 $ 5.40 $ 712.80 $(263.22)Sorghum 45.0 $ 3.21 $ 144.45 $ 5.50 $ - n/a Soybeans 32.0 $ 9.78 $ 312.96 34 $ 11.70 $ 397.80 $ (84.84)Dry Peas 1820 $ 0.11 $ 203.66 2030 $ 0.0950 $ 192.85 $ 10.81 Lentils 1160 $ 0.30 $ 351.48 1540 $ 0.2660 $ 409.64 $ (58.16)Large Chickpeas 1450 $ 0.31 $ 453.13 1630 $ 0.3090 $ 503.67 $ (50.55)Small Chickpeas 1320 $ 0.25 $ 326.04 1740 $ 0.2300 $ 400.20 $ (74.16)Sunflower 1413 $ 0.18 $ 260.70 1456 $ 0.2135 $ 310.86 $ (50.16)Canola 1400 $ 0.17 $ 244.30 1720 $ 0.1975 $ 339.70 $ (95.40)Flaxseed 18.0 $ 10.43 $ 187.74 22 $ 12.15 $ 267.30 $ (79.56)Mustard 670 $ 0.37 $ 248.57 $ 0.2250 $ - n/a Safflower 830 $ 0.21 $ 173.89 850 $ 0.2000 $ 170.00 $ 3.88

based on February 9, 2011 report from USDA

Projected ACRE Payments for 2011, North Dakota

Estimated Est. 2011 Ave. 2011 2011 ProjectedBenchmark Price State State Threshold Projected Acre

Crop Yield Guarantee Guarantee Yield Price Revenue PaymentWheat 38.2 $ 5.26 $ 200.93 38.2 $ 8.00 $ 305.60 $(104.67)Barley 59.0 $ 2.81 $ 165.79 59.0 $ 4.00 $ 236.00 $ (70.21)Oats 57.0 $ 2.21 $ 130.54 57.0 $ 3.00 $ 171.00 $ (40.46)Corn 118.3 $ 4.48 $ 494.54 118.3 $ 5.00 $ 591.50 $ (96.96)Sorghum* 45.0 $ 4.36 $ 158.90 45.0 $ 4.50 $ 202.50 n/a Soybeans 31.8 $ 10.65 $ 338.67 31.8 $ 11.50 $ 365.70 $ (27.03)Dry Peas 1890 $ 0.09 $ 183.29 1890.0 $ 0.11 $ 207.90 $ (24.61)Lentils 1200 $ 0.27 $ 320.40 1200.0 $ 0.23 $ 276.00 $ 44.40 Large Chickpeas 1530 $ 0.30 $ 459.00 1530.0 $ 0.30 $ 459.00 $ -Small Chickpeas 1320 $ 0.22 $ 293.44 1320.0 $ 0.24 $ 316.80 $ (23.36)Sunflower 1403 $ 0.18 $ 255.35 1403.0 $ 0.25 $ 350.75 $ (95.40)Canola 1507 $ 0.18 $ 268.73 1507.0 $ 0.22 $ 331.54 $ (62.81)Flaxseed 18.7 $ 10.15 $ 189.81 18.7 $ 11.00 $ 205.70 $ (15.90)Mustard* 670 $ 0.27 $ 223.71 670.0 $ 0.33 $ 223.71 n/a Safflower* 830 $ 0.19 $ 156.50 830.0 $ 0.19 $ 156.50 $ -