Multiple Peril Crop Multiple Peril Crop Insurance (MPCI)Insurance (MPCI)

Actual Production Actual Production History (APH)—Yield History (APH)—Yield

InsuranceInsurance APH yield is average of past 10 years.APH yield is average of past 10 years. Can insure from 50% to 85% of APH Can insure from 50% to 85% of APH USDA projects a market price each USDA projects a market price each

year, called the year, called the indemnity priceindemnity price. .

If actual yield is below the guarantee, If actual yield is below the guarantee, farmer is paid for the lost bushels, at farmer is paid for the lost bushels, at the indemnity price.the indemnity price.

APH Example--APH Example--CornCorn APH yieldAPH yield 148 bu/acre148 bu/acre

Yield level chosenYield level chosen 75%75% Yield guaranteeYield guarantee 111 bu/acre111 bu/acre Indemnity priceIndemnity price $2.50$2.50 Actual yieldActual yield 91 bu/acre91 bu/acre Yield lossYield loss 111 - 91 = 20 bu 111 - 91 = 20 bu Indemnity payment 20 x $2.50=$50Indemnity payment 20 x $2.50=$50

Crop RevenueCrop Revenue Insurance InsuranceGuarantees Guarantees gross revenuegross revenue per per

acre instead of bushelsacre instead of bushelsExpected gross revenue =Expected gross revenue =

(APH yield x Feb. futures price)(APH yield x Feb. futures price)Can insure 50% to 85% of thisCan insure 50% to 85% of this

Revenue Insurance Revenue Insurance ExampleExample

APH yieldAPH yield 148 148 bu/acrebu/acre

Feb. futures priceFeb. futures price $3.00$3.00Coverage level chosenCoverage level chosen75%75%Revenue guaranteeRevenue guarantee

148 bu. x $3.00 x 75%148 bu. x $3.00 x 75%= $333= $333

Revenue Insurance Revenue Insurance ExampleExample

Actual yieldActual yield 150 150 bu/acrebu/acre

Oct. futures priceOct. futures price $2.00$2.00Actual revenue Actual revenue

$2.00 x 150 = $300$2.00 x 150 = $300 Indemnity paymentIndemnity payment

$333 - 300 = $33 / acre$333 - 300 = $33 / acre

Increasing Increasing Coverage PoliciesCoverage Policies

Some revenue insurance Some revenue insurance policies increase the revenue policies increase the revenue guarantee if prices rise from guarantee if prices rise from February to OctoberFebruary to October

Use the higher of the Feb. Use the higher of the Feb. price or Oct. priceprice or Oct. price

ExampleExample Initial guarantee Initial guarantee 148 bu. x $3.00 x 75% = $333148 bu. x $3.00 x 75% = $333 Oct. futures priceOct. futures price $3.40 (goes up)$3.40 (goes up) New guarantee:New guarantee: 148 bu. x $3.40 x 75% = $377148 bu. x $3.40 x 75% = $377

Actual yieldActual yield 91bu.91bu. Actual revenueActual revenue 91 bu x $3.40 = $30991 bu x $3.40 = $309 Indemnity paymentIndemnity payment $377 – 309 = $68 $377 – 309 = $68

(20 bu. @ $3.40)(20 bu. @ $3.40)

Increasing Increasing Coverage Revenue Coverage Revenue

InsuranceInsurance Good for farmers who want to Good for farmers who want to forward price their cropforward price their crop

Protects against having to buy extra Protects against having to buy extra bushels to fill contract at a high bushels to fill contract at a high priceprice

Protects livestock feeders against Protects livestock feeders against having to buy extra feedhaving to buy extra feed

Pays farmers for “lost” bushels, but Pays farmers for “lost” bushels, but at the fall futures priceat the fall futures price

Crop InsuranceCrop Insurance Iowa Iowa

Yield19%

Revenue68%

None13%

YieldRevenueNone

Level of CoverageLevel of Coverage ““Catastrophic” insurance has a Catastrophic” insurance has a

guarantee based on 50% of the guarantee based on 50% of the proven APH yield. $100 per proven APH yield. $100 per crop.crop.

Higher guarantees can be up to Higher guarantees can be up to 85% of APH yield or revenue.85% of APH yield or revenue.

Level of Guarantee Level of Guarantee (Iowa)(Iowa)

0

5

10

15

20

25

30

35%

50 65 70 75 80 85

%

CornSoybeans

Group Risk InsuranceGroup Risk InsuranceBased on County Average Based on County Average

YieldsYields Yields: Group Risk Protection Yields: Group Risk Protection (GRP)(GRP) Revenue: Group Risk Income Protection Revenue: Group Risk Income Protection

(GRIP)(GRIP) If the county average yield is low, all If the county average yield is low, all

farmers get paid, regardless of farm farmers get paid, regardless of farm yieldsyields

More risky, but less expensive More risky, but less expensive

Hail InsuranceHail InsuranceAdded on to policyAdded on to policyCan insure up to 100% of Can insure up to 100% of expected yieldexpected yield

Indemnity payment Indemnity payment based on appraised based on appraised damagedamage

Other Production Other Production Risk ToolsRisk Tools

Crop diversificationCrop diversificationPesticidesPesticidesResistant seedsResistant seedsIrrigationIrrigationCrop share leasesCrop share leasesLivestock health programsLivestock health programs