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March 5, 2003

Online tool puts a premium on crop insurance plans

WEST LAFAYETTE, Ind. – Although they have yet to drop that first seed in the dirt, farmers can protect themselves against potential crop losses. They'll have to hurry to do it, however, said a Purdue University agricultural economist.

George Patrick said farmers have until March 15 to purchase crop insurance for the 2003 season. After a rough 2002 crop year, Patrick said farmers might want to consider taking out a policy. To help choose the insurance plan best suited for them, the University of Illinois and Purdue developed the iFARM Crop Insurance Evaluator and Premium Calculator.

The free Internet-based crop insurance tool is located at http://www.farmdoc.uiuc.edu/cropins/.

"Given the problems we had with weather last year, I think a lot of farmers may be rethinking whether crop insurance has a role in their farm operation," Patrick said.

"Over the last few years, the number of insurance products that are available to a farmer has increased a lot. They can insure just their yield, or they can insure revenue. There are also insurance products that are based on what happens in a county rather than what happens on their individual farm. You couple all that with different levels of coverage, and it can get pretty confusing."

The iFARM Web site demystifies crop insurance decisions with a few mouse clicks and strokes on a computer keyboard. The calculator figures per-acre premiums for crop insurance options at coverage levels of 55 percent and higher, while the evaluator analyzes insurance options for an average farm within a farmer's county.

Among the insurance options analyzed are actual production history (APH), revenue assurance-base price (RA-BP), revenue assurance-harvest price (RA-HP), crop revenue coverage (CRC), group risk plan (GRP) and group risk income plan (GRIP).

"What the Web site does is take the county average yield – the expected yield for the coming year – and look at a farm that has typical farm level yield variability," Patrick said. "The Web site also gives farmers information about how frequently they may collect on the different types of insurance, and how big the indemnity payments may be."

For instance, iFARM calculated per-acre premiums for a typical Tippecanoe County, Ind., corn farmer with 75 percent coverage based on historical yield of 145 bushels per acre. Premiums were $5.80 for the APH option, $6.13 for RA-BP, $8.49 for RA-HP, $9.81 for CRC, $3.36 for GRP and $2.37 for GRIP.

The iFARM site also generates tables showing farmers what they could expect in insurance payouts should crop losses occur.

"Crop insurance is designed to provide some cash flow in those years when yields are low," Patrick said. "This Web site looks at how much revenue would be expected with the different kinds of insurance in the worst year out of 100 and in the worst year out of 20. You can see what impact the crop insurance would have if it were a really bad year or just a bad year.

"The final table looks at what the expected return would be – what is known as the net cost of insurance. It figures that you pay the premium every year but only collect on an infrequent basis. What we're finding in some counties is that the indemnities an individual gets would be larger than the premiums that they would pay over a number of years."

In addition to calculating premiums and evaluating crop insurance products in Indiana, iFARM provides separate links for farmers in Illinois and Iowa.

Yield-based or multiperil and revenue-based crop insurance policies are generally the same in cost, regardless of the company selling them. The policies are reinsured by the Federal Crop Insurance Corp., Patrick said.

Farmers are not required to insure their crops unless they've received federal disaster assistance. Agricultural lenders increasingly are requiring farmers to carry crop insurance, Patrick said.

Additional information about crop insurance can be found in the Purdue Agricultural Economics Report online. The September 2001 issue includes an overview, titled "Crop and Revenue Insurance Alternatives." The December 2001 issue contains the article "Protecting Farm Revenues with Pre-harvest Pricing and Insurance."

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: George Patrick, (765) 494-4241, gpatrick@purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/

Related Web site:
Purdue University Department of Agricultural Economics


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