Wheat higher crop insurance premiums and 2022 crop insurance decision tool • farmdoc daily
The Decision Tool for Crop Insurance 2022 is now available to quote 2022 wheat policy premiums. In Illinois and much of the Midwest, the deadline for changing wheat policies is September 30. Premiums for wheat will likely be much higher than in 2021 due to a higher projected price and higher volatility.
Decision Tool for Crop Insurance 2022
Wheat tariffs have been published by the Risk Management Agency (RMA), allowing the generation of quotes for wheat. As a result, the Decision Tool for Crop Insurance 2022 has been published policies. At this point, the rates for corn and soybeans have not been released. A revised tool will be available in December when the rates for corn and soybeans become available.
Figure 1 shows the premium quote page of the Decision Tool for Crop Insurance 2022 for wheat policies in Washington County, Illinois. Three panels containing bonuses are given:
- Individual farm level policies are shown in the first panel for COMBO plans: Income Protection (RP), RP with Harvest Price Exclusion (RPhpe) and Yield Protection (YP). These quotes are given for coverage levels ranging from 50% to 85% in five percent increments. Quotes are given for Enterprise, Basic and Optional units.
- Additional and enhanced coverage options (SCO and ECO) are available as add-ons for wheat policies this year. A user can choose between RP, RPhpe and YP products as the underlying product, and the quote will give premiums for the optional SCO and ECO policies.
- County-level products that include Zone Revenue Plan (ARP), ARP with Harvest Price Exclusion (ARPhpe), and Zone Yield Protection (AYP).
At this point, the projected price in 2022 and volatility in 2022 are not known because the discovery period is not over. The projected price will be the average of the September 2022 wheat contract settlement prices traded on the Chicago Mercantile Exchange (CME) for the trading days August 16 through September 14. The ratings in Figure 1 are given for the average from August 16 to August 27. , or $ 7.25 per bushel. The volatility used in Figure 1 is 0.24, the average volatility for August 23-27. The final volatility will be based on the volatilities of the last five trading days from September 8 to 14.
Higher premiums in 2022
The premiums will be much higher in 2022 compared to 2021, mainly because the projected prices and volatilities will be higher in 2022:
- The forecast price for 2021 was $ 5.60 from the likely $ 7.25 level for 2022.
- The volatility for 2021 was 0.15 compared to the likely 0.24 level for 2022.
For RP at 85% coverage level, 2022 settings result in a premium of $ 40.81 per acre compared to a premium of $ 27.73 per acre for 2021 settings, a difference of 13.08 $ per acre (see Table 1). These differences decrease as coverage levels decrease: $ 7.12 per acre for an 80% coverage level, $ 4.16 per acre for a 75% coverage level, and $ 2.90 per acre for an 80% coverage level. 70% coverage (see Table 1).
Farmers may be shocked by the stickers when first viewing premiums, especially if coverage levels of 75% and above were selected last year. While the premiums are higher, this year’s coverage levels will also provide higher guarantees for the same level of coverage and the same return on guarantee. For a farm with a yield of 70 bushels per acre of trend-adjusted Actual Production History (APH), the minimum warranty last year for an 80% coverage level was $ 313 per acre ( 0.80 coverage level x 70 APH yield x $ 5.60). This year, the minimum guarantee for a projected price of $ 7.25 will be $ 406 per acre (0.80 coverage level x APH 70 yield x $ 7.25), which is almost $ 100 more than last year. Farmers can maintain a similar dollar value hedge until 2021 at a lower hedge level.
Farmers looking to combine an agricultural protection layer with a county-level protection layer may want to consider SCO and ECO. For the Washington County case shown in Figure 1, an OCE offering 90% to 86% coverage has a farmer-paid premium of $ 6.16 while a 95% to 86% premium has a projected premium of $ 15.35 per acre. These quotes are at the highest level of protection. Lowering the level of protection will reduce the premium, as well as the payouts when they occur.
An individual could purchase a combination of individual and supplemental income policies with a 90% coverage level for almost $ 24 an acre if the RP coverage level is below 70%. For example, RP 70% plus SCO plus ECO 90% has a total premium of $ 22.17 per acre (see the middle panel in Figure 1). Lowering the protection level to ECO 90% could further reduce the premium. A 90% county guarantee could be of some value in this year of projected high prices.
Premiums for wheat will be much higher in 2022 than in 2021. One reason for these higher premiums is a higher projected price, which will result in higher guarantees in 2022. There are few alternatives to lower premiums other than lower coverage levels.