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Veteran Advisor

Crop Insurance....what I am not getting?

OK. I keep reading that if you have RA crop ins you are locking in a high income.  Just for the sake of discussion, let use 180 bushel proven yield.  Spring price 6.01.  Buy 80% RA.  Locks in a min. yield of 144 if harvest price is below 6.01. ($865 per acre)

 

BUT,  let say this farm raises exactly 144 bushel per acre.  The farmer doesn't price any grain, the market crashes and he ends up selling the 144 bushels per acre at $3.  (I know, but in this case the bad yields just hit a small area)or he presold last summer for much lower price.  The farmer nets $432 per acre and nothing more, correct?  Crop insurance does not cover poor marketing, correct?  Am I missing something here? 

 

My point, is that crop insurance does not necessarily guarantee that price.  Crop insurance does change the fact that you have to still do a good job marketing.  You have to sell that 144 bushel for 6.01 or greater to lock in that floor. 

 

 

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10 Replies
Senior Contributor

Re: Crop Insurance....what I am not getting?

Your insurable yield of 144 goes up the same percentage that the price goes down.

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Honored Advisor

Re: Crop Insurance....what I am not getting?

Jec22, if you have a revenue assurance crop insurance (I forget the new name) the price is set in October  and if that price would hypothetically be $3/bu you`d get a fat insurance check to make up the difference from the $6.01 spring price. 

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Veteran Advisor

Re: Crop Insurance....what I am not getting?

with RA you are guaranteed a minimum of $6.01.  so if the harvest price is $3.00, insurance will pay the difference ($6.01-$3.00= $3.01 times the  144 bu.    Voila, $433.44 is added to the $432 sale price so your total per acre is $865.44

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Highlighted
Veteran Advisor

Re: Crop Insurance....what I am not getting?

But, if the harvest price is 601, but the farmer waits until January to market the grain the market crashes to 3...or if he presold last summer for 3 -4 bucks.....

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Honored Advisor

Re: Crop Insurance....what I am not getting?

The only price the insurance co would be a part of is that October price.  You said $6.01? just like the spring price? That`s all insurance cares about, if you sell for less in Jan, tuff cookies.  Conversely if you have and take the opportunity to sell for $10/bu in july, price drops to $3 in Oct ...Merry Christmas! You get a big ins. check with your big selling price.

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Senior Contributor

Re: Crop Insurance....what I am not getting?

Just for clarification your downside price coverage will end in oct.

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Advisor

Re: Crop Insurance....what I am not getting?

..Isn't it rather a mute point?..I thought sign-up for crop insurance was over on March 15 th???

 

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Veteran Advisor

Re: Crop Insurance....what I am not getting?

Long way around, but this is my point.  New crop around here has not hit $6 cash yet.  So any presold corn for this year is below the insurance rate of 6.01.  Those bushels sold are already dropping the insurance guaranteed price in terms of net to the farmer in my example..  Now that may still be the best price the market offers this year,  and a smart marketing move.  But my point is, crop insurance doesn't change the fact that the bottom line is still marketing the crop, not the insurance. 

 

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Senior Contributor

Re: Crop Insurance....what I am not getting?

I think everybody will agree about the marketing point. There are pros an cons about being in a wie basis area. The con is the one you listed about not being able yet to sell corn at $6. One of the pros is if you don't sell any corn and get 0 bu/a you'll get 6.00 even though you have a wide basis. Another is if there is ashort crop everywhere and say corn goes to $10.00 in Oct. most likely the basis would widen out even more, but you would still get 10.00 for the bushels that  are below your yield guarantee.

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