# Presentation: 737379

## Crop Insurance for the American Farmer

## Congress first authorized Federal crop insurance in the 1930’s to aid in recovery from the Great Depression and the Dust Bowl.
The Federal Crop Insurance Corporation (FCIC) was created in 1938 to carry out the program.
Limited to major crops
Remained experimental until Federal Crop Insurance Act of 1980.

- The Federal Crop Insurance Corporation (FCIC) was created in 1938 to carry out the program.
- Limited to major crops
- Remained experimental until Federal Crop Insurance Act of 1980.

- The History of Crop Insurance

## The 1980 Act expanded the crop insurance program to more crops and regions in the country to urge greater participation.
The 1980 Act allowed the private sector to issue MPCI policies and to participate under a financial partnership program.  The government continued to compete, selling and servicing their existing policies.
1980 Act authorized subsidy equal to 30% of the crop insurance premium limited to the dollar amount at 65 percent coverage.

- The 1980 Act allowed the private sector to issue MPCI policies and to participate under a financial partnership program.  The government continued to compete, selling and servicing their existing policies.
- 1980 Act authorized subsidy equal to 30% of the crop insurance premium limited to the dollar amount at 65 percent coverage.

- The History of Crop Insurance

## Participation Levels still not as desired.
Units Less Than Entire Farm was introduced – A UnitThe guarantee is determined by the yield from each unit.
Producers felt that average yields for the county did not reflect actual yields from their farms.  Actual Production History (APH) was introduced.
Major drought in 1988  lead to ad hoc disaster assistance to provide relief to needy farmers.
Ad Hoc disaster bill in 1989 and again in 1992 gave farmers option of claiming disaster losses on a  farm-by-farm basis for any year between 1990 and 1992.
Congress passes yet another Ad Hoc disaster bill in 1993 due to wet and cool weather.

- Units Less Than Entire Farm was introduced – A UnitThe guarantee is determined by the yield from each unit.
- Producers felt that average yields for the county did not reflect actual yields from their farms.  Actual Production History (APH) was introduced.
- Major drought in 1988  lead to ad hoc disaster assistance to provide relief to needy farmers.
- Ad Hoc disaster bill in 1989 and again in 1992 gave farmers option of claiming disaster losses on a  farm-by-farm basis for any year between 1990 and 1992.
- Congress passes yet another Ad Hoc disaster bill in 1993 due to wet and cool weather.

- The History of Crop Insurance

## The 1994 Act made participation in the crop insurance program mandatory to be eligible for deficiency payments under specific conditions.
Catastrophic Coverage (CAT) was created to compensate for 50 percent of an average yield paid at 60 percent of the price established for the crop for that year.
$50 per crop, per county subject to max fees.

- Catastrophic Coverage (CAT) was created to compensate for 50 percent of an average yield paid at 60 percent of the price established for the crop for that year.
- $50 per crop, per county subject to max fees.

- The History of Crop Insurance

## Program participation increased significantly following 1994 Act.  
1996 – A private company submitted and received approval from FCIC for the first revenue guarantee policy.  This policy allowed producers to insure their yield and a price per bushel determined by averaging one month’s average price from the Chicago Board of Trade (CBOT)
In 2000, Congress enacted legislation allowing private sector to participate in research and development of new products.  If approved, these products could receive reimbursement for operating, development and reinsurance.
The percentage of the units yield was increased to two new levels – 80% & 85%.

- 1996 – A private company submitted and received approval from FCIC for the first revenue guarantee policy.  This policy allowed producers to insure their yield and a price per bushel determined by averaging one month’s average price from the Chicago Board of Trade (CBOT)
- In 2000, Congress enacted legislation allowing private sector to participate in research and development of new products.  If approved, these products could receive reimbursement for operating, development and reinsurance.
- The percentage of the units yield was increased to two new levels – 80% & 85%.

- The History of Crop Insurance

## TWO MAIN CATEGORIES OF CROP INSURANCEIN CURRENT MARKET 	

- Group (county) products
- GRP—Group Risk Plan
- GRIP—Group Risk Income Protection
- APH (yield history) products
- MPCI—Multi-Peril Crop Insurance (includes CAT)
- CRC—Crop Revenue Coverage
- RA—Revenue Assurance

## Pasture, Rangeland and Forage (PRF)
Pilot program available in select states
Insures against lack of rainfall or vegetation
Livestock
Livestock Gross Margin (LGM) – Cattle and Swine
Provides protection against loss of Market Value of Cattle minus cost of Feeder Cattle and Feed (Gross Margin)
Does not insure against death or other loss or destruction of
	Cattle
Livestock  Risk Protection (LRP) – Cattle and Lamb
Provides protection against decrease in price
Does not insure against death or other loss or destruction of
	Cattle

- Pilot program available in select states
- Insures against lack of rainfall or vegetation
- Livestock
- Livestock Gross Margin (LGM) – Cattle and Swine
- Provides protection against loss of Market Value of Cattle minus cost of Feeder Cattle and Feed (Gross Margin)
- Does not insure against death or other loss or destruction of
- 	Cattle
- Livestock  Risk Protection (LRP) – Cattle and Lamb
- Provides protection against decrease in price
- Does not insure against death or other loss or destruction of
- 	Cattle

- ADDITIONAL CATEGORIES OF CROP INSURANCEIN CURRENT MARKET

## Premium Subsidy Schedule

|  | CAT | 50% | 55% | 60% | 65% | 70% | 75% | 80% | 85% |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2001 – Present | 1.00 | .67 | .64 | .64 | .59 | .59 | .55 | .48 | .38 |
| 2000 – Preceding |  | .55 | .461 | .378 | .417 | .319 | .235 | .173 | .13 |

## GROUP RISK PLAN - GRP

- Insures against widespread losses that effect the
***County yield*** as determined by National Agricultural
- Statistics Service (NASS).
- This plan does not insure for your individual crop
- losses, it *only* pays you if the whole Counties’ crop
- does poorly.

## GROUP RISK INCOME PROTECTION (GRIP)

- Insures for widespread losses in the **County yield** as
- determined by NASS, and also protects against losses
- due to large drops in **market prices**.
- This plan does not insure your individual crop losses, it
*only* pays you if the counties’ expected yield does
- poorly, or if the grain market does poorly, or a
- combination of these two risks.

## 
This program insures against natural
disasters including:

- This program insures against natural
- disasters including:

- APH (yield history) products

- Frost
- Insects
- Disease
- Price

- Drought
- Excessive Moisture
- Hail
- Wind

## MPCI—Multi-Peril Crop Insurance (includes CAT)

**Actual Production History (APH)**
- These policies insure producers against yield losses due to natural causes.  Farmer chooses percent of yield and predicted price he wants to insure.  If harvest is less than the yield insured, the farmer is paid an indemnity based on the difference.

## Revenue Insurance Plans

- Why was CRC needed by producers and lenders?
- How was the need for CRC determined?
- Initial proposal was to cover down-side risk only.
- Producers unanimously supported both up-side and down-side price protection.
- Producers can deliver a copy of their insurance policy to lenders as evidence of a revenue guarantee.

## What if?

- Harvest Price and Harvest Yield go down?

## What if?

- Harvest Price goes up,  Harvest Yields goes down?

## Revenue vs. APH

- Harvest Price stays the same,  Harvest Yield goes down?

## Revenue vs. APH

- Harvest Price goes up,  Harvest Yield goes down?

## Revenue Insurance Plans

**Revenue Assurance (RA)**
- Insures for losses in **yield** based on your APH history by unit.  Also insures against commodity **price changes** by increasing revenue guarantees when prices rise, or by raising bushel guarantees when prices drop. This plan also covers prevented planting, replanting, and grain quality losses.
- Producer agrees to accept the base guarantee for the crop – even if prices rise at harvest.
- Allows for the collateralization of operating loans

## Revenue Insurance Plans

**Crop Revenue Coverage (CRC) **
- Spring market price (SMP) will be based on the February average of the December CBOT corn contract
- Harvest market price (HMP) will be based on the October average of the December CBOT corn contract
- Prices and guarantees are determined by unit.
*Farmers paid on the higher of:  **                **SMP**  x  APH         or **	**HMP**   x  APH  **(APH = their actual production history)*
***CRC**** has HMP movement limits: $1.50 on Corn and $3.00 on Soybeans*

## 20+ Crop Insurance Plans

49+ Billion Liability

242+ Million Acres

360+ Commodities

- 49+ Billion Liability
- 242+ Million Acres
- 360+ Commodities

- 2006 Program Statistics

## 2006 Program Statistics

## 2006 Program Statistics

## 2006 Program Statistics