2005 Year in Review

Crop Insurance Payment Estimates

Source: Gary Schnitkey (217) 244-9595; Author: Bob Sampson

Drought-spawned low crop yields may trigger crop insurance payments on some Illinois farms and University of Illinois Extension has developed a calculator that will help producers determine what they might expect in payments. The calculator is available in the crop insurance section of farmdoc more information is available at: FEFO.

"Crop insurance payments could be large on some farms and will partially make up for shortfalls in income," said Gary Schnitkey, U of I Extension farm financial management specialist.

"Rains during middle July have reduced dry and droughty conditions over some areas of Illinois. Other areas, however, received little or no rain and crop yields likely are still being reduced. Even areas that received significant rains have had yield reductions due to little rain during May and June."

The insurance payment calculator, 2005 iFarm Insurance Payment Calculator, allows a producer to enter the crop, county and Actual Production History (APH) yield for the situation of interest, Schnitkey said. Then, insurance payments are generated for user-specified yields and harvest prices.

Information at the calculator web site includes county by county statistics for corn yield as a percent of trend-line county corn yield, expected 2005 yields, and soybean yield as a percent of trend-line county soybean yield.

"This year is a fairly typical drought year, except that the drought is not as widespread as in some years," said Schnitkey. "In drought years, yields are lower because of dry weather and harvest prices often are higher than base prices. Base and harvest prices are used to determine insurance payments and are averages of settlement prices of Chicago Board of Trade futures contracts--December contract for corn and November contract for soybeans.

"The base price is determined by average settlement prices during February while harvest prices are based on averages during a harvest month. Generally, during short crop years, futures prices are higher in the fall than in February. Hence, one would expect harvest prices to be higher than base prices this year."

Because this year's supply shortfalls will not be as large as in some years in which droughts were more widespread, Schnitkey expects that harvest prices may not be above base prices as much as in some years.

Because the growing season is still under way, both harvest prices and yields are not known. Indication of harvest prices can be obtained from futures prices. For yields, the statistics mentioned above can provide some insight.

"Use of county yields may not represent an individual farm field," Schnitkey noted. "Farm yields are more variable than county yields so the percents in some of the tables may be higher or lower than that experienced on an individual farm.

"As yield and price estimates become more certain, the calculator can be used to estimate crop insurance payments."

by  Editor, theCity1.com
August 5, 2005