2008 Year in Review

Crop Insurance and 2008 Yields

A 30 percent chance exists this year that harvest prices will exceed Crop Revenue Coverage (CRC) limits, said a University of Illinois Extension farm financial management specialist.

"This probability is much higher than has existed in previous years," said Gary Schnitkey. "Higher chances of exceeding CRC limits increase the value of Revenue Assurance crop insurance relative to CRC."

Schnitkey is the author of a recent report, "Impacts of CRC Price Limits on the Value of CRC Relative to RA."

"CRC and Revenue Assurance (RA) are similar products insuring farm revenues," he explained. "These products differ in three manners. First, CRC and RA will have different premiums. CRC averages October settlement prices of the December corn futures contract traded on the Chicago Board of Trade to determine its harvest price. RA averages November settlement prices to determine its harvest price. "Finally, CRC limits how much the harvest price can differ from the base price while RA does not have limits."

In past years, Schnitkey noted, price limits associated with CRC have not been a major concern.

"In 2008, price limits are a concern as price volatility has increased greatly, increasing the likelihood that settlement prices will fall outside CRC price limits," he said. "This could cause RA to have higher payments than CRC."

Schnitkey's full report includes projected scenarios illustrating how this situation could impact farmers in 2008.

by  Editor, theCity1.com
March 12, 2008