GRIP is revenue insurance paying indemnities when county revenue is below a revenue guarantee. GRIP has two options: GRIP without the harvest revenue option (GRIP-NoHR) has a guarantee that will not increase while GRIP with the harvest revenue option (GRIP-HR) has a guarantee that will increase if the harvest price is above the base price. This fact sheet describes GRIP-HR.

Revenue guarantee under GRIP-HR

The GRIP-HR revenue guarantee equals 1) the expected county yield times 2) the higher of the expected price or the harvest price times 3) a farmer-chosen coverage level. Each factor determining the revenue guarantee is described below:

1. Expected county yield. The expected county yield is determined for each crop insured in a county. The expected county yield is based on a history of county yields.

2. Expected price. The expected price is based on Chicago Board of Trade (CBOT) futures contracts. The December CBOT contract is used for corn and the November contract is used for soybeans. The settlement prices of these contracts are averaged during February.

3. Harvest price. Harvest prices are based on Chicago Board of Trade (CBOT) futures contracts. For corn, the harvest price equals the average of settlement prices of the December corn contract during October. For soybeans, the harvest price equals the average of settlement prices of the CBOT November soybean contract during the month of October. There are limits to the moves on harvest prices. The harvest price for corn can not be above the base price by more than $1.50 per bu. or be below the base price minus $1.50 per bu. For soybeans, the limit is $3.00 per bu.

4. Coverage level. The farmer chooses a coverage level in a range of between 70 and 90 of expected revenue.

County revenue under GRIP-HR

County revenue is used to calculate indemnity payments. County revenue equals actual county yield times a harvest price. County yields are calculated be the U.S. Department of Agriculture, National Agricultural Statistics Service (NASS). NASS usually releases county yields by March in the year after the crop is harvested. As a result, payments on GRIP are not made until the year after harvest.

For a county yield of 100 bu. and a harvest price of $2.00, county revenue is $200 per acre (100 bu. x $2.00).

Indemnity payments under GRIP-HR

GRIP-HR pays an indemnity when county revenue is below the revenue guarantee. The indemnity payment equals the percent revenue shortfall times the protection level times a "factor". The farmer must choose the protection level from a range. The factor is the maximum of one or the harvest price divided by the expected price.

Indemnity payments are illustrated with two examples for the Champaign County, Illinois case where the expected yield is 164 bu., the expected price is $2.50, the coverage level is 90%, and the protection level is $600.

Example 1: Actual county yield is 160 bu. per acre and the harvest price is $2.00, giving county revenue of $320 per acre. In this case, the revenue guarantee is $369 (164 bu. expected yield x $2.50 expected price x .90 coverage level). The percent revenue shortfall is .1328 (($369 revenue guarantee - $320 harvest revenue) / $369 revenue guarantee) and the factor is 1. For a $600 protection level, the indemnity payment is $80 (.1328 revenue shortfall x $600 protection level x 1 factor).

Example 2: In example 2, actual county yield is 120 bu. per acres and the harvest price is $3.00, giving county revenue of $360. In this case, the revenue guarantee is $443 (164 bu. expected yield x $3.00 harvest price x .90 coverage level) and the percent revenue shortfall is .1874 (($443 revenue guarantee - $360 harvest revenue) / $443 revenue guarantee) and the factor is 1.2 ($3.00 harvest price / $2.50 expected price). For a $600 protection level, the indemnity payment is $134 (.1874 revenue shortfall x $600 protection level x 1.2 factor).

Choices under GRIP-HR

Farmers have two choices under GRIP:

1. Coverage level, and
2. Protection level.

Coverage level: The coverage level can be selected from a range form 70% up to 90% in 5% increments. Higher coverage levels yield higher insurance payments when they occur.

Protection level: A higher protection level has higher indemnity payments than does a lower protection level election. The protection level must be chosen from within a range. The maximum protection level is the expected yield times the expected price times 1.5. The minimum protection level is 60% of the maximum. For a 164 bu. expected yield and a $2.50 expected price, the maximum protection level is $615 per acre (164 x $2.50 x 1.5) and the minimum is $369 per acre ($626 x .60).

Impacts of the protection level can be seen for a specific revenue shortfall. This example uses a .10 shortfall. If the maximum protection level is chosen of $615 for the Champaign County example, the indemnity payment equal $61.50 per acre ($615 x .10). If a $500 protection level is chosen, the payment will be $50 per acre ($500 x .10). If the protection level is 20% below the maximum, indemnity payments will be 80% of the payment at the maximum. A corresponding decrease in premium occurs.

GRIP-HR premiums

Per acre premiums depend on the county of the insured crop, and the coverage and protection levels chosen by the farmer. Higher coverage and protection levels result in higher premiums. Premiums are available from the iFARM Premium Calculator available in the crop insurance section of farmdoc (www.farmdoc.uiuc.edu).

Other information

The "Group Crop Insurance Plan" document provides additional descriptions of GRIP-HR. In addition, the document compares the Group products. This document is available in the crop insurance section of farmdoc.

Limitations

Group products do not have replant or prevented planted provisions. Group products do not pay quality or price discounts that may be available for farm-level products, such as sometimes occurs with Aflatoxins.

Prepared by: Gary Schnitkey, Department of Agricultural and Consumer Economics, University of Illinois

Updated: February 2006