This column was originally published in Prairie Farmer during the month indicated and is reprinted here by permission.

For an archive of all our Prairie Farmer columns click here.

Prairie Farmer - January 2007

Don’t Let Crop Insurance Overwhelm You

Travis Farley
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign

During the next few months, farmers will be evaluating their risk-management strategies for the upcoming year. This process may include a visit with a crop insurance agent to discuss options for 2007. That meeting begs a question: Are you ready to make informed decisions about insurance products and coverage levels

With all the different crop insurance policies offered and other factors to consider, developing a comprehensive risk-management plan can seem overwhelming. Fortunately, the University of Illinois ' farmdoc Web site has the tools you need to investigate which insurance programs are best for managing your farm's financial risk. In fact, farmdoc has an entire crop insurance section devoted solely to helping you with this important task.

On the Web site, you'll find a “Product Descriptions and Guidelines” Don't let crop insurance overwhelm you feature that provides an overview and analysis of the types of crop insurance products available. Here you can view detailed descriptions of each product that include examples on how each one works. You can also access reports that provide guidelines for choosing among the different products. This resource will help you become fully informed about each insurance product and provide you with all the factors to consider when making decisions.

The Crop Insurance section on farmdoc has three decision-aid tools: the Crop Insurance Premium Calculator, the Crop Insurance What-If Analyzer, and the Crop Insurance Evaluator.

The Premium Calculator estimates per-acre farmer-paid crop insurance premiums for the following policies: APH, RA-BP, RA-HP, CRC, GRP, GRIP, and GRIP-HR. Premiums can be calculated for corn, soybeans, wheat and grain sorghum in any county within the 13-state Corn Belt region. Per-acre costs are calculated for coverage levels between 50% and 90%. To estimate premiums, enter the state, county, crop, APH yield and unit. The Premium Calculator then provides estimations for the cost of crop insurance products; thus, this tool is valuable for evaluating insurance decisions when base prices for revenue products are not yet set. Always check with a qualifi ed crop insurance agent for actual quotes.

The What-If Analyzer estimates indemnity payments from different crop insurance products. Use this tool to examine insurance payments on corn, soybeans and wheat for counties in 13 Corn Belt states.

After selecting your location, enter the APH yield, actual farm yield, actual county yield, harvest price and harvest basis. Using this information, the Analyzer calculates insurance premiums, insurance payments and gross crop revenue (crop revenue plus indemnity payments minus premiums).

The tool's “what-if” feature allows you to change certain entries, such as yields and prices, to explore how insurance payments and gross crop revenue change under different harvest scenarios. The Crop Insurance What-If Analyzer can help you calculate payments from 2007 insurance products and examine their impact on gross crop revenue.

The Evaluator helps you analyze the risks and returns for different insurance policies. This tool compares estimated premiums, chances of indemnity payments, average gross crop revenue and risk impacts for grain farms in Illinois , Indiana , Iowa and Maryland counties.

To use the tool, select a location and crop (corn or soybeans). The evaluation focuses on a “typical” farm operation in the specified county. Data used in the analyses are collected from the National Agricultural Statistics Service, farm recordkeeping associations and research at the University of Illinois .

You can use this tool to estimate per acre premiums, analyze the percent of time a crop insurance product will pay, and evaluate the long-run net cost of insurance (premiums paid minus average payments received). The Evaluator can serve as a general guide for assessing the costs and potential returns associated with different insurance products.

While evaluating your farm's financial needs for the 2007 crop, take a few minutes to do some early crop-insurance planning. Visit www.prairiefarmer.com for a direct link to farmdoc's Crop Insurance section, where you'll find plenty of crop insurance tools and calculators.