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Prairie Farmer - March 2008

Digging Into Crop Insurance Again

Garrett Stoerger
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign

Last month, I introduced you to one of the latest FAST programs developed by the University of Illinois farmdoc: the 2008 Crop Insurance Decision Tool. This program has received so much attention in the past month that I decided to spend a little more time examining its features.

If you have not yet used the Crop Insurance Decision Tool, these are some of the features you are missing out on:

• Insurance premium quotes for 26states and seven crops
• Historical insurance facts and performance for all states
• Yield analysis for both county and farm level yields
• A corn and soybean simulation tool that performs "what-if" analysis

This tool is part of Farm Analysis Solution Tools, a collection of spreadsheets that are available for free download on the University of Illinois farmdoc Web site at www.farmdoc.uiuc.edu/fasttools.

Two of the most important features that the tool offers, outside of quoting insurance premiums, is providing historical insurance information for each county and estimating projected scenarios for the year ahead.

To begin, let's look at the historical information this tool provides.

What you can do

When it comes to crop insurance, knowing a product's past performance can be the key to predicting future outcomes. In only a few clicks, you will have the ability to view:

• Number of acres insured per county for each crop insurance product.
• Average premium paid per acre
• Average payment per acre of insurance cropland
• Difference between the premium and payment per acre

When you look at this information, make it a priority to look at the payment minus premium column. In certain cases, some insurance products, like Group Risk Income Protection, or GRIP, have generated more dollars of payments than they have received in premiums on average over the past several years.

When you compare Crop Revenue Coverage, or CRC, to Revenue Assurance, or RA, the spreadsheet generates columns for insured acres, average premiums paid, average payments received and a payment minus premium.

Run scenarios here

One of the reasons you buy crop insurance is to protect against the unknown. You will agree to terms in March that will protect you from risk six months down the road. However, what if you could run scenarios of future events and then see the results of your investment?

For example, if 2008 proves to be a dry year and we experience lower-than average yields, when does your insurance kick in? Furthermore, if these lower yields cause harvest price to be higher than the spring price, will I be able to collect higher insurance payments with different revenue products?

These questions are much easier to answer if you have an insurance payment calculator, of course. And as I mentioned last month, the 2008 Crop Insurance Decision Tool has that payment calculator built right in: the Crop Insurance What-if Tool. This handy tool allows you to input as many different combinations of yield and price as you would like, and it runs the simulation instantly. It will report the data in terms of crop insurance payment per acre, payment plus crop revenue, and payment plus crop revenue minus premium.

Overall, this powerful spreadsheet is one that you should add to your list of tools if you have not already done so. The flexibility to quote crop insurance premiums and perform crop insurance analysis all form within one tool makes this a favorite for farmers and landowners alike.

Stoerger is FAST coordinator with University of Illinois Extension .