Crop Insurance Product
Income Protection (IP)
Income Protection (IP) is a product designed to provide a safety net for the American Farmer.
With questions concerning farm programs, Agricultural Marketing Transition Act (AMTA) payments, Loan Deficiency Payment (LDP) and crop prices, IP allows, in many cases, competitive priced crop protection.
To better understand the concept behind IP, you must first understand some of the terminology.
Units - Unlike other insurance plans, IP allows one enterprise unit. An enterprise unit consists of the entire crop in the county being considered one large unit. The total insurable acres are the net acres for the insured at 100% interest.
Example - Corn acreage is:
80 acres section 1 100% interest 80 net acres
160 acres section 1 50% interest with Jones 80 net acres
80 acres section 6 100% interest 80 net acres
60 acres section 5 60% interest with Smith 36 net acres
276 net acres for the enterprise unit for IP.
APH (Actual Production History) - Unlike traditional basic and optional unit structures, IP uses a weighted average of all the units to determine the APH for the Enterprise unit.
Example - 39,000 bu/276 acres = 141 bu/acre
80 acres section 1 100% interest APH 140 11,200 bu 11,200 net bu
160 acres section 1 50% interest w/ Jones APH 120 19,200 bu 9,600 net bu
80 acres section 6 100% interest APH 160 12,800 bu 12,800 net bu
60 acres section 5 60% interest w/ Smith APH 150 9,000 bu 5,400 net bu
276 net acres at 100% interest
Levels of Coverage - As with all other programs, IP allows one level of coverage per county and crop. The levels of coverage available are 50% to 75% in 5% increments.
Spring Price - 100% of the average closing price of the December Futures Contract of the Chicago Board of Trade (CBOT) during the month of February for Corn. For Soybeans, it is 100% of the average closing price for November Futures Contract on the CBOT during the month
of February.
Harvest Price - 100% of the average closing price during November for the December CBOT Corn Contract. For Soybeans, 100% of the average closing price during October for the November CBOT.
Does cost vary from agent to agent?
No. Federal Crop Insurance Corporation (FCIC) sets the rates. However, different approved yields or levels of coverage selected will affect your cost per acre.
How does it work?
In the previous example we used four locations with an approved Actual Production History (APH) of 141. Assume the Spring price is established at $2.10 and the insured selected the 75% level of coverage. Because the enterprise unit is one unit insured at 100% interest, the coverage
would be:
141 x 75% = 105.8 bushel guaranteed per acre.
105.8 x $2.10 = $222 of coverage per acre.
$222 x 276 net acres x 100% interest = $61,272 total revenue coverage for this county.
How does it work in the fall?
First, the total net production from the insured acres must be determined; then a fall Harvest Price must be set to determine the revenue to count. Once these two factors are known, we can determine if the insured has met his guarantee.
Low yield, low price
Net Harvested Production per acre = 100 bushels
Net Insurable acres = 276 acres
7,600 total bushels
Harvest Price $2.00 per bushel
$55,200 revenue to count
Guaranteed Revenue = $61,272
Revenue to Count $55,200
Indemnity $6,072
Low yield, high price
Net Harvested Production per acre = 100 bushels
Net Insurable acres = 276 acres
27,600 total bushels
Harvest Price $2.25 per bushel
$62,100 revenue to count
Guaranteed Revenue = $61,272
No Indemnity
This example shows that it is possible to suffer yield loss and not collect under IP. Multi-Peril Crop Insurance (MPCI), Crop Revenue Coverage (CRC) and Revenue Assurance (RA) with Harvest Price Option would have all paid in this example.
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