GRP and Insurance Prices Iowa Falls Iowa Apr
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GRP and Insurance Prices Iowa Falls, Iowa Apr. 9, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate. edu 515 -294 -9911 Department of Economics
Group Risk Plan Ø Was set up as an alternative to APH Ø Covers county yield risk, not farm yield risk Ø Started in 1993 with soybeans Ø Expanded quickly to other crops Ø Less paperwork and cost than APH Department of Economics
Group Risk Plan (Original Set-up) Ø Offered at yield coverage levels between 70 and 90 percent Ø Insureds also pick scale between 90 and 150 percent Ø Define Cov = coverage level Ye = expected county yield (based on data since 1956) Y = actual county yield (as measured by USDA) Yc = Cov*Ye Ø Indemnities = Max(0, scale*Ye*(Yc-Y)/Yc) *Insurance Price Department of Economics
Group Risk Plan (Current Set-up) Ø Offered at yield coverage levels between 70 and 90 percent Ø Maximum protection level (MPL) defined as 150 percent*Insurance Price*Ye Ø Insureds pick value of protection, from 60 to 100 percent of MPL Ø The terms are rearranged, but the indemnity is the same as before Department of Economics
Group Risk Plan Ø Insurance price for GRP is set at the “Established Price” for APH Ø The Established Price is set during November before planting Ø Given price, maximum protection level is set and is not readjusted Department of Economics
GRP Maximum Protection Levels Ø For Hardin County, Iowa corn Ø 2008: $982. 69/acre =150%*$3. 75/bu*174. 7 bu/acre Ø 2009: $1, 081. 80/acre =150%*$4. 00/bu*180. 3 bu/acre Ø 2010: $960. 10/acre =150%*$3. 55/bu*180. 3 bu/acre Department of Economics
Corn Yields 2008 2009 2010 (bushels/acre) Expected 174. 7 180. 3 Actual 154. 7* 157** ? ? ? *Official **My estimate, Production/Planted Acres 90% coverage level paid in 2008 and probably will in 2009. Lower coverage levels did not. Department of Economics
Insurance Prices 2008 Corn Soy 2009 2010 Corn Soy ($ per bushel) Revenue 5. 40 13. 36 4. 04 8. 80 3. 99 9. 23 APH 4. 75 11. 50 4. 00 9. 90 3. 90 9. 15 GRP 3. 75 3. 55 8. 55 Department of Economics 8. 70 4. 00 9. 90
Insurance Prices Ø For the 2011 crop year, APH and the individual revenue insurance products (CRC, RA, etc. ) will have the same price Ø GRP pricing may be set the same way in coming years (2012 at the earliest) Department of Economics
Thank you for your time! Any questions? My web site: http: //www. econ. iastate. edu/faculty/hart/ Iowa Farm Outlook: http: //www. econ. iastate. edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http: //www. extension. iastate. edu/agdm/ Department of Economics
