As we look ahead to 2024, insurance guarantees have been one of the main concerns expressed by our members. Each time we face lower commodity prices, our focus must turn to what can be done to reduce the effect of compressed margins on your insurance coverage. While our ability to control the impact varies, there are three main areas where FCS Financial crop insurance can offer choices to assist in offsetting that risk.
Insurance Commodity Prices
The extreme spread between the crop insurance Revenue Protection (RP) 2023 corn projected price and harvest price was the largest corn policy price deterioration since 2014. As we begin to focus on 2024 crop insurance guarantees, we will watch how the CBOT December corn and November soybean prices average during the month of February. While the RP policy prices will be fixed based upon CBOT markets, the MPCI program offers two subsidized additional coverage products, Supplemental Coverage Option (SCO) and Enhanced Coverage Option (ECO). Stacking these policies can provide coverage up to 95%, but the coverage is area-based, and any payable claims would not be settled until June 2025. In addition to these options, each of our insurance companies offer private products that can help provide additional price and revenue support. As you begin to make coverage decisions it is important to note that private products are not subsidized and may determine losses different than your normal RP coverage, however these products can help fill important gaps in your coverage.
Actual Production History (APH)
Good insurance guarantees begin with well-kept production records that support the numbers submitted for your APH. We encourage you to submit production as soon as possible to assist your agent in generating the most effective insurance quotes for 2024. When reviewing the production information on your policy, you will find many numbers, but the two main numbers you should focus on are the rate yield and approved yield. The rate yield represents the true average yield on the unit and is used to calculate the premium rate. The approved yield is used to calculate your insurance guarantees and includes any APH enhancing policy options you have elected to purchase. The cost of these options is driven by the spread between the rate yield and the approved yield per database. With areas of the state having suffered through one or more recent years of drought, balancing premium costs and coverage benefits of these APH enhancing options is important for effectively managing your insurance guarantees. Most of these options need to be elected by the sales closing date, and we encourage you to have a discussion with your agent if they are not already on your policy. Here is a list of APH enhancing options available for Yield Protection (YP) and Revenue Protection (RP) policies and a brief description of what they may do for your APH:
- Yield Cup (YC)
The YC option is a continuous option for carryover insureds that prevents an approved yield from falling more than 10% over the previous year’s approved APH yield. For policies that have elected the Trend Adjusted (TA) option yield cups do not apply. - Yield Floor
A yield floor is the lowest approved yield that is allowed by the insurance program. For a yield floor to function it takes at least one year of actual or assigned yields in a database. The effectiveness of the floor is increased as a percentage of the current T-Yield based on the number of years in the database up to five actual or assigned yields. A yield floor is not applicable if the TA option is elected on the policy. - Yield Adjustment (YA)
The yield adjustment option allows yields that are low due to natural disasters to be replaced with 60% of the RMA T-Yield from the corresponding year. Insureds do have the ability to selectively use of the YA option by database. - Trend-Adjusted (TA)
When selected for an eligible county, the TA option seeks to increase previous APH numbers to be reflective of farming and agronomic advancements. This option requires the adjusted database to have at least one actual yield in the last four crop years to be eligible. When this requirement is met, the effectiveness of the option is then maximized when a producer has four or more yields in the database. This option utilizes an established factor that may be adjusted each year by RMA. - Yield Exclusion (YE)
The YE option allows insureds to exclude yields from their database when the applicable year is published in the county actuarial documents as an excludable year. A year becomes eligible for exclusion when the average yield for the county or any contiguous county is at least 50% below the simple average for the previous 10 crop years as determined by RMA. Some producers hit hard by the 2023 drought have asked if they will be able to exclude the yield for 2024, however because of the amount of time it takes RMA to establish eligible counties, it will be 2025 before a qualifying 2023 yield can be excluded.
Policy Coverage Levels
One of the simplest ways to increase insurance guarantees is to raise your percentage of coverage. For most major crops in Missouri, coverage is available under numerous plans of insurance, but producers have historically purchase Yield Protection (YP) or Revenue Protection (RP). According to the most recent data on RMA’s Summary of Business website for 2023, 98% of the MPCI corn and soybean policy purchases in the 102 Missouri counties that FCS Financial services were RP. To further illustrate the coverage levels, above you will see a graph of coverage percentages for combined YP and RP policies.
We encourage you to meet with an FCS Financial agent this spring to make sure your premium dollars are providing adequate protection and maximizing your insurance guarantees!
