How insured farmer may make more because of drought

Formula is complicated

March 31, 2014 | 11:51 pm

As an example of a winning crop insurance scenario that may prove common this year, Environmental Working Group Vice President Craig Cox cited a farmer with revenue protection insurance whose typical 180 bushel per acre corn yield was halved by this year’s drought.

With normal growing conditions, that farmer would have expected to realize $900 per acre gross revenue with 180 bushels selling at $5 per bushel — the general planting season expectation, Cox said.

If that farmer did not forward-market all or part of the crop and carried the 80 percent yield protection policy that is the Iowa standard, that farmer will have 90 bushels per acre to sell at the going price, certainly more than $8 a bushel, plus an indemnity payment.

With the 20 percent deductible inherent in an 80 percent revenue protection policy, that farmer will receive an indemnity payment equal to 30 percent of his potential crop (60 percent of the lost portion of his crop) at a per bushel rate to be determined by the October average of the December futures contract price at the Chicago Board of Trade. No one knows yet what that price will be, but it almost certainly will be more than $8 bushel.

So in addition to the cash value of his harvested crop, conservatively estimated at $720, the farmer also will receive an indemnity check conservatively estimated at $384 per acre, for total gross revenue of $1,104 per acre.

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