Spring Wheat gets crop revenue coverage in 1997

Home

E-Mail

Back

Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.

Counties in North Dakota eligible for CRC include: Barnes, Cass, Dickey, Dunn, Eddy, Foster, Griggs, Kidder, La Moure, Logan, Mcintosh, McKenzie, Mclean, Mercer, Oliver, Ranson, Richland, Sargent, Sheridan, Steele, Stutsman, Traill, and Wells. All of Minnesota is eligible. Wheat coverage for South Dakota was announced last summer.

Developed by American Agrisurance, a private crop insurance company, CRC is a new crop insurance plan which protects against lost revenue caused by low prices, low yields, or any combination of the two. CRC is similar to multi-peril crop insurance (MPCI) in that it is based on a grower’s actual production history, or APH.

However, CRC has been proven to return lower loss ratios than MPCI. Further, despite a premium cost that is higher than MPCI, the product has proven popular with farmers (it has been already tested in Iowa and Nebraska in a corn/soybean pilot program) because they see it as an insurance product that may offer better coverage, and a better revenue guarantee.

Price and yield protection

CRC sets a market-based guarantee before planting, and guarantees this revenue in dollars per acre at a harvest-time replacement cost. CRC is always based on the value of the crop. Since CRC guarantees price as well as yield, the final guarantee under the program will be the greater of either: 1) a minimum guarantee set at planting; or 2) a guarantee based on price and yield at harvest.

The minimum guarantee is calculated from a grower’s coverage level, APH, and a base price, which is 95 percent of the February, 1997, average closing prices of the September, 1997 Minneapolis Grain Exchange (MGE) wheat futures contract. The harvest guarantee is based on a grower’s coverage level, APH, and a harvest price, which is 95 percent of the average closing prices of the September, 1997, MGE wheat futures contract during the month of August, 1997.

Some counties in Minnesota and North Dakota have been involved in a similar pilot program called Income Protection (IP). There are key differences among CRC and IP coverage, however: IP is based on single-unit coverage, versus optional multi-unit or sectional coverage offered through CRC. Plus, although both IP and CRC establish a minimum revenue floor, CRC provides upward price protection, based upon market-determined prices.

"In the new Freedom-to-Farm era, risk management is becoming increasingly important for all crop producers in the United States. We’re absolutely thrilled that a good share of the spring wheat region will qualify for this new risk management tool in 1997," says Jerry Nordick, past president of the Minnesota Association of Wheat Growers. "Our perseverance in working to obtain CRC has been rewarded, but now we must focus on educating eligible growers about the new program."

Advantages, disadvantages

CRC is available at 5% election increments beginning at a 50% level continuing through 75%. Durum wheat is not included in the CRC pilot program. CRC is not available to producers farming non-standard classification system (NCS) land. There is no hail and fire exclusion available for CRC, and any discounts for good experience available for MPCI are not available for CRC.

Art Barnaby, a Kansas State University extension ag economist, sees several possible benefits of CRC to farmers:

• The program guarantees a minimum amount of revenue by insuring both yield and price risks.
• The program addresses the price determination problem that often causes MPCI to pay less than the market value of the lost crop.
• The program provides replacement cost coverage and peace of mind to insurers when they use forward contracting to price their crops.

However, there are several possible disadvantages. The CRC premium may be 30% to 60% higher than the current MPCI program, says Barnaby.

And in one scenario the producer could receive less of an indemnity payment than under the current MPCI program. That would happen only if the MPCI price election (determined by the federal government) was set higher than the CRC base price (determined by market futures).

This could be a possibility. Note that the price used to set the CRC guarantee is not the equivalent of the MPCI price election. The 1997 MPCI price election for spring wheat and durum is $3.85. And remember that the CRC minimum guarantee is based in part by the February, 1997, average closing prices of the September, 1997 Minneapolis wheat futures contract. Which in December was trading below $3.85.

Don’t be too quick to jump into or dismiss any of the available risk management options. Growers are encouraged to discuss the new CRC program with their private crop insurance agents. As well, the MAWG and the ND Grain Growers Association will provide more details on CRC for spring wheat before the signup deadline, which is March 15, 1997.

January 1997