U.S. farmers are headed for a record-large corn crop at the same time that market prices may be the lowest in a decade — a combination that could trigger crop-insurance indemnities for farmers who bought high levels of revenue insurance, says DTN. “In fact, many corn growers could trigger 2016 crop insurance pay-outs with no yield loss.”
Revenue insurance, the most popular coverage offered through the federally-subsidized crop insurance program, shields growers from the effects of low prices as well as poor yields. “When price comes down like this, this is when it comes into play,” Jason Alexander of Farm Credit Mid-America told DTN. He said growers should assess their crops and their policies: “Will you have a claim or not?”
When farmers bought policies this spring, revenue insurance guaranteed a futures market price of $3.86 a bushel at harvest time. If the price is $3, which some analysts say is possible, it would be 78 percent of the guarantee, meaning indemnity payments to growers with policies set at 80 or 85 percent of the guarantee, said U-Illinois economist Gary Schnitkey. The government calculates the harvest price based on closing prices during October on futures contracts that call for delivery of corn in December.
The $3.86 price guarantee for revenue insurance is below the cost of production for many Midwestern farmers, said DTN, so growers also must look for the best possible price when marketing their corn.
The last time that revenue policies paid largely on price rather than yield was in 2013, when the seven-year-old commodity boom collapsed.