Insurance paid producers well in 2003. The Missouri producer crop insurance loss ratio, measured as dollars of indemnity paid to growers divided by the dollars of premium paid by producers (ignoring government subsidies paid), was 2.94. For every dollar paid to insurance companies by Missouri producers, Missouri producers received back $2.94. The $1.94 is profit in the pocket of producers.

When government subsidies are considered in the total premiums paid, the loss ratio in 2003 was 1.12. The crop insurance companies paid out $1.12 for every dollar they received. While they lost money in 2003, the 10-year loss ratio is .75, indicating that they have had $0.25 from every dollar to pay expenses and make a profit.

The USDA insurance data reports both Catastrophic Coverage (CAT) and buy-up coverage. CAT is the minimum MPCI insurance where 100% of the premium is paid by the federal government. Buy-up coverage is any combination of MPCI coverage greater than the minimum and any CRC or RA program. CAT had a loss ratio in 2003 of .18 compared with a loss ratio of 1.24 for all buy-up coverage. Considering only the premiums that producers paid (government subsidies omitted), the loss ratio for CAT was .78 compared to 2.88 for buy-up coverage. The loss ratios for 2002 also indicate that CAT had a low loss ratio. CAT coverage payout policies are set so low as to make them a poor insurance tool. The expectation of receiving an indemnity does not justify even the administrative fee paid by the farmer.

Revenue Assurance (RA) and Crop Revenue Coverage (CRC) have had higher loss ratios than Actual Production History or Group Risk Plans in the last several years for which we have data. The RA loss ratio in 2003 was 1.34 while the CRC loss ratio was 1.21.

Positive loss ratios do not mean that all farmers receive indemnities above their premiums. But they do indicate that for the last several years the government subsidy of insurance has resulted in a transfer of money to Missouri farmers. Farmers should consider seriously crop insurance buy-up when purchasing crop insurance. CAT is insufficient to provide a safety net. Probably the only good reason to buy CAT is that it makes the purchaser eligible for favorable treatment should the government choose to pay disaster payments to farmers in any year.

Overview of Products Available in Missouri

There have been no additional crop insurance products made available to Missouri in 2004. I can find no notice of changes for crop insurance in Missouri for 2005. The most common types of crop insurance available to Missouri farmers are Multiple Peril Crop Insurance (MPCI), Crop Revenue Coverage (CRC), Revenue Assurance (RA), and the Group Risk Plan (GRP).

Multiple Peril Crop Insurance (MPCI). Farmers in most Missouri counties can purchase MPCI for corn, soybeans, grain sorghum, and wheat. A smaller group of counties have MPCI coverage available for other crops such as barley, cotton, oats, popcorn, rice, and fruits.

MPCI allows farmers to insure a certain percentage of actual production history (APH) at a certain price. APH is the average of the last 10 years of production. Farmers can choose to insure from 50% to 85% of their APH. At the time of purchase, farmers also choose a price in the range of 55% to 100% of the USDA established price. The USDA sets the established price in the spring.

Catastrophic coverage is the minimum MPCI available. It covers 50% of APH and 55% of the established price. For this coverage the farmer pays only an administration fee of $100 per crop per county and the federal government pays the entire premium.

A farmer who has purchased MPCI insurance receives an indemnity from the insurance company when his/her whole farm yield for an insured crop falls below the chosen percentage of APH. For example, if a farmer has an APH of 120 bushels of corn and chose 70% coverage, he would be paid by the insurance company for any yield less than 84 bushels per acre. The price he would receive for the shortfall is the price he selected at the time the insurance was purchased.

Crop Revenue Coverage (CRC). Farmers in most Missouri counties can purchase crop revenue coverage insurance for corn, soybeans, grain sorghum, and wheat. A smaller group of counties have CRC for other crops such as cotton and rice.

When purchasing CRC the farmer first selects a coverage level for the crop to be insured. Farmers can choose to insure from 50% to 85% of their APH in 5% increments.

Futures market prices are used in calculating the farmer's revenue and indemnity. The base market price for corn is the monthly average of the Chicago Board of Trade December new-crop corn futures prices during the month of February. For soybeans, the average monthly futures price of the November contract sets the base market price. The harvest market price for corn is the average December futures contract price during November; for soybeans it is the average November futures contract price during October.

The revenue guarantee is calculated as the APH times the coverage level chosen times the higher of either the base market price or the harvest market price. An indemnity payment from the insurance company is triggered when the farmer's revenue (actual yield times harvest market price or base market price) falls below the guarantee. Because the higher of either the base or harvest price is used, an indemnity can be paid with normal yields if the harvest market price decreases sufficiently.

Revenue Assurance (RA). Farmers in most Missouri counties can purchase Revenue Assurance coverage for corn, soybeans, and wheat. It is not available for grain sorghum, cotton, and rice.

Revenue Assurance policies are similar to Crop Revenue Coverage Policies except that the producer must choose a base price option or a harvest price option. The harvest price option is more expensive than the base price option. With a base price option, the producer's price guarantee is determined by the February futures price. Regardless of what the market does, the price is fixed. With a harvest price option, the producer can get a higher price if the market price moves up from February to harvest time.

Group Risk Plan (GRP). The Group Risk Plan is less expensive than either the MPCI or CRC programs. It pays farmers when the county yield falls below a chosen percentage of historical county yields. This allows a farmer to get an indemnity when county yields are poor, even if his/her own yield was good. Conversely, it does not pay an indemnity for poor production if the county average was above the guarantee. GRP is a plan that is dependent on an individual's yield being highly correlated with the county average yield.

The trigger yield can be selected as 70% to 90% of the county average, in 5% increments.

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