Soybean Rust and Crop Insurance

The USDA Risk Management Agency (RMA) that oversees crop insurance has made it clear that "losses to soybean production due to soybean rust disease is an insurable cause of loss provided the insured can verify that the cause was natural and available control measures were properly applied….The RMA will be…vigilant to monitor when outbreaks are detected in an area to determine if an insured could have applied recommended fungicides in a timely manner and did not." It will be imperative for "producers to keep informed of soybean rust outbreaks in their area and take recommended measures to control or prevent the disease impact if an outbreak is anticipated or already in the area."

What this means for the soybean producer is that he needs to document all efforts made to control or prevent rust from impacting yields. Document the date of the first news that it had reached your area. Document your efforts to purchase fungicide and spray for the crop. Document weather conditions that prevailed during the time rust might be impacting your farm. Be prepared to explain what you did and anticipate that crop insurance will pay if you took the recommended measures to control rust.

The following information is provided for reference and future decision making activities. Note that crop insurance decisions for soybeans grown in a given year must be made by March 15 of that year.

There are 2 major categories of crop insurance products for soybeans in Missouri - yield insurance and income insurance. Yield insurance contains the familiar Catastrophic Plan, the Actual Production History Plan and the Group Risk Plan. All pay indemnities when yields are lower than some level chosen by the farmer purchasing the insurance. Revenue insurance contains crop Revenue Coverage, Revenue Assurance and a new product called Group Risk Income Plan. These plans are more complex with indemnities being paid when either revenue or yields fall below a level chosen by the farmer purchasing the plan.

Seventy-four percent of soybean acres in Missouri were insured in 2005, similar to that of the last five years ranging from 73-77 percent coverage. For the last five years, Missouri farmers have received almost $1.70 from insurance indemnities for every $1 they paid in insurance premiums.

With so many farmers purchasing and benefiting from crop insurance, considering the impact of Asian Soybean Rust on their crop insurance decision seems wise. Should the same policy as last year be purchased this year or does the added risk of soybean losses due to Soybean Rust argue for a change? The answer to that questions lies, in part, what you expect the impact of soybean rust to be in your area and in the nation.

If you think that Rust will affect regions.
Rust is expected to affect whole counties and regions rather than individual, isolated farms. If you agree with this expectation, the Group Risk Plan (GRP) and Group Risk Income Plan (GRIP) may be insurance products you should consider. GRIP differs from GRP in that it insures an expected county income rather than an expected county yield. It incorporates price insurance into the yield insurance decision.

GRP and GRIP should be used only if the farmer expects his yield to correlate closely with the county yield. The risk of Rust is one that increases the risk of everyone in the county growing soybeans. One benefit of GRP and GRIP is that it is a relatively inexpensive insurance product. One negative of GRP and GRIP is that indemnities paid will not be paid until probably March of the year following production because the county average yield has to be established by the USDA.

If you think that Rust will be serious enough to affect prices.
Crop Revenue Coverage (CRC) and Group Risk Income Plan (GRIP) both allow the insured to benefit from price increases that occur during the growing season. Revenue Assurance (RA) has a plan that allows insured to benefit from price increases (called RA-harvest price option) and a plan that does not pay more should prices increase during the growing season (called RA-base price). RA-base price would not be desirable if you think Rust will increase soybean prices during the growing season.

CRC, GRP and RA-harvest price option all guarantee a level of income based on the spring expectation of harvest prices times the expected yield. But if the actual harvest time price is greater than was expected at spring time, the income guarantee increases with it.

These insurance products are useful for producers who think that Rust will have sufficient impact on US yields that US soybean prices will increase. Any indemnity that you would receive due to rust (or any other insurable cause) would reflect the increased prices.

Consult your Crop Insurance Advisor
As always, crop insurance decisions should be made in consultation with your financial advisors. The major impact of soybean rust may be that it causes you to rethink your crop insurance choices rather than just take the same level of coverage that you have had for the last several years.

For detailed explanation of the crop insurance plans you can go to http://www.farmdoc.uiuc.edu/cropins/products.html.

Expanded Discussion -
The Impact of Asian Soybean Rust on the 2004 Crop Insurance Decision (PPT)