ECON 337:
Download
1 / 32

ECON 337: Agricultural Marketing - PowerPoint PPT Presentation


  • 238 Views
  • Uploaded on

ECON 337: Agricultural Marketing. Chad Hart Assistant Professor [email protected] 515-294-9911. Crop Insurance. One of many risk management strategies Traditionally set up to protect farmers in times of low crop yields Now offers coverage for low prices

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' ECON 337: Agricultural Marketing' - don


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

ECON 337:

Agricultural Marketing

Chad Hart

Assistant Professor

[email protected]

515-294-9911


Crop insurance
Crop Insurance

  • One of many risk management strategies

  • Traditionally set up to protect farmers in times of low crop yields

  • Now offers coverage for low prices

  • Available on over 100 commodities



Types of crop insurance
Types of Crop Insurance

  • Individual Yield (YP)

  • Area Yield (GRP)

  • Individual Revenue (RP and RPE)

  • Area Yield - Individual Revenue Combination (GRIP)


Example farm
Example Farm

A 100 acre corn farm in Story County, Iowa with a 5-year average yield of 180 bu/acre

Purchases insurance at the 75% coverage level

Spring price: $5.68/bu (average of Feb. prices for Dec. corn futures)


Individual yield insurance yp
Individual Yield Insurance (YP)

Farmer chooses percentage of expected yield to insure

  • Expected yield measured by average yield

    Price at which the crop is valued is set up front and does not change

    If yields are 100 bushels per acre, the farmer receives $198.80 per acre = $5.68/bu * (75% * 180 bu/ac - 100 bu/ac)




Individual revenue insurance rp or rpe
Individual Revenue Insurance(RP or RPE)

Farmer chooses percentage of expected revenue to insure

  • Expected revenue measured by average yield times initial crop price

    Price at which the crop is valued can move with price changes in the market


Individual revenue insurance rp or rpe1
Individual Revenue Insurance(RP or RPE)

In our example, the farmer has insured $766.80 of revenue per acre (75% * $5.68/bu * 180 bu/ac)

Final value of the crop determined by average futures prices over harvest period


Individual revenue insurance rp or rpe2
Individual Revenue Insurance(RP or RPE)

If yields are 100 bushels per acre and harvest prices average $4.50, the farmer receives $316.80 per acre

  • 0.75*$5.68/bu.*180 bu./acre - $4.50/bu.*100 bu./acre


Rpe payout graph
RPE Payout Graph

No Payout

Payout



Individual revenue insurance rp
Individual Revenue Insurance (RP)

This policy has a “harvest price option”

If the harvest price is greater than the planting price, then the harvest price is used in all calculations

In essence, the policy is giving you a put option with the strike price at the planting price



Individual revenue insurance rp1
Individual Revenue Insurance (RP)

If yields are 100 bushels per acre and harvest prices average $7.00, the farmer receives $245.00 per acre

  • 0.75*$ 5.68/bu.*180 bu./acre - $7.00/bu.*100 bu./acre

7.00


Rp payout graph
RP Payout Graph

No Payment

Neither Pay

RPE Pays

YP Pays

Both Pay

RP Pays


Corn insurance prices
CornInsurance Prices

Harvest prices have been higher 4 out of last 12 years


Soy insurance prices
Soy Insurance Prices

Harvest prices have been higher 6 out of last 12 years


What units to choose

Optional Units: Each farm is separate

Basic Units: Combine owned and cash rented acres in same county

Enterprise Units: Combine all acres of the same crop in same county

Whole Farm: Combine all crops in county

What Units to Choose?



2012 insurance premiums
2012 Insurance Premiums

Per Acre Premiums ($ per acre)

Cov. Level YP RPE RP_

50% 1.10 0.94 1.35

55% 1.80 1.55 2.33

60% 2.55 2.24 3.52

65% 3.91 3.01 5.75

70% 5.36 5.50 8.72

75% 7.83 8.75 14.00

80% 11.79 14.24 22.78

85% 17.97 22.55 36.36

For our example farm in Story County, Iowa for corn


Choosing insurance policy
Choosing Insurance Policy

Choice depends on several factors

Type of farm and crop mix

How well the county average yield represents your farm

Your marketing strategy










Class web site:

http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2012/

Lab in Heady 68


ad