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Prairie Farmer –February 2007

Screen Insurance Options

Travis Farley

Department of Agricultural and Consumer Economics

University of Illinois at Urbana-Champaign

During the next few weeks, you will be finalizing your crop insurance selections for the 2007 production year. Are you prepared to meet with your agent to discuss the insurance products and coverage levels best suited for your farm business? With so many products available, choosing the right one can be challenging. The decision becomes even more complicated when you add your grain-marketing plan to the analysis.

Fortunately, University of Illinois’ Farmdoc has a FAST tool to help simplify your crop insurance decision making process.

Tool eliminates guessing

The Marketing and Crop Insurance Risk Model allows you to estimate the impact that various risk-management strategies, such as crop insurance and preharvest hedging, have on gross crop revenue. The spreadsheet is available online. It uses historical data to help you evaluate insurance premiums, farmer received insurance payments and gross crop revenue. Together, these functions provide an estimate of past crop insurance products’ returns for your farm, which you can then use as a guide for making 2007 insurance and grain marketing decisions.

The model has three main features:

  • First, it uses farm-level corn and soybean yields and harvest prices to calculate historical per-acre insurance payments for all counties in Illinois and Indiana. With this function, you can determine which crop insurance policies would have paid in your county during the past 35 years, assuming that current insurance products were available.
  • The second component of the program calculates historical annual per-acre gross crop revenue for corn and soybeans during a 35-year period for all Illinois and Indiana counties. Yearly gross revenue equals that year’s insurance claims (if any are collected), plus crop returns from grain sales. This feature lets you examine how different insurance policies affect total crop returns.
  • The third part of the tool helps you analyze gross crop revenue from different insurance products combined with different grain-marketing plans. Here, you can explore how preharvest hedging and selected insurance programs impact crop returns. This third feature uses historical yield and price data to estimate how different insurance policies and marketing strategies would have performed in the past. Data from these past crop scenarios can help you decide which insurance products, coupled with grain marketing, best manage your financial risk.

To demonstrate this third function, refer to the summary table for corn from a sample Illinois county, where we’ve compared three different scenarios: 1) no insurance and no preharvest marketing, 2) CRC (85% coverage level) purchased with no preharvest marketing, and 3) CRC purchased and 50 bushels per acre marketed prior to harvest.

Using historical corn prices and yields for the selected county and current insurance premiums, the Risk Model calculates gross crop revenue for each alterative. You can view average and lowest revenues and the chance of revenue falling below a specified level for the indicated time period.

Make a decision

Looking at average crop revenue for the three scenarios, you can see that not purchasing insurance combined with no preharvest hedging generates the highest return on average. However, this amount is not significantly greater than the other two alternatives. Furthermore, purchasing CRC combined with marketing 50 bushels per acre generates the highest return in the “lowest revenue” row. The figures demonstrate that when crop revenue is low, this insurance policy linked with this marketing plan will provide the highest comparative return.

Remember: Insurance is for protection. Effective risk-management plays a big part in ensuring your farm’s financial well-being.

Farley is FAST Tools Coordinator with University of Illinois Extension.

To download the tool free of charge, visit