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Insuring Sunflower in 2004
Sunday, January 18, 2004
filed under: Marketing/Risk Management
Higher price elections among several positive changes
Price elections for multi-peril (Actual Production History or APH) crop insurance in 2004 are $12.60 for oil-type sunflower, and $14.85 for confection. This represents an increase of $1.25/cwt from last year’s level for oil-type, and 25 cents more for confection compared to 2003.
Soybeans can be insured at $5.55 per bushel, an increase of 25 cents from last year’s buy-up coverage level. The canola price election, however, was decreased by 19 cents to $9.30/cwt from last year’s price of $9.49.
The USDA’s Risk Management Agency has also changed federal crop insurance rules allowing sunflower to be grown on fields planted to soybeans, dry peas and lentils the previous year. The change goes into effect for the 2004 crop year.
With this change, acreage planted to soybeans, dry peas and lentils in 2003 can be planted to sunflower in 2004, without affecting federal crop insurance coverage. The change applies to North Dakota, South Dakota, Minnesota, Kansas, Colorado, Nebraska, Montana, Missouri and Wyoming.
Rotation restrictions remain when the previous year’s crop is canola, crambe, dry beans, mustard, rapeseed or safflower. Sunflower planted on acreage where any of these crops were planted the previous year will not be eligible for federal crop insurance coverage. See more information in the online article “Following Soybeans With 'Flowers'” in the Oct/Nov 2003 issue of The Sunflower.
Also, beginning with the 2004 crop year in North Dakota, South Dakota, Minnesota, Montana and Wyoming, there will no longer be different rotation statements for sunflowers planted in rows versus solid seeded. Rotation restrictions will be identical for both planting practices.
The final planting date for sunflowers in Minnesota has been extended from June 5 to June 10, beginning with the 2004 crop year. The later final planting date, urged by the National Sunflower Association, now coincides with planting dates in North Dakota, and gives farmers in Minnesota more flexibility to address planting season challenges. See graphic for 2004 final planting dates in key sunflower-producing states.
Quality coverage for Sclerotinia is again available for confection sunflower. Sclerotinia levels at 1.1% or higher in confection sunflower will be eligible for quality adjustment. Better Sclerotinia coverage was granted by the RMA several years ago, at the urging of the NSA. Quality coverage also improved in other areas, including low test weight, kernel damage and odors.
RA Expands to More States
Revenue Assurance coverage for sunflower will be available in the following states in 2004: Colorado, Kansas, Minnesota, Montana, North Dakota, and South Dakota. Last year, it was only available in North Dakota.
Unlike APH policy, RA coverage offers additional protection for price fluctuations during the crop year. RA provides dollar-denominated coverage by the producer selecting a dollar amount of target revenue, defined by a selected percentage within a certain range of expected revenue. The price guarantee is based on the average October futures soybean oil price traded at the Chicago Board of Trade during the month of February.
“Growers have been interested in revenue products as they’ve come along for different crops, but the price has to be attractive or they’ll stick with the multi-peril product,” says Dick Stolp, a crop insurance agent with Bankwest Insurance, Onida, S.D.
Stolp, president-elect of the S.D. Association of Independent Agents, says most sunflower producers who take APH policies select 65 or 70% coverage levels. “You can buy higher coverage levels on sunflower, but they’re still a bit cost prohibitive. A lot of guys are still finding 65-70% levels the best bang for their buck.”
Following is a backgrounder on Revenue Assurance in sunflower, courtesy of Fran Herman, Rain & Hail LLC (www.rainhail.com). Growers are encouraged to consult with their crop insurance agents about the crop insurance coverage options best suited for their farms, well before the March 15 signup deadline. – Tracy Sayler
Revenue Assurance Sunflower Policy
Unit structure available: Basic, optional, enterprise, whole farm.
Coverage levels: 65% through 85%, 5% increments. 80-85% coverage levels available only in counties and on crops where MPCI allows 80-85% coverage.
Projected harvest price (early price): The projected harvest price is the simple average of the final daily settlement prices in February for the CBoT October soybean oil futures contract divided by two, then subtract one (announced March 5).
Fall harvest price (later price): The fall harvest prices is the simple average of the final daily settlement prices in September for the CBoT October soybean oil futures contract divided by two, then subtract one (announced Oct. 5).
Fall harvest price option: A coverage option (must be selected by sales closing date of March 15) that allows the insured to use the greater of the fall harvest price or the projected harvest price to determine the revenue guarantee.
Indemnity situations: If an indemnity payment is due under an RA policy, there are two different scenarios that are to be taken into consideration: If the fall harvest option was chosen, or not chosen.a) Without the fall harvest price: Indemnity payments will be paid after the production to count has been determined and the fall harvest price has been released. Preliminary indemnity payment may not be made for partial crop losses because the valuation of the production to count could lead to an overpayment situation.
b) With the fall harvest price option: If the fall harvest price is not known at the time a loss is determined, then RA may pay adjusted losses in two segments: 1) RA pays an initial indemnity based upon the projected harvest price. 2) Once the fall harvest price is known and if it is greater than the projected harvest price, RA recalculates the indemnity payment and pays the additional indemnity due. If the fall harvest price is known at the time of the loss is determined, then RA will pay the loss based upon the greater of the projected harvest price or the fall harvest price.
What are the benefits of the fall harvest price option?
The RA fall harvest price option is designed to provide additional assurance to those producers who market their crop before harvest. These producers taken on the additional risk that harvested bushels will not be sufficient to meet their contractual obligation. Such a production shortfall can have severe consequences if fall harvest prices are greater than projected harvest prices, because the producer will be forced to purchase bushels to meet his obligations at the higher price.
The RA harvest price option provides additional coverage when the fall harvest prices is greater than the projected harvest price, allowing this type of producer to fulfill contractual obligations from RA indemnities. The fall harvest price option allows the producer to use the greater of the fall harvest price or the projected harvest to determine the producer’s revenue guarantee.
Basic example of RA
Dollar Guarantee- 1,500 lb x 70% coverage level x 100 acres x $.13 = $13,650 projected harvest price
- 1,500 lb x 70% x 100 acres x $.16 = $16,800 fall harvest price
Value of production- Harvested 1,000 lbs/acre x 100 acres x $.16 = $16,000 production
Loss paymentIf insured had selected the fall harvest price option: $16,800 - $16,000 = $800 payment. If the insured had not selected the fall harvest price option: $13,650 - $16,000 = 0 payment