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Oct 07, 2022
With harvest time beginning or just around the corner, many producers in the Midwest are trying to determine if their crop production is adequate to not have a crop insurance loss. For many producers, “Harvest Price Discovery” will play a role in that determination.
Harvest Price Discovery is a period of time (usually 30 days) that the crop insurance policy utilizes to determine a final commodity price. It will also determine a final revenue guarantee in the case of Revenue Protection (RP) or to calculate a “trigger” yield if the final Harvest Price is lower than the Initial Price Discovery.
For corn and soybeans in the Midwest, Harvest Price Discovery is the average of the closing futures price during the month of October (December corn contract for corn and November soybean contract for soybeans). Other insurable crops may have different Harvest Price Discovery periods based on Policy Actuarials.
The type of MPCI policy that you have will make a difference in how the Harvest Price will be utilized on your policy.
With YP, Harvest Price does not play a factor in your insurance policy. This product is insuring a guaranteed number of bushels per acre. If the final yield is below this guarantee, the producer will be paid a flat dollar amount for each bushel shortage. For example, the Initial Price Discovery on Corn is $5.90/bu, the amount paid is $5.90/bu regardless of where the price is at Harvest.
With this policy, your bushel guarantee remains the same and you are paid an amount determined at the beginning of the insurance period. Regardless of what the Harvest Price is during the Harvest Price Discovery.
[READ NEXT: What Is Margin Protection Crop Insurance?]
This policy utilizes the Harvest Price to determine if the initial Revenue Guarantee is sufficient to not generate a loss.
If the Initial Guarantee was $1,000 per acre based on an Initial Price Discovery of $5.90/bu, the $1,000 Guarantee is then divided by the Harvest Price to see if the yield was adequate to not generate a loss.
$1,000/$5.90/bu Initial Price = 169 bushel initial guarantee
$1,000/$5.00/bu Harvest Price = 200 bushel needed to avoid a loss
$1,000/$6.50/bu Harvest Price = 153 bushel needed to avoid a loss
As you can see in these examples, the final Harvest Price determines your guaranteed bushels. This increases your “Trigger Yield” in a decreasing price environment, but lowers your “Trigger Yield” in an increasing price environment.
This policy does not allow you to recalculate your insurance guarantee with a higher Harvest Price, but calculates your “Trigger Yield” based on your beginning guarantee divided by the Harvest Price.
RP is probably the most popular crop insurance policy. This policy utilizes the Harvest Price in a couple of different ways. If the Harvest Price is lower than the Initial Price, the Initial Guarantee is divided by the Harvest Price to determine a “Trigger Yield. If the Harvest Price is higher, the Initial Guarantee is recalculated using the higher Harvest price.
An Initial Guarantee was $1,000 per acre based on an Initial Price Discovery of $5.90/bu and bushel guarantee of 169/bu/ac. If the Harvest Price is higher than the Initial Price, a new guarantee is calculated before calculating a “Trigger Yield” that is used to determine if a loss is present.
$1,000 guarantee at $5.90/bu Initial Price = 169 bushel initial guarantee
$1,000 guarantee at $5.00/bu Harvest Price = 200 bushel needed to avoid a loss
$1,098 guarantee at $6.50/bu Harvest Price = 169 bushel final guarantee
This policy provides you coverage regardless of the change from the Initial Price to the Harvest Price. In a decreasing price environment, additional bushels are needed in order to meet the Initial Revenue Guarantee. In a rising price environment, the guaranteed bushels per acre do not change and if there is a shortage of bushels, you will be paid the higher Harvest Price if you are below your guaranteed bushels.
Harvest Price Discovery for Corn and Soybeans begins October 1st and will be complete on October 31st. Based on which MPCI policy you have in place, it determines how the Harvest Price will be used to determine the number of bushels needed to avoid a loss (trigger yield).
[RELATED: Choosing Between Yield Protection or Revenue Protection with Your Crop Insurance]
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Oct 07, 2022