Lower Crop Insurance Premiums Expected for 2024
Published: Friday, February 23, 2024
The following is from, Nick Paulson, Gary Schnitkey and Ryan Batts, all agricultural economists with the University of Illinois, and Carl Zulauf, agricultural economist with Ohio State University.
Given corn and soybean futures prices during the first half of February, projected crop insurance prices will be much lower than in 2023, resulting in lower per acre premiums in 2024. Premiums are likely to be 16 to 18% for lower for corn policies and 10 to 12% lower for soybean policies based on current estimates for Champaign and Jefferson counties in Illinois. Since lower insurance prices also result in lower guarantees per acre, farmers may wish to increase their coverage levels with the premium savings.
The 2024 insurance premium examples in this article are generated with the Excel-based Crop Insur-ance Decision Tool which can be used to generate premium estimates for crops in many states in the Midwest and Southeast regions of the U.S. The web-based Crop Insurance Premium Calculator has also been updated for 2024.
The projected insurance prices for corn and soybeans are based on average settlement prices on each crops' harvest contract during the month of February. Through Feb. 9, the December corn contract has averaged $4.74 per bushel. This is $1.17 below the $5.91 projected price for the 2023 crop year, a decline of nearly 20%.
The November soybean contract has averaged $11.73 per bushel or $2.03 below the $13.76 projected price in 2023, a decline of nearly 15%. The lower projected prices will have the effect of lowering premium costs rela-tive to 2023 since premiums are proportional to the value of the liability being insured.
Price volatility factors, a measure of the potential movement in prices between now and when the contracts expire, also impact premium costs. Higher volatility factors lead to increased premium costs and vice versa. Through Feb. 9, the volatility factors for corn and soybeans in 2024 have been .19 and .14, respectively. These are slightly higher than the volatility factors of .18 and .13 that were used to set premiums in 2023.
Note that final volatility factors are based on the average implied volatilities over the last five trading days in February and, like projected prices, finalized values will likely differ from the values used here to estimate premiums.
The Excel-based Crop Insurance Decision Tool is used to generate 2024 farmer-paid premium estimates for corn and soybeans for two Illinois county examples. Champaign County is in east-central Illinois and is an example of a relatively high-productivity and low-risk area. Jefferson County is in southern Illinois and is an example of a relatively low-productivity and high-risk area. Premium costs are based on current projected price and volatility estimates for 2024 through Feb. 9.
We focus on Revenue Protection (RP), the most popular product in Illinois, as the individual insurance plan and also include example premium estimates for the Supplemental and Enhanced Coverage Options (SCO and ECO).
SCO and ECO provide supplemental area protection and require use of an underlying individual plan of insurance. SCO was introduced in the 2014 Farm Bill and provides area protection from 86% down to the coverage level of the underlying policy.
ECO, first offered for the 2021 crop year, was created and implemented through section 508(h) of the Federal Crop Insurance Act and pro-vides area protection from either 90% or 95% down to 86%.
The tables report premium cost estimates for each of the policies (RP, SCO, ECO-90 and ECO-95) on their own and also for various RP + supplemental plan combina-tions.
While the supplemental plan (SCO and ECO) premium estimates are reported separately in the tables below for illustration purposes, they must be combined with an underlying individual plan and cannot be purchased individually on their own.
The upper panel of Table 1 reports farmer-paid RP premium estimates for a repre-sentative farm in Champaign County with a trend-adjusted actual production history (TA-APH) crop insurance yield of 200 bushels per acre. Premium estimates are provided for RP coverage levels ranging from 70% to 85% (columns in yellow) along with the supplemental area plans (columns in blue), and plan combinations (columns in green), at those RP coverage levels.
At an 80% coverage level, RP is estimated to cost just over $11 per acre. Adding SCO to the 80% RP plan would cost an additional $5.46 per acre for a total premium cost of nearly $17 per acre. Increasing RP cov-erage to 85% would increase premium cost to nearly $23 per acre, while the cost of adding SCO coverage would de-cline to around $1 additional per acre for a total premium cost of $24 per acre.
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