Directions for Using the Crop Insurance Decision Making Tool
Gloy, Brent A.; Staehr, A. Edward
This crop insurance decision making tool helps users understand how crop insurance can be used to alter their exposure to risk. In section 1, the tool calculates the user’s financial exposure to risk. The tool requires that producers enter the acreage of various crops, their expected yields, and expected prices. The tool then produces a table that calculates the impact of various levels of revenue losses. The level of losses reflects losses in revenues due to declines in yields and/or prices. In section 2, users enter their per acre costs of production for various crops. The per acre cost of crop insurance is highlighted in yellow. This value is entered in section 5 where the user enters the details of their crop insurance policies. The budgets are summarized with an expected profit per acre and total expected profit on lines 43 and 44. The total expected profit for the operation is shown on line 44 column g. This value includes the cost of any crop insurance selected in section 5. Section 3 produces a table that shows the impact of various loss levels on the expected profit when no insurance is purchased. These levels are obtained by adding the cost of insurance from the crop budget to the expected profit less revenue losses. Section 4 provides links to information on various crop insurance policies. Users enter details about available crop insurance products in the blue shaded table. These parameters are required to evaluate various insurance products. If you do not wish to consider a product you can simply leave the cell blank. For instance, if users do not wish to consider Indexed Income Protection (IIP) for corn, they can leave the cells related to IIP blank. Additionally, not all policies are available for all crops. Section 5 allows users to evaluate how a variety of crop insurance tools impact the profitability of their operation. In this section the user selects the crop insurance product that they wish to evaluate on line 90. For instance, wheat growers can choose between APH and CRC insurance. Once the product is selected the range of coverage possible is displayed on line 91. The user then enters their coverage level on line 92. The per acre premium for the product selected is then entered on line 94. This value is then reflected in the crop budgets above and will be used in the projected profit numbers below. The actual yield that the producer wishes to consider is entered on line 95. This gives the user the ability to see how yield reductions would impact projected profits and insurance indemnities. The actual harvest price that the producer expects to receive is entered on line 96. This allows users to observe how price fluctuations impact projected profits and indemnities. This price is also used to calculate the CRC and IIP harvest prices. This price should correspond to the user’s forecast of futures prices at the time of harvest. The IIP Harvest price, GRP payment yield, and GRIP final county revenues are also required to forecast the potential indemnities received from these products. Please note that individual yield variations do not impact indemnities under GRP and GRIP policies. Users that do not wish to consider GRP, GRIP, or IIP policies can leave these values blank. Once the required information has been entered, the program calculates the per acre income with and without insurance on lines 102 and 103. The net income per acre and total net income with and without crop insurance are show on lines 105, 106, 108 and 109. These values allow users to quickly determine the impact of crop yield and prices losses on their net income.