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Purdue Ag Economist Offers Comparisons Of Crop Insurance


Farmers still considering crop insurance for this year can learn about the various types of coverage outlined by a Purdue University agricultural economist and compare them to select a plan that best meets their needs.  The deadline to enroll in crop insurance is Friday (March 15). “Crop insurance can be a very effective tool in mitigating downside risk, often defined as the chance of having low returns, on crop farms,” said Michael Langemeier, associate director of Center for Commercial Agriculture, based at Purdue.


Langemeier wrote a report comparing crop insurance products and a second one illustrating crop insurance guarantees and potential insurance payments under several yield and price scenarios. The reports are available at https://www.agecon.purdue.edu/commercialag/resources/insurance/index.html. About 75 percent of Indiana crop acres were insured in 2012, when widespread drought wilted corn and soybean crops and drastically lowered yields. “As with last year’s crops, in 2013 there are several crop insurance products to choose from in Indiana,” Langemeier said.


Crop insurance can ensure against production losses and revenue losses. Though Langemeier noted it is difficult to predict yields and prices, he said historical data and recent U.S. Department of Agriculture projections indicate that price declines are more likely this year for farmers than a decline in yields. “This suggests that it is imperative to closely examine the revenue policies,” he wrote. Revenue polices protect against revenue loss from price, low yield or a combination of both. Such policies consist of a risk protection plan, which is based on the production history of the farm, and a group risk income plan, based on county yields. Insurance based on production losses include a yield protection policy and a group risk plan. A yield production policy insures against yield losses from an individual farm. A group risk plan insures against production losses based on county yields.


Producers typically have three considerations when choosing among crop insurance: its cost, the likelihood of yield and revenue losses, and the level of risk, Langemeier said. “Though the relative cost of the insurance products does vary across counties, yield policies tend to be cheaper than revenue policies,” Langemeier said. Farmers with less tolerance for risk are more likely to choose insurance that includes a higher level of coverage, he said. Although the size of potential indemnity payments increases as coverage level increases, such policies are more expensive.