Release No. 0024.97 Tom Amontree(202)720-4623 tamontree@usda.gov Eric Edgington(202)690-2539 eedgington@wdc.fsa.usda.gov SECRETARY ANNOUNCES NEW REVENUE INSURANCE PROGRAMS WASHINGTON, Jan. 31, 1997--Agriculture Secretary Dan Glickman announced that several new revenue insurance products will be available to growers of selected 1997 spring planted crops. This package includes an agreement for expansion of Crop Revenue Coverage (CRC) for corn and soybeans into new areas and the addition of new CRC programs in selected areas for cotton, grain sorghum, and spring wheat. "Protecting an effective agricultural safety net is one of USDA's top priorities, and this crop insurance package expands our ability to make sure that safety net is in place" said Glickman, "Revenue insurance products help producers manage both price and yield risks so they can borrow money and market their crops with greater confidence." CRC provides revenue protection based on price and yield expectations. Sales of CRC will begin upon timely receipt from American Agrisurance, the private sector sponsor of CRC, of the appropriate premium rates, their review, approval and publication. Beginning this spring, CRC will be available on: Corn Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, Ohio, Oklahoma, South Dakota, and Texas Soybeans Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, Ohio, Oklahoma, South Dakota, and Texas. Spring Wheat Minnesota, and selected counties in North Dakota and Montana (See attachments. Minnesota counties are not included. CRC wheat coverage was available last fall in Kansas, Michigan, Nebraska, South Dakota, Texas, Washington and designated counties in Montana) Cotton Arizona, Georgia, Oklahoma and selected counties in Texas (see attachments) Grain Sorghum Colorado, Nebraska, Oklahoma and selected counties in Kansas, Missouri, and South Dakota (see attachments) At an earlier meeting of the FCIC Board of Directors, an expanded version of the Income Protection (IP) plan of insurance was approved for grain sorghum and soybeans. IP policies protect producers against reductions in gross income when a crop's price or yield declines from early-season expectations. Beginning this spring, IP will be available on: Grain Sorghum Texas: See attachments Soybeans Illinois: Champaign, Ford, Iroquois, Livingston, McLean Indiana: Benton, Fountain, Warren Iowa: Adair, Audubon, Cass, Dallas, Guthrie, Shelby Arkansas: See attachments Corn Illinois: Champaign, Ford, Iroquois, Livingston, McLean Indiana: Benton, Fountain, and Warren Iowa: Adair, Audubon, Cass, Dallas, Guthrie, Shelby Cotton Alabama: Autauga, Lawrence, Limestone, Madison Georgia: Brooks, Colquitt, Dooly, Worth Spring Wheat Minnesota: Kittson, Marshall, Polk, Roseau North Dakota: Grand Forks, Pembina, Walsh The FCIC Board of Directors also approved Revenue Assurance (RA), a revenue based insurance plan submitted by Farm Bureau Mutual Insurance Company. Beginning this spring, RA protection will be available for Iowa producers growing corn and soybeans. RA is structured much like the (IP) with several key differences. Unlike IP, RA uses the Chicago Board of Trade prices with a county adjustment factor to establish crop prices. The projected county price is used to calculate the revenue guarantee, premium, and the indemnity. A county harvest price is used to calculate the value of the production to determine if producers have suffered a revenue loss. Since the two prices are determined at the county level, they may be more representative of the local market prices received by producers. Further, RA allows producers to subdivide their acreage into smaller "units," as defined in their policies. CRC and IP programs operating in 1996 will continue to be available in 1997. Board actions limited CRC and IP expansion to those counties with a sales closing date of February 28th or later. All revenue based insurance products are sold by crop insurance agents. A listing of agents may be found in all local Farm Service Agency offices. Program details and a listing of counties with new revenue insurance programs are attached. # Q&A's Q: How does Crop Revenue Coverage work? A: Both CRC and IP provide revenue protection based on price and yield expectations. However, CRC also contains "replacement cost coverage" to protect the policyholder against losses when market prices increase. For corn, the early-season price is 95 percent of the February average price of the Chicago Board of Trade December corn contract. The harvest price is 95 percent of the November average for the same December contract. The price at which the crop actually sells is not used to calculate a loss payment. The CRC revenue guarantee is the result of multiplying the producer's historical yield by the coverage level, and the higher of the early-season price or the harvest price. For example, suppose that a corn producer has an average historical yield of 115 bushels per acre, the early-season price is $2.50 per bushel ($2.63 x .95), and the producer selects 75 percent coverage. Using this information, the following two scenarios illustrate the conditions under which CRC would pay producers. Scenario 1 (low yields, harvest-time price is higher than early-season price): The producer harvests 55 bushels per acre, and the harvest-time price (November) increases to $3.00 per bushel. So, the producer's dollar amount of protection is $245.81 per acre (115 bu. x .75) x (.95 x $3.00). The calculated revenue is $156.75 (55 bu. x the harvest price of $2.85). So, the loss payment to the producer is $89.06 per acre ($245.81 - $156.75). Scenario 2 (low yields, harvest-time price is less than the early-season price): The producer harvests 55 bushels per acre, and the harvest price falls to $1.89 per bushel. The producer's minimum amount of protection is $226.84 per acre (115 bu. x .75) x the higher of $2.63 or $1.80 (.95 x $1.89) and the calculated revenue is $99. (55 bu. x $1.80 harvest price). So, the loss payment to the producer is $ 127.84 per acre ($226.84 - $99.). On average, CRC premiums are significantly higher than for IP. The higher cost is due in part to the higher price that is used to pay losses. In addition, IP coverage is based on all of a producer's acreage in a county, while CRC allows producers to subdivide their acreage into smaller "units," as defined in their policies. The premium is also subsidized based on formulas used to calculate MPCI subsidy, and varies depending on the level of coverage selected. The counties recently approved for CRC are: Spring Wheat MONTANA DANIELS, ROOSEVELT, SHERIDAN, VALLEY NORTH DAKOTA DUNN, MCKENZIE, MCLEAN, MERCER, OLIVER EDDY, FOSTER, KIDDER, SHERIDAN, STUTSMAN, WELLS BARNES, CASS, GRIGGS, STEELE, TRAILL DICKEY, LAMOURE, LOGAN, MCINTOSH, RANSOM, RICHLAND, SARGENT Cotton TEXAS ARMSTRONG, BRISCOE, CASTRO, DEAF SMITH, FLOYD, GRAY, HALE, HARTLEY, PARMER, RANDALL, SWISHER, ANDREWS, BAILEY, COCHRAN, CROSBY, DAWSON, GAINES, GLASSCOCK, HOCKLEY, HOWARD, LAMB, LUBBOCK, LYNN, MARTIN, MIDLAND, TERRY, YOAKUM BORDEN, CHILDRESS, COLLINGSWORTH, COTTLE, DICKENS, DONLEY, FOARD, GARZA, HALL, HARDEMAN, KENT, KING, MOTLEY, WHEELER, WICHITA, WILBARGER BAYLOR, COLEMAN, FISHER, HASKELL, JONES, KNOX, MITCHELL, NOLAN, RUNNELS, SCURRY, STONEWALL, TAYLOR Grain Sorghum KANSAS GOVE, GREELEY, LANE, LOGAN, NESS, SCOTT, TREGO, WALLACE, WICHITA CLARK, FINNEY, FORD, GRANT, GRAY, HAMILTON, HASKELL, HODGEMAN, KEARNY, MEADE, MORTON, SEWARD, STANTON, STEVENS BARTON, DICKINSON, ELLIS, ELLSWORTH, LINCOLN, MCPHERSON, MARION, RICE, RUSH, RUSSELL, SALINE ATCHISON, BROWN, DONIPHAN, JACKSON, JEFFERSON, LEAVENWORTH, MARSHALL, NEMAHA, POTTAWATOMIE, RILEY, WYANDOTTE MISSOURI BATES, CASS, CEDAR, HENRY, JACKSON, JOHNSON, LAFAYETTE, ST CLAIR, VERNON SOUTH DAKOTA AURORA, BEADLE, BRULE, BUFFALO, HAND, HUGHES, HYDE, JERAULD, SULLY GREGORY, JONES, LYMAN, MELLETTE, TODD, TRIPP Q: How does Revenue Assurance work? A: RA is dollar denominated coverage. That is, a producer selects a dollar amount of target revenue from a range defined by 65 to 75 percent of expected revenue (Approved APH yield x Coverage Level x Projected County Price). The projected county price is used to calculate the revenue guarantee, premium and indemnity. The county harvest price is used only to determine the value of production to count against the revenue guarantee. The projected county price for corn is a simple average of the final closing daily settlement prices in February on the Chicago Board of Trade (CBOT) December futures contract for the current crop year, minus the county specific adjustment factor. The county specific adjustment factor is the historical difference between county harvest price and the simple average of the final daily settlement price in November on the CBOT December futures contract. For soybeans, the projected county price is the simple average of the final closing daily settlement prices in February on the CBOT November futures contract for the current crop year, minus the county specific adjustment factor. The county specific adjustment factor is the historical difference between county harvest prices and the simple average of the final daily settlement prices in October on the November futures contract. The projected county prices will be calculated before March 5 of the current crop year. The county harvest price for corn is the average of the November daily corn posted county price for the applicable crop year published by USDA. For oybeans, it is the average of the October daily soybean posted county price. The county harvest prices will be calculated by November 5 of the current crop year for soybeans and December 5 for corn. Use of RA is not a substitute for a marketing plan. Q How does the Income Protection plan work? A: The Income Protection (IP) policies protect producers against reductions in gross income when a crop's price or yield declines from early-season expectations. Using corn as an example, a projected price, using the February average of the December Chicago Board of Trade corn contract, is used to establish guaranteed revenue (the revenue guarantee is the result of multiplying the producer's historical yield by the projected price, and the coverage level selected by the producer). Revenue shortfall is determined by using a harvest price, which is the November average of the same December contract. The price at which the crop actually sells is not used to calculate a loss payment. A producer is paid for a loss when the actual and appraised yield multiplied by the harvest price falls below the revenue guarantee. Other crops use similar pricing periods as specified in each insurance policy. For example, suppose that a corn producer has an average historical yield of 115 bushels per acre, the projected price is $2.50 per bushel, and the producer selects 75 percent coverage. The producer's revenue guarantee is $215.75 per acre (115 bu. x $2.50 x .75). Using the information above, the following two scenarios illustrate conditions under which IP would pay producers. Scenario 1 (low yields, high prices): The producer harvests 55 bushels per acre and the harvest price is $2.60 per bushel. The producer's calculated revenue is $143.00 per acre (55 bushels x $2.60 per bushel). So, the producer is paid the difference of $72.75 per acre ($215.75 - $143.00). Scenario 2 (normal yields, low prices): The producer harvests 115 bushels per acre, but the actual harvest price falls to $1.80 per bushel. The producer's calculated revenue is $207.00 per acre (115 bu. x $1.80). So, the producer is paid the difference of $8.75 per acre ($215.75 - 207.00). The premium for IP coverage reflects the historic yield variation and the variation in gross income due to yield and price movements during the crop ear. On average, IP coverage is less expensive than standard MPCI protection. The premium is subsidized based on the formulas used to calculate the multiple peril crop insurance (MPCI), and varies depending on the level of coverage selected by the producer. The counties recently approved for IP coverage are: Grain Sorghum TEXAS ARMSTRONG, BAILEY, CARSON, CASTRO, COCHRAN, DALLAM, DEAF SMITH, GRAY, HALE, HANSFORD, HARTLEY, HOCKLEY, HUTCHINSON, LAMB, MOORE, OCHILTREE, OLDHAM, PARMER, POTTER, RANDALL, SHERMAN, SWISHER, TERRY, YOAKUM Soybeans ARKANSAS: ARKANSAS, ASHLEY, CHICOT, CLAY, CONWAY, CRAIGHEAD, CRAWFORD, CRITTENDEN, CROSS, DESHA, DREW, FAULKNER, FRANKLIN, GREENE, HEMPSTEAD, INDEPENDENCE, JACKSON, JEFFERSON, JOHNSON, LAFAYETTE, LAWRENCE, LEE, LINCOLN, LITTLE RIVER, LOGAN, LONOKE, MILLER, MISSISSIPPI, MONROE, PERRY, PHILLIPS, POINSETT, POPE, PRAIRIE, PULASKI, RANDOLPH, SEBASTIAN, SEVIER, ST. FRANCIS, WHITE, WOODRUFF, YELL # NOTE: USDA news releases and media advisories are available on the Internet. Access the USDA Home Page on the World Wide Web at http://www.usda.gov