What if RP had been around since 1977

• August 8, 2012
• Paul Neiffer

I was browsing the FarmDoc website maintained by the University of Illinois and came across a series of slides put out as part of the 2010 Illinois Farm Economics Summit.  One of the slides was a projection of Revenue Protection payments per acre from 1977 to 2011 assuming the coverage had been available.  I am not sure on the APH, but here are some of the interesting findings:

• As expected, the largest payments would have incurred in the 1980’s.  In 1983, the expected payment would be about $85 per acre and in 1988 (the last major drought year), the payment would have exceeded $145 per acre.
• The only other years with payments between $20 and $40 per acre were 1977, 1991, and 1998.
• Of the total 34 years of the study, 19 years would have shown “negative” payments, i.e. farm revenue exceeded insurance coverage, however, none of the negatives were greater than about $15.
• The cumulative payout during these years would have been about $425 and the total negative payouts would be around $100 or a return of 4 to 1.  However, I am not sure if insurance premiums are reflected in these numbers.

The management of crop insurance strategies can be as important as picking the right seed or fertilizer application.  It only takes a few years like 2012 or 2008 to make the difference between earning a profit or perhaps borrowing more from the bank than you planned.

Paul Neiffer, CPA

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