Crop Insurance - Variable Rate Price Changes

[TOM4CWB]

Charlie,

Interesting process they use to come up with the new insurance coverage level values for Alberta for July 30th...

Barley $175.00/t
Field Peas $175.00/t
Oats $166/t
Canola $385.00
Flax $360/t
Rye and Triticale $157/t
Mixed Grain $165/t
Chickpeas $350/t
Lentils $335/t


Charlie, How can they evaluate Barley and field peas as being worth the same amount, when the peas have so much more feed value/t?

I sure would like to know where I could buy Canola at $385/t to fill my contracts, this is obviously LOW, but I guess not as bad as last year...

I wonder where a person could buy triticale and rye at less than mixed grain???

[TOM4CWB]

Charlie,

How did these guys at AAFC and AAFRD for Crop Insurance figure high protein CWRS was worth $176/t and feed barley worth $175/t?

Why didn't the CPS go up to match the traditional barley / feed wheat spread???

CPS wheat at $148/t is obviously too low for Alberta, when mixed grain is at $165/t!!! Obviously CPS should have risen more than 10%!!!!!

What were these people doing when they set these Crop Insurance prices????

[charliep]

Tom4cwb

You can use my name as I am a part of the process.

The prices are our best forecast of prices over the prices this fall - not necessarily the spot market now. We need to be judged on the basis of this coming October's prices.

The pea prices are not based off futures but rather the market analysts opinion based on fundamentals/new crop offering. Likely conservative.

Your comments on triticale and rye (likely peas and oats as well) is that prices should be based off a blend of human/industrial as well as feed markets. Should be open to discussion.

On the comment on wheat, prices are set basis of CWB PRO forecasts. That includes CPS. Based on their sales program and price forecasts, they should have the best handle on total payment prospects.

[TOM4CWB]

Charlie,

This "political" way of setting prices, plus the near impossible economics of growing new and different crops (Usually new crops have half the dollar coverage per acre with more costs) leads me the believe that Crop Insurance must fundamentally change...

We need an insurance coverage system like hail insurance... where a farmer can cover real operating costs.

I have 13bu/ac flax coverage... and I just might beat the minimum coverage if I wait long enough and we have an open frost free fall... It came back in bloom... blue and golden at the same time...

Has AAFRD done any real discussions on improving Crop Insurance???

How many more years might it be till we see changes???

[charliep]

Hard to comment other than to say the people involved did their best to accurately reflect their view of prices this fall.

Can crop insurance change? Everything is on the table now with the Ag. Policy framework. My sense is that with some modifications, crop insurance is generally thought of as a good program. We have seen good discussion in other threads.

I find that AFSC is looking at some pretty innovative approaches to helping farmers manage risk. The way to approach them is to provide feedback and suggestions for change.

A final comment is that Alberta and BC are the only provinces that offer a variable pricing option. You may disagree with the summer values but the fact is that it offers a good alternative for farm managers in the current crop - price increases will go a long ways to offset the pain of forward contracted crop that has been written off. Can it be improved - open for discussion.

[TOM4CWB]

Charlie,

I know since you are involved in the process, it must seem that people always complain... yet we are much ahead of last year, with the later July 30th decision date, VS. June 30th for the 2001 crop. Our objective is of course to make the program more responsive and accurate, so ad-hoc programs are not needed.

I appreciate your candid honesty, and hopefully next year we will have a program that is even better.

Accurate price discovery is near impossible 3 months before the date you are targeting... and that issue may in fact need further program refining... advice is cheap, paying the cost requires cold hard cash.


Thankyou for advising us that only Alberta and BC have the option, because it is usefull and does help mitigate risk.

Obviously we do have one of the better crop insurance programs that exists anywhere on the planet, and for that this year especially, many Alberta farmers who chose to take this program are TRULY THANKFUL ! ! !

Thankyou, for working to make it better!!!

[TOM4CWB]

Charlie,

I was wondering why the Date was July 30th for making a decision...

Wouldn't it have been helpful to have had the info from the USDA Aug. 12 report... to decide what fall prices will likely settle down at?

[charliep]

Nothing magic about July 30 other than we had hoped to have good information at this time (would have worked in a normal year).

An interesting project I am working on is looking at using an option strategy in conjunction with crop insurance. The project looks more at using puts to lock in a minimum price. Another idea, however, would be to work with farmers to buy calls 10 to 20 % above crop insurance values. A farmer could manage the expense side by picking when to buy the call (or derivative). On the other hand in a year like the current one, the farm manager would chose when to capture the value of the call versus some arbitrary date set by us beaurocrats. Just an idea.

[TOM4CWB]

Charlie,

These are all good ideas, however;

Crop Insurance has always been "Production Insurance".

In other words the compensation from the insurance program is supposed to pay to replace the production lost to the specific perils listed in the insurance policy.

Hail insurance on the other hand has locked in specific dollar coverage levels, that are not linked to the actual production of the specific field.

With coverage levels from under $100/ac to over $300/ac all on the same farm, with actual costs that are not that different between the two different crops, the present system needs to be reformed to a spot loss hail insurance type of coverage program.

Then marketing would be marketing, and insurance for loss of invested capital could be fairly covered.

[TOM4CWB]

I like what you say Tom, but how do we stop fraud from happening in the crop insurance system. If theres away to beat the system people will work harder at beating it then growing a crop. Do you know what I mean. It cost everyone dearly in high premiums and reduced coverage.