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GRIP makes indemnity payments only when the average county revenue for the insured crop falls below the revenue chosen by the farmer. GRIP-HRO makes indemnity payments when the county yield and/or revenue is below selected levels.
To understand the concept of GRIP, you must first understand some of the terminology.
Expected County Yield: NASS (National Agricultural Statistics Service) establishes an expected county yield per acre for each crop. Planted, harvested and unharvested acres, in addition to 40 year yield trends, are used in establishing these yields. Think of this as the county APH (Actual Production History).
Spring Price: This plan uses the Chicago Board of trade (CBOT) futures contract prices for corn and soybeans to establish the Spring prices for these crops. For corn, it is the average closing settlement price in February for December futures. For soybeans, it is the average closing settlement price in February for November futures.
Expected County Revenue: This is the Expected County Yield, multiplied by the Spring Price.
Level of Coverage is used to calculate the Trigger Revenue. The Level of Coverage selected by the insured (between 70% and 90%) multiplied by the Expected County Revenue produces the Trigger Revenue amount.
Maximum Protection Per Acre: This amount is determined by multiplying the Expected County Yield by the Spring Price by 150%. The insured selects between 60% and 100% of this amount to calculate the Protection Per Acre. For example, the Macon County, Illinois Expected County Yield in 2005 was 170.3. The Spring Price was $2.38. So the Maximum Protection Per Acre is calculated as follows: 170.3 X $2.38 X 1.5 = $608 per acre. The minimum protection was 60% of this number or $365/acre.
Harvest Price is CBOT’s average monthly closing settlement price for specific crop futures. For Corn, it is the average monthly closing settlement price in November for the December futures. For soybeans, it is the average monthly closing settlement price in October for the November futures.
Actual County Yield: This is determined by NASS after harvest is completed in the county. This figure is released prior to April 16 of the following year.
Actual County Revenue is the Actual County Yield multiplied by the Harvest Price. This is determined after the Actual County Yield is released.
Net Insurable Acres: The number of acres of the insured crop in the county reported to the Company by the Acreage Reporting Date.
Example:
250 acres of corn at 100% interest
200 acres of corn at 50% interest shared with Jones
100 acres of corn at 50% interest shared with Smith
400 Net Insurable Acres soybeans in one county
Unit Structure refers to the per crop/ per county plan insurance used for the GRIP Program. While other crop plans use basic and optional units, GRIP is sold on the basis of single units consisting of the total net acres of one crop in one county. The above example is a single insured unit consisting of 400 net acres of one crop in one county. With the GRIP plan, this is also referred to as an Enterprise Unit.
How to Select Coverage
To choose the desired amount of coverage, the insured makes two selections:
Select the Protection Per Acre
Select the amount of Protection Per Acre you want, ranging from 60% to 100% of the Maximum Protection Per Acre. The Protection Per Acre you select will be used in determining the amount of your premium. It will also be used as a factor in calculating the amount of loss payable if the Actual County Revenue for your crop is less than the Trigger Revenue.
Select the Level of Coverage
Select the Level of Coverage, ranging from 70% to 90% of the Expected County Revenue (a number calculated by multiplying the Expected County Yield established by NASS by the Expected Harvest Price based on the CBOT February contracts.) The Level of Coverage multiplied by the Expected County Revenue establishes the Trigger Revenue amount for your policy.
Premium Costs, and FCIC Subsidies:
Premiums vary by crop and county. However, the Federal Crop Insurance Corporation subsidizes the premium costs. They are the same regardless of where GRIP or GRP is written. The percentage of subsidy is based on the level of coverage:
| Level of Coverage: |
70 |
75 |
80 |
85 |
90 |
| Premium Subsidy: |
64% |
64% |
59% |
59% |
55% |
Example: Selecting the Protection Per Acre and Trigger Reve
Crop: Corn – Macon County, Illinois
Expected County Yield: 170.4 bushels per acre
Spring Price: $2.38 per bushel
Expected County Revenue: $406 (170.4 x $2.38)
Maximum Protection Per Acre: $608 (170.4 x $2.38 x 150%)
Net Insurable Acres: 400
Selecting the Amount of Loss Protection per Acre
The insured may select an amount of Protection Per Acre, ranging from 60% to 100% of the Maximum Protection Per Acre. In this example, the Maximum Protection Per Acre is $608 (170.4 x $2.38 x 150% = $608) and the insured may select an amount of Protection Per Acre ranging from $365 (60% x $608) per acre to the maximum of $608. (The insured may select only one amount of protection per crop per county).
Selecting the Amount of Loss Protection per Acre
The insured may select a Level of Coverage amount ranging from 70% to 90% of the Expected County Revenue. The Level of Coverage multiplied by the Expected County Revenue determines the Trigger Revenue amount. In this example, if an insured selects the 90% Level of Coverage, the Trigger Revenue is $365 per acre (90% x $406 = $365). When NASS announces the Actual Yield per Acre in April of the following year, it will be multiplied by the Harvest Price to obtain the Actual County Revenue. If this amount is below the Trigger Revenue of $365, a Loss will be paid.
Example: Calculating a loss payment on 400 Net Insurable Acres of corn in one county
Expected County Yield = 170.4 bushels per acre
Spring Price $2.38 per bushel
Expected County Revenue = $406 per acre
*Harvest Price = $2.00 per bushel
**Actual County Yield = 165 bushels per acre
Actual County Revenue = $330 per acre ($2.00 x 165)
Protection per Acre = $608 (170.4 x $2.38 x 150%)
Trigger Revenue = $365 ($406 x 90%)
*The Harvest Price for corn is fixed by CBOT as an average of Dec futures in Nov.
**The Actual County Yield is established by NASS the following April.
In the example, Actual County Revenue is less than Trigger Revenue, therefore, a loss payment is due. The loss payment is calculated as follows:
Trigger Revenue minus Actual County Revenue ($365 - $330 = $35)
Divided by Trigger Revenue equals loss percentage (35/365 = 9.6%)
Loss percentage multiplied by Protection Per Acre, Multiplied by Net Insurable Acres equals loss payment. (9.6% x $608 = $58/acre x 400 acres = $23,321)
ADVANTAGES OF GRIP COVERAGE:
Cost is generally less than other individual types of coverage such as MPCI, CRC, RA and IP.
With GRP and GRIP (Group Risk Income Protection) you can insure up to 90% compared to a maximum of 85% with other products. Also with GRIP & GRP, at the 90% level, 55% of the GRP premium is subsidized by the government. At the highest levels of CRC, RA or Multi Peril which is 85%, only 38% of the premium is paid by the government.
Cost per acre is the same for high-risk acres as regular rated acres.
No APH yield reports necessary. However, it is recommended that the insured update yield history in the event that plans of coverage are changed in the following years.
Provides a tremendous amount of coverage for the dollar spent. In the above example from Macon County, Illinois in 2005, you would have spent about $13.30/acre to protect a revenue trigger of $365/acre in the county. It would have cost approximately $12.26 per acre to get optional unit 80% CRC policy to protect $315/acre on your farm (using a 170APH). Which do you think is better? (There isn’t a right or wrong answer unless you have a crystal ball and can tell the future). Your Strategic Farm Marketing agent is trained to help you sort out the advantages and disadvantages.
Great product for farmers who rarely have production losses and generally have better than average land in the county. With this product you may receive a claim on every one of your acres even though your farm did not experience a yield loss.
GRIP and GRP typically have much higher loss ratios for the insurance companies (producer dollar spent on crop insurance vs dollars received from claims) vs CRC, RA, MPCI, and IP. Studies from the University of Illinois show farmers typically get more return for the dollar spent using county based insurance products. In some counties, they show county based crop insurance actually being a net gain to the farming operation over time.
DISADVANTAGES OF GRIP COVERAGE:
No loss payments on individual units. For corn, you have a lot of input costs. Even though the protection levels are probably higher than you can insure on your farm, you are risking having an individual loss when the county does not experience a loss.
No federal replant provisions or prevented planting coverage. However, Strategic Farm Marketing is one of the few agencies that offers a supplemental product that includes both replant and prevent plant coverage for GRIP and GRP policies at a reasonable cost. This supplemental product does require the purchase of at least a minimal amount of hail insurance.
No loss payment until the following year.
No upward price protection. Losses are paid only if the Actual County Revenue falls below the Trigger Revenue. If the Actual County Yield is less than the Expected County Yield, scarce market supply may drive up both Harvest Price and Actual County Revenue. In such a situation, fewer bushels will be required to meet the Trigger Revenue and in some cases no loss payment will be made.
Because your farm is not individually protected, you may want to consider hail insurance.
HARVEST REVENUE OPTION
In the past, one of the disadvantages of a GRIP policy was the lack of upward price protection. In years when there are large losses to a crop, the fall price tends to rise. When this happened, only products like CRC, or RA-HPO took the increased price into consideration in calculating loss payments.
In 2004, FCIC introduced the GRI{ Harvest Revenue Option. Under this coverage plan, the Protection Per Acre and the Trigger Revenue both increase when the Harvest Price is greater than the Spring Price. This allows you to have Yield and Price Protection.
The following example shows the benefit of the Harvest Revenue Option (HRO). In this example, a loss payment of $15,617 is made, whereas, without the HRO, no claim is recognized.
Example: Harvest Revenue Option
Actual County Yield = 125 bushels
*Harvest Price $3.00
*Spring Price = $2.38
**Trigger Revenue = $365
**Actual County Revenue = $375
Protection Per Acre = $608
Under the Harvest Revenue Option, the Protection Per Acre and Trigger Revenue increase automatically if the Harvest Price exceeds the Spring Price.
Increase in Protection Per Acre
The amount of increase in Protection Per Acre is determined as follows:
Harvest Price divided by Spring Price equals percent of increase ($3.00÷ $2.38 = 1.26%)
Percent of increase multiplied by original Protection Per Acre equals new Protection Per Acre (1.26% x $608 = $766)
Increase in Trigger Revenue
Under the Harvest Revenue Option, if the Harvest Price exceeds the Spring Price, the Trigger Revenue is recalculated using the Harvest Price, resulting in an increased Trigger Revenue amount. The amount of increase in Trigger Revenue is determined as follows:
Expected County Yield multiplied by Harvest Price multiplied by Level of Coverage equals new Trigger Revenue
(170.4 x $3.00 x 90% = $460)
Calculating the percentage of loss
The percentage of loss is calculated using the new Trigger Revenue, as follows:
New Trigger Revenue minus Actual County Revenue divided by new Trigger Revenue equals percentage of loss
($460 - $375 ÷ $460 = 18.5%)
Calculating the loss payment amount
The loss payment amount is determined as follows:
Percentage of loss multiplied by new Protection Per Acre multiplied by Net Insurable Acres equals loss payment
(18.5% x $766 = $142 claim per acre x 400 acres = $56,800
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