Crop Insurance Today Second Quarter 2019 - 16

Table 4 Federal Crop Insurance Program Performance, Gross Basis1
CROP
YEAR

POLICIES WITH
PREMIUM

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

1,172
1,140
1,152
1,174
1,224
1,207
1,205
1,160
1,125
1,108

UNITS WITH
PREMIUM

LIABILITY

PREMIUM

FARM-PAID
PREMIUM

79,548
78,085
114,210
117,160
123,811
109,904
102,530
100,622
106,086
110,122

8,951
7,595
11,972
11,117
11,808
10,073
9,767
9,328
10,072
9,894

3,524
2,883
4,509
4,138
4,511
3,858
3,678
3,462
3,717
3,630

Thousands

INDEMNITY

GROSS
UNDERWRITING GAIN

Million Dollars

2,729
2,572
3,322
2,529
2,584
2,539
2,546
2,442
2,370
2,329

5,222
4,254
10,869
17,451
12,085
9,136
6,314
3,910
5,419
6,711

INSURED
ACRES

LOSS
RATIO

Million

3,729
3,341
1,103
-6,334
-227
937
3,453
5,418
4,653
3,183

264
256
266
283
296
294
296
290
312
335

0.58
0.56
0.91
1.57
1.02
0.91
0.65
0.42
0.54
0.68

1
Data as of April 16, 2019
Source: RMA Summary of Business

16

SECONDQUARTER2019

Figure 12 Share of Insured Acres Covered at 70% or Higher

Figure 14. Share of Insured Acres Covered at 70% or Higher
90

Share of insured acres, %

80
70
60
50
40
30
20
10
0

20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18

countries. Base prices in 2016 were at or near the
low end of the price range seen in recent years.
Market prices rebounded in 2018 for winter
wheat, corn, and rice, while spring wheat, cotton,
and soybean prices all declined during the year.
Corn is responsible for just over one-third
of the value of all field crop production and has
a strong influence on the prices of other crops.
Figure 10 shows corn futures prices for the contract for December delivery for each crop season
starting with 2012 and continuing through 2018.
The base price of $5.68 per bushel in 2012 was
down marginally from the price level observed
at the end of 2011. As the 2012 drought set in,
prices ran up to more than $8.00 per bushel by
late August. With the decline in demand at the
higher price level, in combination with an increase in foreign production, prices began to
moderate, ending the year above $7.00. Corn
prices started 2013 sharply lower due to the end
of the drought and an expected recovery in corn
production resulting in a base price of $5.65.
Prices continued to fall throughout 2013, ending
the year at around $4.25. The slide in prices continued into 2014, with futures prices finishing the
year at $3.96 per bushel. With no support on the
demand side and accumulating stocks, the 2015
futures price hovered above the $4.00 level before
retreating to around $3.75 toward the end of the
year. Futures prices remained weak in the early
part of 2016 and, other than a brief surge in June,
weakened further throughout the remainder
of the year ending near $3.50. The base price in
2017 recovered from the prior year's ending price
to just under the $4.00 level, but future prices followed a similar path as in 2016, ending the year
below $3.40. 2018 repeated the pattern of the pri-

Data as of April 16, 2019

Data as of April 16, 2019 Source: RMA Summary of Business

Source: RMA Summary of Business

or two years, beginning with a base price of $3.96
and weakening modestly to end at $3.75.
The implied volatility factor (IV) derived
from futures market information serves as a measure of riskiness of expected prices. Each year
RMA calculates the implied volatility factor for
an insured commodity by averaging the implied
volatility of near the money options for a selected
futures contract over the final five trading days of
the discovery period for that crop. For example,
implied volatilities over the final five trading days
in February on the futures contract for December
delivery are used in the determination of the IV
factor in the major corn producing states. The IV
factor is used by RMA to simulate the expected
price distribution for the crop, which is utilized
to establish the price risk component of the pre-

mium rate for revenue insurance plans for the
crop. A high IV indicates a greater likelihood for
large price movements while a low IV implies a
more stable market with futures prices expected
to move within a smaller range. Other things being equal, higher IV factors result in higher premiums on policies insuring the farmer's revenue,
while lower IV factors result in lower premiums.
Historical values for IVs for selected major
crops are shown in Table 3. In 2016, the IV
factors for corn, soybeans, and cotton dropped
sharply, indicating that the market was expecting more stable prices. Consistent with this
expectation, corn prices traded within a narrow band throughout the year as indicated in
Figure 10. While the IV factors for these three
crops increased in 2017, they decreased for
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