IP is revenue insurance protecting against low prices, low yields, or a combination of low prices and low yields. IP insurance makes  indemnity payments when gross revenue falls below a revenue guarantee.

Revenue guarantee under IP
The revenue guarantee equals the APH yield times a base price times a coverage level. The coverage level is selected by the farmer and ranges from 50 to 75 percent of expected gross revenue.

Base prices are calculated using Chicago Board of Trade (CBOT) futures contracts. For corn, the base price equals the average of settlement prices of the December corn contract during the month of February. For soybeans, the base price equals the average of settlement prices of November soybean contract during the month of February.

Figure 1. Base Prices for Revenue Insurance.

Corn – the average of the December futures prices during February

Soybeans – the average of the November futures prices during February

Base prices are released in early March prior to the deadline for purchasing crop insurance. These prices reflect estimates of futures prices at harvest-time. Base prices vary from year to year.

Figure 1 shows information used to calculate an example revenue guarantee. The crop is corn having a 150 bu. APH yield. Assume the base price is $2.40. A 75% coverage level is selected. The revenue guarantee is $270 per acre (150 bu. APH yield x $2.40 base price x 75% coverage level).

Figure 2. Revenue Guarantee Under IP Insurance.

Situation:
Crop	Corn
APH yield	150 bu.
Base price	$2.40
Farmer election:
Coverage level	75%
Revenue guarantee:	$270 = 150 bu. APH yield x $2.40 price x 75% coverage level

Gross revenue under IP
Gross revenue is used to calculate indemnity payments. Gross revenue equals actual yield times the harvest price.

Harvest prices are based on Chicago Board of Trade (CBOT) futures contracts. For corn, the harvest price equals the average of settlement prices of the CBOT December corn contract during the month of November. For soybeans, the harvest price equals the average of settlement prices of the CBOT November soybean contract during the month of October.

Figure 3. Harvest Prices for Revenue Insurance.

Corn – the average of the December futures prices during November

Soybeans – the average of the November futures prices during October

In most cases, gross revenue does not equal the revenue a farmer receives for the crop. Prices used to calculate revenue under IP are based on CBOT futures contracts. In most cases, cash prices at harvest-time do not equal futures prices. Moreover, IP does not require sales of crop at harvest-time. A farmer also could hedge grain production using forward or futures contracts priot to harvest. A farmer also is free to store grain for later sale.

Indemnity payments under IP
An indemnity payment occurs when gross revenue is below the revenue guarantee. For a $270 revenue guarantee, an indemnity payment equal to $50 occurs when actual gross revenue is $220 ($50 = $270 revenue guarantee - $220 gross revenue).

Indemnity payments occur because of low prices, low yields, or a combination of low yields and low prices. Figure 4 shows indemnity payments for different actual yields and harvest prices.

Figure 4. Per Acre IP Indemnity Payments for a $270 Revenue Guarantee¹.

Harvested vs APH Yield	Lower Yield	Lower Yield	Lower Yield	Same Yield	Same Yield
Harvest Price vs Base Price	Lower Price	Same Price	Higher Price	Lower Price	Same  Price
Actual Yield	100 bu.	100 bu.	100 bu.	150 bu.	150 bu.
Harvest Price	$1.70	$2.40	$3.00	$1.70	$2.40
Gross Revenue2	$170	$240	$300	$255	$360
Indemnity Payment3	$100	$30	$0	$15	$0

¹ See Figure 2 for thje calculation of the yield guarantee.
² Gross revenue equal actual yield x harvest price
³ Indemnity payments equal the revenue guarantee minus gross revenue when gross revenue is greater than revenue guarantee, zero otherwise.

Choices under IP
The farmer chooses the coverage level. A higher coverage level results in a higher revenue guarantee. Moreover, the indemnity payment will be more with a higher coverage level than a lower coverage level. All acres of the insured crop in the county must be insured at the same level of coverage. You may have a different level of coverage if it is for a different crop, or if the same crop is grown in a different county.

Insurable Units under IP
Insurance units available under IP are enterprise units. Enterprise units include all farmland in one crop in a county.

For a complete discussion of units, see Iowa State University Extension, Actual Production History and Insured Units, March 1999, http://www.exnet.iastate.edu/Publications/FM1860.pdf.

Premiums under IP
Per acres premiums will depend on the county of the insured crop, the crop’s APH yield, and the selected coverage level. Higher coverage levels result in higher premiums.

Similar Revenue Insurance to IP
IP and Revenue Assurance with a base price option (RA-BP) are very similar insurance products. Differences between the products are:

1. IP only allows enterprise units. RA-BP allows basic, optional, enterprise, and whole farm units.
2. Premiums may differ between the two products.

Download Software
Insurance Payment Calculator: The Insurance Payment Calculator compares gross revenue under alternative insurance products. It allows users to see how insurance indemnity payments and gross revenue varies under differing harvest prices and yields

Adobe Acrobat Reader : This program is needed to view many of the documents you will encounter on the internet that has a file format ending in "pdf".

Other information
Iowa State University Extension, Crop Revenue Insurance, March 1999.

Revised: April 1999 and May 2000

Some Information Provided by:  Gary Schnitkey, University of Illinois.

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