RA is revenue insurance protecting against low yields, low prices, or a combination of both.

Options under RA
Revenue Assurance – Harvest Price Option (RA-HP). Under RA-HP, a base revenue guarantee is calculated prior to the sign-up deadline for insurance. The guarantee may increase between the sign-up date and fall if prices rise. With the harvest price option, Revenue Assurance coverage is nearly the same as Crop Revenue Coverage (CRC), so be sure to compare the cost of each type of coverage.

Revenue Assurance – Base Price Option (RA-BP). Under RA-BP, a revenue guarantee is calculated prior to the sign-up deadline for insurance. This guarantee will not change.

RA-BP is revenue insurance protecting against low prices, low yields, or a combination of low prices and low yields. RA-BP insurance pays an indemnity when gross revenue falls below a revenue guarantee.

Revenue guarantee under RA-BP
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 for most insurable units. For whole farm units, the coverage level can be up to 85 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 the November soybean contract during the month of February.

 Figure 1. Base Prices for Revenue Assurance.

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 2 shows information used to calculate an example revenue guarantee. The crop is corn having a 150 bu. APH yield. Assume a base price of $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 RA-BP Assurance.

Gross revenue under RA-BP
Gross revenue, or value of the harvested crop, 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. See Figure 3.

In most cases, gross revenue does not equal the revenue a farmer receives for the crop. Prices used to calculate revenue under RA-BP are based on CBOT futures contracts. In most cases, cash prices at harvest-time do not equal futures prices. Moreover, RA-BP does not require sales of crop at harvest-time. A farmer also could hedge grain production using forward or futures contracts prior to harvest. A farmer also is free to store grain for later sale or feed use. Thus, local price have no bearing on revenue guarantees or possible imdemnity payments.

Indemnity payments under RA-BP
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 payment examples for different actual yields and harvest prices.

 Figure 4. Examples of RA-BP Indemnity Payments¹.

Footnotes for Figure 4:
¹ Based on a 150 bu. APH yield, a $2.40 base price, and a 75 percent coverage level.
² The revenue guarantee equals the APH yield, times the base, times the coverage level.
³ Gross revenue equals actual yield x harvest price.
⁴ Indemnity payment equals revenue guarantee minus gross revenue. Note: even when you harvest less that 75% of your APH yield (150 x 75% = 112.5), you would not collect an indemnity payment if a higher harvest price causes the value of the crop harvested to exceed the revenue guarantee. See below for an explaination of the Harvest Price Option and how it may pay in the event of low yields and higher harvest prices.

Choices under RA-BP
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 coverage level if it is for a different crop, or if the same crop is grown in a different county.

Insurable Units under RA-BP
Insurance units available under RA-BP are basic, optional, enterprise, and whole farm 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 RA-BP
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 RA-BP
RA-BP and Income Protection (IP) 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.

Revenue Assurance -Harvest Price Option (RA-HP)

RA-HP is revenue insurance protecting against low yields, low prices, or a combination of low yields and low prices. RA-HP pays an indemnity when actual gross revenue falls below a revenue guarantee. RA-HP’s revenue guarantee increases between planting and harvest when futures price rise between spring and fall.

Revenue guarantee under RA-HP
RA-HP’s revenue guarantee equals the APH yield, times the higher of the base price or harvest price, times the coverage level. Each factor determining the revenue guarantee is described below:

1. The APH yield is specific to a farm or a unit. It is usually based on the yield history from an insured unit
2. Base and harvest prices. Base and harvest prices are determined using Chicago Board of Trade (CBOT) futures contracts (see Figure 1).
   
   Base prices are determined by averaging settlement prices during the month of February. The December futures contract is used for corn and the October contract is used for soybeans. Base prices are released in early March prior to the deadline for purchasing crop insurance. Base prices vary from year to year.

   Harvest prices are determined by averaging settlement prices during the fall. For corn, the settlement prices for the December contract are averaged during November. For soybeans, the settlement prices for the November contract are averaged during October. These prices reflect market conditions during harvest.

   The higher of the base or harvest price is used to calculate the revenue guarantee.

Soybeans – the average settlement of the November futures prices during February

3. Coverage level. The farmer selects the coverage level. In most counties, the coverage level can be between 50 and 85 percent of expected gross revenue.

Determining the base guarantee: Prior to the deadline for signing up for insurance, base prices are released.  These base prices then are used to calculate a "base revenue guarantee." This base revenue provides a flooror minimum amount of revenue protection. The final revenue guarantee will never be below the base revenue guarantee.

Figure 6 shows an example base revenue guarantee. The crop is corn having a 150 bu. APH yield. Assume a base of $2.40. For the example, 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).

Updating the guarantee: The base revenue guarantee will increase if the harvest price is greater than the base price. In these cases, the harvest price is used in calculating the revenue guarantee.

In the example in Figure 6, the $270 base revenue guarantee reflects a $2.40 base price. If the harvest price, which is released in December, is below $2.40 the revenue guarantee will equal the $270 base revenue guarantee. However, with the Harvest Price Option, if the harvest price is higher, the revenue guarantee will be increased!. Thus, if the harvest price is $3.00, the revenue guarantee is $338 (150 bu. APH yield x $3.00 corn price x 75% coverage level). Figure 7 shows indemnity payment examples for different actual yields and harvest prices.

Gross revenue under RA-HP
Gross revenue, or value of the harvested crop, is used to calculate indemnity payments. Gross revenue equals actual yield times the harvest price (see Figure 5 for price definitions).

In most cases, gross revenue does not equal the revenue a farmer receives for the crop. Prices used to calculate revenue under RA-HP are based on CBOT futures contracts. In most cases, cash prices at harvest time do not equal futures prices. Moreover, RA-HP does not require sales of crop at harvest-time. Prior to harvest, a farmer also could hedge grain production using forward or futures contracts. A farmer also is free to store grain for later sale or feed use. Thus, local price have no bearing on revenue guarantees or possible imdemnity payments.

Indemnity payments under RA-HP
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 7 shows indemnity payments for different actual yields and harvest prices.

¹ Based on a 150 bu. APH yield, a $2.40 base price, and a 75 percent coverage level.
² The revenue guarantee equals the APH yield, times the higher of the base or harvest price, times the coverage level.
³ Gross revenue equals actual yield x harvest price.
⁴ Indemnity payment equals revenue guarantee minus gross revenue. Unlike RA-BP, your revenue guarantee will increase when the harvest price rises. Thus, you could recieve and indemnity payment when you harvest less than 75% of your APH yield (150 x 75% = 112.5) and harvest prices rise.

Choices under RA-HP
For a unit, the farmer chooses the coverage level. A higher coverage level results in a higher revenue guarantee. When indemnity payments occur, the indemnity payment will be greater with a higher coverage level than a lower coverage level.

Insurable units under RA-HP
Insurance units available under RA-HP are basic, optional, enterprise, and whole farm units

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.

RA-HP premiums
Per acres premiums will depend on the county of the insured crop, units insured, the crop’s APH yield, and the selected coverage level. Higher coverage levels result in higher premiums.

Insurance Similar to RA-HP
RA-HP and Crop Revenue Coverage (CRC) are very similar insurance products. Differences between the products are:

1. CRC can be used to insure basic, optional, and enterprise units. RA-HP has these units along with a whole farm unit.
2. Under CRC, there are price increase limits when updating the revenue guarantee. Limits are $1.50 for corn and $3.00 for soybeans. RA-HP does not have these limits.
3. 3. Premiums may differ between CRC and RA-HP.

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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