Economist Suggests Considering Switch To ARP For Soybeans

It seems likely the price of soybeans at harvest this fall could be much lower than it is now, so it might be time to think about a different crop insurance plan. University of Illinois Agricultural Economist Gary Schnitkey explains the difference between the two federal crop insurance basic revenue protection forms, Revenue Protection (RP) and Area Risk Protection (ARP.)

“RP is what most people buy, Revenue Protection,” he said. “It is a farm level product that makes payments based on what happens to farm yields. ARP is a county level product, so it makes payments based on what happens to county yields and county revenue, but it’s county yields that enter in the equation rather than farm yields for RP.”

Schnitkey says there is a basic coverage advantage if you consider the switch this year to the ARP option.

“The reason I think farmers should consider it is because they have a 90 percent coverage level in ARP vs. only going up to 85 percent on RP. This year we’re probably looking at some more downside price risk on soybeans and the 90 percent guarantee would cover more of that price risk.”

Moving up to a 90 percent coverage level increases the price below which crop insurance payments occur. Given a $10.20 projected February price and a 90 percent coverage level, harvest prices below $9.18 a bushel for soybeans in November ($10.20 x .90) would generate payments, given that the harvest yield equals the guarantee yield. The break-even price drops to $8.67 at an 85 percent RP coverage level, and $8.16 at an 80 percent coverage level.

Schnitkey says there are some caveats when switching from RP to ARP.

“With ARP you will give up farm level coverage, so you won’t have your individual yields covered and you won’t also have prevented planting or replant payments,” he said.

The coverage on ARP begins when the crop is planted. Because ARP uses county yields in its calculations, a farm may not receive a payment if the farm has a poor yield and the county does not. The relative premiums on RP and ARP vary across counties. Not all counties will have a 90% ARP premium that is lower than the 85 percent RP policies.