Agricultural Economics Department
Date of this Version
February 2003
Abstract
The forward pricing of grain typically obligates the producer to purchase replacement bushels when production falls short of the contract. If the production shortfall is due to area weather conditions, prices would be expected to rise and the price of replacement grain could exceed the preharvest contract price. Crop Revenue Coverage (CRC) multi-peril crop insurance provides a revenue guarantee. The minimum revenue guarantee for corn is determined by multiplying the coverage elected times projected revenue. Projected revenue is calculated using the historical yield (APH) for the farm and the February average of the CBT December futures contract. However, the final guarantee is based on the greater of the February and October averages of December futures. Therefore, if futures prices rise along with local prices, the CRC revenue guarantee will increase to provide protection against the rising cost of replacement bushels.
Comments
Published in Cornhusker Economics, 02/12/2003. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska–Lincoln.
http://www.agecon.unl.edu/Cornhuskereconomics.html