NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

July 22, 1999

NDSU Ag Economist: Farmer Selling Price of Durum Won't Affect CRC Indemnity Payment

Reports of confusion are surfacing about how loss payments from the Crop Revenue Coverage (CRC) insurance for durum are determined. Some durum producers incorrectly believe that the sale price they receive is what's used in the calculation to determine their indemnity payments.

Because of these misconceptions, an agricultural economist with the North Dakota State University Extension Service is concerned that durum producers may be expecting more from the CRC program than it will deliver.

"The harvest price, for CRC insurance purposes, is the August average closing price for top milling-quality cash durum at the Minneapolis Grain Exchange," stresses Andrew Swenson, extension farm and family resource management specialist at NDSU. "Therefore, anything that results in a lower market price will be reflected--dollar for dollar--in lower income because it has no impact on CRC calculations."

Swenson says the following two calculations should help clarify the confusion:

• The CRC guarantee for 1999--either $4.68 or $5.45 per bushel base price (depending on the outcome of the federal court case) times actual production history (APH) times coverage level (50 percent to 85 percent). For example, assuming the $4.68 base price, a 30-bushel APH and a 65 percent coverage level, the revenue guarantee would be $91.26 ($4.68 X 30 X 0.65).
• The loss payment formula for 1999--the CRC guarantee minus the actual harvested yield times the August average closing price for top milling-quality durum on the Minneapolis Grain Exchange. Assuming a 24-bushel-per-acre actual yield and $3.75 per bushel as the August average closing price for top milling-quality cash durum at the Minneapolis Grain Exchange, the indemnity payment would be $1.26 per acre (24 bushels per acre X $3.75 = $90; $91.26 - $90 = $1.26). If the local cash price is $3, crop sales would be $72 (24 X $3). Total per-acre revenue, then, would be $73.26 ($72 + $1.26 = $73.26).

"There is no guarantee the indemnity payment plus farm-level cash sales will equal the crop insurance revenue guarantee," Swenson concludes. "The reason is because the harvest revenue is based on the cash price for top milling-quality durum at the Minneapolis Grain Exchange. This price is typically 70 cents to $1 more than local cash prices."

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Source: Andrew Swenson (701) 231-7379
Editor: Dean Hulse (701) 231-6136