Revenue Guarantees
Revenue Protection (RP)
- Uses APH x Coverage Level x Share% x Base Price (derived from Chicago Board of Trade futures)
- Projected Price sets the initial price per bushel and determines minimum guarantees
- Harvest Price is set later in the year and (in conjunction with yield) determines if a claim is earned and to what amount
- If Harvest price is HIGHER than the Base price, then guarantee INCREASES to the higher price
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Corn Projected Price uses a February average of December CBOT daily settlements
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Soybeans Projected Price uses a February average of November CBOT daily settlements
- Indemnity is paid if COMBINATION of CBOT Harvest price x harvested yield is less than minimum revenue guarantee
- Works well with grain contracts, and/or futures and options marketing strategies
- Harvest Price cap of 200% of Projected Price applies | No cup limit
- Enterprise Unit is available to save premium, although it can reduce the likelihood of a payable loss
Spring Example (Corn)
- APH (160) x Level (80%) = Guar./Acre (128) x Price ($5.75) = Covg./Acre ($736)
- Covg./Acre ($736) x Acres in Unit (100) = Unit Guarantee ($73,600)
Harvest Example (Harvest Price Lower)
- Actual production = 120 Bu./acre (12,000 Bu. Farm Total)
- Acres = 100
- Harvest Price = $4.50/Bu.
- Revenue Loss = $19,600 [$73,600 – (12,000 x $4.50/Bu. Fall Price)]
- Indemnity = $19,600 [$73,600 – $54,000]
Harvest Example (Harvest Price Higher)
- Actual production = 110 Bu./acre (11,000 Bu. Farm Total)
- Acres = 100
- Harvest Price = $6.75/Bu.
- Revenue Loss = $12,150 [$86,400 – (11,000 x $6.75/Bu. Harvest Price)]
- Indemnity = $12,150 [$86,400 – $74,250]
Revenue Protection with Harvest Price Exclusion (RPHPE)
RPHPE works exactly like RP, except:
- The Harvest Price is used for figuring Harvest Revenue, but DOES NOT increase Revenue Guarantee
- RPHPE is less expense to buy, although you are exposed to upward price risk in the event of a crop yield below your guarantee
- RPHPE does not adequately cover price risk of crop loss with a grain contract in place