Cornhusker Economics

By Matt Stockton and Shannon Sand

In a conversation with one of the TAPS participants about Multi-Peril Crop Insurance (MPCI) he suggested that you would never recommend RPHPE, due to the risk associated with a higher fall harvest price compared to the spring or predicted price. Since the year 2000, this has occurred about one-third of the time. This price reversal may alter indemnity size considerably, depending on which insurance is selected and if one qualifies for an indemnity. The discussion with the TAPS participant focused on the concern of risk exposure from pre-selling uninsured grain due to an unexpected increase in harvest price. This relates directly to the difference between RP and RPHPE. To better understand how this might work and the magnitude of its impact, some simple scenarios and simulations will be applied. It is helpful to understand the basics about these two types of revenue protection insurances. The hope is that it is not overly repetitive and simple.

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