Revenue Assurance (RA) provides coverage to protect against loss of revenue caused by low prices or low yields or a combination of both. This crop insurance policy has become a valuable risk management tool for farmers across the United States. More than 75% of the Federal crop insurance policies sold today are Revenue Assurance.
One of the key components of a revenue policy is the fall harvest price option. The fall harvest price option allows the farmer to use the greater of the fall harvest price or the projected harvest price to determine the revenue guarantee. The farmer automatically has the harvest price protection when buying a Revenue Assurance policy, but can choose to exclude it by selecting the Harvest Price Exclusion (HPE) option. If the farmer opts to do so, he will pay a lower premium rate.
The RA fall harvest price option is designed to provide additional assurance to those farmers who market their crop before harvest. Many farmers enter a forward contract to sell a portion of their production before harvest. Usually these contracts pay the farmer for the production they deliver after harvest based on contracted prices. If the farmer loses the crop, he is still obligated to deliver under the forward contract. But since the crop is lost, the farmer would have to buy the commodity at the harvest price and deliver that or financially settle the buyer’s contract at the contract price. The purpose of RA is to provide the farmer with sufficient funds to settle the forward contract.
Another example of the importance of RA is for farmers who raise dairy cows, cattle, hogs, poultry or other animals and grow their own feed. If a disaster wipes out feed production, the farmer must enter the market and purchase feed at the going price, which would reflect the effects of the disaster. RA provides farmers with the funds to afford the higher costs should feed prices rise.
*As of May 2017