Crop Insurance Today Second Quarter 2022 - 18

Figure 9
e
2021 MPCI Premium and Loss Ratios, All Plans Combined
Premium
000 - 1,000,000
1,000,000 - 10,000,000
10,000,000 - 50,000,000
50,000,000 - 100,000,000
100,000,000 - 200,000,000
200,000,000 - 500,000,000
500,000,000 - 1,400,000,000
Data as of April 21, 2022
Source: RMA Summary of Business
RMA annually calculates the implied volatility
factor for a crop by averaging the implied volatility
of in-the-money options for a designated
Table 5
able
Major Revenue Policy Base Prices1
jor
2015
Wheat, Winter ($/bu) (KS)
Wheat, Spring ($/bu) (ND)
Corn ($/bu) (IL)
,
Soybeans ($/bu) (IL)
Upland Cotton ($/bu) (MS)
Rice ($/cwt)
Source: RMA Actuarial Information Browser
6.30
5.85
4.15
9.73
0.63
2
1Revenue Protection for 2015-22 as of April 21, 2022.
2Due to insufficient futures price data, revenue insurance was not available in 2015.
2016
5.20
5.13
3.86
8.85
0.62
11.90
2017
4.59
5.65
3.96
10.19
0.73
10.40
2018
4.87
6.31
3.96
10.16
0.75
11.90
2019
5.74
5.77
4.00
9.54
0.74
10.80
2020
4.35
5.56
3.88
9.17
0.70
12.10
2021
4.90
6.53
4.58
11.87
0.80
12.70
2022
7.08
9.19
5.90
14.33
1.02
14.50
% CHANGE
2020/21
12.6
17.4
18.0
29.4
14.3
5.0
2021/22
44.5
40.7
28.8
20.7
27.5
14.2
futures contract over the final five trading days
of the discovery period for that crop (generally
the last five trading days before the sales closLoss
Ratio
0 - 50%
50 - 75%
75 - 100%
100 - 125%
125 - 150%
150 - 200%
200 - 275%
National Centers for
Environmental
Information
Mon Dec 6, 2021
ing date). For example, implied volatilities over
the final five trading days in February for the
December futures contract are used to determine
the IV factor in the major corn producing
states. RMA uses the IV factor to simulate the
risk of an expected change in harvest price for
the crop, which is then utilized to establish the
price risk component of the premium rate for
the specific crop. A higher IV indicates a greater
likelihood for larger price movements while a
lower IV implies a more stable market with expected
futures prices to move within a smaller
range. All things being equal, higher IV factors
result in higher premiums, while lower IV factors
result in lower premiums.
Historical IV values for selected major crops
for the period 2014-2021 are shown in Table 6.
IV factors for 2019 and 2020 were relatively stable
for the major crops and below historical price
volatility levels. Between crop years 2019 and
2020 there were either no or small decreases in
the IV values with the exception of rice, which
saw a small increase.
This is in sharp contrast to the IV factors observed
for 2021. With exception of winter wheat
Table 6
able
Volatility Factors
y
Historical Price
Volatility1
1968-2021
Wheat, Winter ($/bu)
Wheat, Spring ($/bu)
Corn ($/bu)
Soybeans ($/bu)
Upland Cotton ($/bu)
Rice ($/cwt)
1
0.19
0.22
0.20
0.18
0.23
0.22
2Revenue Protection as of April 21, 2022.
3Due to insufficient futures price data, revenue insurance was not available in 2015
Source: Various RMA Manager's Bulletins
18 SECONDQUARTER2022
2015
0.17
0.15
0.21
0.16
0.15
3
2016
0.22
0.15
0.17
0.12
0.14
0.15
2017
0.18
0.13
0.19
0.16
0.15
0.17
2018
0.16
0.13
0.15
0.14
0.14
0.12
Volatility Factor2
2019
2020
0.19
0.14
0.15
0.12
0.14
0.11
0.17
0.14
0.15
0.12
0.13
0.13
Historical volatility values are obtained by fitting log-normal distribution to the time series of the ratio of the harvest price to the base price from 1968 to 2021. For each year in that time period, the harvest
and base prices are calculated by using relevant futures prices in that year. Source: Barchart.com
2021
0.16
0.18
0.23
0.19
0.20
0.15
2022
0.21
0.23
0.23
0.19
0.22
0.10
% CHANGE
2020/21
-5.9
28.6
53.3
58.3
53.8
15.4
2021/22
31.3
27.8
0.0
0.0
10.0
-33.3
http://Barchart.com
Crop Insurance Today Second Quarter 2022

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