Contract Price (CP)

If you have not already read the article on the Malt Barley Endorsement you may want to go back and check it out first.  We also have a Podcast episode about the Malt Barley Endorsement as well – Podcast Link.

Here is a brief summary of what the Contract Price (CP) addendum is all about from our friends over at RMA:

The Contract Price Addendum (CPA) allows you, as a certified organic or transitional producer with a written contract from a buyer by the acreage reporting date, to insure your crop at the contract price. You can buy a Federal crop insurance guarantee which more closely reflects the actual value of your certified organic or transitional crop. You have the choice, where available, to use either the contract price or the published Risk Management Agency (RMA) price as the crop insurance projected price or price election.

While the RMA definition specifically mentions Organic Producers there are non-organic crops that are allowed to use the Contract Price as well.  To find out if your crop in your county has the Contract Price (CP) addendum  available you will want to check your County Actuarials.  Be sure to pay attention to not only the Crop, but also the Variety as this can make a significant difference in availability.

You need to elect to add the Contract Price on or before the applicable Sales Closing Deadline for the crop you wish to add it to.  You have until the applicable Acreage Reporting deadline to submit your Contract/s.

How the price works under the Contract Price (CP) addendum.

Projected Price

If the Contract provides a fixed price for the contracted production, the Projected Price will be the Contract Price (assuming the contract meets all other requirements).  Let’s assume in this example that the Contract is for $8.00 per bushel whereas the Projected Price on the underlying crop policy is $6.00 with a Maximum Contract Price Factor of 2.0.

The maximum Projected Price you are able to use is found by looking in the Actuarial Information Browser for your County.  There you will find the Maximum Contract Price Factor.

You are able to use the lesser of the price in your Contract, or the Projected Price x Factor.

In the above example your Contract Price is less then Projected Price times the Maximum Contract Price Factor ($6.00 x 2 = $12.00), so you would be able to use the Contract Price of $8.00.

Weighted Average Price

Your contract needs to be for a minimum of 100% of your Approved Yield times your Acres Seeded.  If it is not, if you have more then one contract, etc. you would then need to take a Weighted Average Price as your Contract Price.

Examples:

• Contract is for less then 100% of Approved Yield times Acres
  • Contract @ $8.00 per bushel for 50,000 bushels on 1,000 Acres with an Approved Yield of 60 bu/acre (with a CEPP PP of $6.00).
    • 50,000 bushels / 60 = 833.33 acres contracted
      • (833.33 x $8.00 + 166.67 x $6.00) / 1,000 = $7.67 per bushel
• You have two Contracts greater then 100% of Approved Yield times Acres
  • Contract A @ $8.00 per bushel for 30,000 bushels on 1,000 Acres with an Approved Yield of 60 bu/acre (with a CEPP PP of $6.00)
  • Contract B @ $9.00per bushel for 30,000 bushels on 1,000 Acres with an Approved Yield of 60 bu/acre.
    • (500 x $8.00 + 500 x $9.00) / 1,000 = $8.50 per bushel

If you need help with understanding how Revenue Protection and/or Yield Protection works then please check out both our news article and our Podcast about the subject.

It goes without saying that both your Guaranty and Premium will be affected by your Contract Price, and so you will want to go over this with your crop insurance agent prior to electing the Contract Price.