Beginning in 1995 farmers were offered the chance to carry a minimum level of Multiple Peril Crop Insurance (MPCI) coverage at very little cost. This catastrophic or CAT insurance coverage replaces the protection offered to crop producers under federal disaster programs in recent years.

Edwards, William M.

English

Research Papers in Economics

Catastrophic Crop Insurance 
 
 
 
Beginning in 1995 farmers were offered the chance 
to carry a minimum level of Multiple Peril Crop 
Insurance (MPCI) coverage at very little cost.  This 
catastrophic or CAT insurance coverage replaces 
the protection offered to crop producers under 
federal disaster programs in recent years.   
 
Requirements 
 
Producers who have not insured crops under MPCI 
in the past will have to establish their actual 
production history (APH) yields.  At least four 
consecutive years of yield  history is required.  
Producers with less than four years of records can 
substitute "transitional"  or "T" yields.  For one 
missing year, a yield equal to the T yield is used.  For 
two missing years, yields equal to 90 percent of the 
T yield are used.  For three missing years this drops 
to 80 percent of the T yield, and for four missing 
years the default yield is 65 percent of the T yield.  
Thus, it is usually to the producer's benefit to 
document yields for as many of the four years as 
possible. 
 
Cost is Minimal 
 
For producers who want only the minimum level of 
coverage there is a processing fee of $100 for each 
crop insured in a single county.  No other fees or 
premiums are required. The cost of CAT insurance is 
subsidized by the Federal Crop Insurance 
Corporation (FCIC). Limited resource farmers who 
have a total coverage guarantee of less than $500 for 
a crop corn and soybeans, this amounts to about five 
are exempt from paying the processing fee.  For  
 
 
 
corn and soybeans, this amounts to about five acres 
of production.  The CAT processing fees must be 
paid by October 1. Policies are available from 
private insurers only. Producers must purchase the 
CAT coverage by March 15. 
 
Coverage Level 
 
The CAT policy insures farmers for losses in excess 
of 50 percent of their APH yields.  Indemnities will 
be paid at the rate of 55 percent of the U.S.D.A. 
Risk Management Agency  (R.M.A.) projected 
market price for each bushel lost.  Thus, if a corn 
producer had an APH yield of 126 bushels per acre, 
and the RMA projected market price was $2.40, 
any losses in excess of 63 bushels per acre would be 
paid at a rate of 55 percent of $2.40, or $1.32 per 
bushel.  The RMA projected market prices are 
announced each year in January. 
 
Additional Coverage 
  
Catastrophic insurance protection also is available 
under the Group Risk Plan policy (see ISU 
Extension Publication FM-1850, Group Risk Plan 
and Group Risk Income Protection). Yields are 
insured at 65 percent of the county average and 55 
percent of the RMA price. 
 
Supplemental hail and fire insurance for crops 
insured by a CAT policy can be purchased from 
private companies.  Catastrophic crop insurance also 
covers delayed and prevented planting, but does not 
pay an indemnity when a substitute crop must be 
planted, or when a crop must be replanted. 
 
 
 
 
 
  FM-1852 | Revised | March 2003Noninsured Crops 
 
Crops that can be insured under MPCI in Iowa 
include corn, soybeans, barley, canning beans, dry 
beans, forages, grain sorghum, green peas, seed 
corn, nursery stock, oats, popcorn, potatoes, sweet 
corn, tomatoes, and wheat.  Not all of these crops 
can be insured in all counties, however.  Other crops 
may be eligible for enrollment in the Noninsured 
Assistance Program (NAP), which provides a 50 
percent yield level of disaster protection with no 
premiums.  Producers must enroll their acres prior to 
planting, however, and area average yields must be 
reduced by at least 35 percent before any payments 
are made to individuals.  For more details about 
coverage of noninsured crops, contact your local 
FSA office.   
 
CAT Example 
 
 
 
 
Corn 
 
Soybeans 
 
Planted Acres 
 
300 
 
200 
 
APH Yield 
 
120 bu. 
 
40 bu. 
 
RMA Projected Price (example) 
 
$2.25 
 
$5.60 
 
CAT Fee 
 
$100.00 
 
$100.00 
 
Indemnity Price (55%) 
 
$1.24 
 
$3.08 
 
Guaranteed Yield (50%) 
 
60 bu. 
 
20 bu. 
 
Actual Yield 
 
40 bu. 
 
16 bu. 
 
Insured Loss 
 
20 bu. @ $1.24 
 
4 bu. @ $3.08 
 
Indemnity Per Acre 
 
$24.75 
 
$12.32 
 
Total Payment 
 
$7,425 
 
$2,464 
 
 
Prepared by William Edwards, Extension Economist, Department of Economics. 
 
          File:  Economics 1-2 
 
 
 
 
 
 
 
 
 
…and justice for all 
 
The U.S. Department of Agriculture (USDA) prohibits discrimination in all its 
programs and activities on the basis of race, color, national origin, gender, 
religion, age, disability, political beliefs, sexual orientation, and marital or 
family status.  (Not all prohibited bases apply to all programs.)  Many 
materials can be made available in alternative formats for ADA clients.  To file 
a complaint of discrimination, write USDA, Office of Civil  
 
 
 
 
 
Rights, Room 326-W, Whitten Building, 14
th and Independence 
Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964. 
 
Issued in furtherance of Cooperative Extension work, Acts of May 8 and 
June 30, 1914, in cooperation with the U.S. Department of Agriculture. 
 Stanley R. Johnson, director, Cooperative Extension Service, Iowa 
State University of Science and Technology, Ames, Iowa. “Iowa State University does not discriminate on the basis of race, color, age, 
religion, national origin, sexual orientation, sex, marital status, disability 
or status as a U.S. Vietnam Era Veteran. Any persons having inquiries 
concerning this may contact the Director of Equal Opportunity and Diversity, 
3680 Beardshear Hall, 515-294-7612.” 

Catastrophic Crop Insurance

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Catastrophic Crop Insurance

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