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NE MO & W IL | Thud,
The crop insurance program is actually very lengthy to explain, but I'll touch on a few of your questions. There are several different types of insurance policies....some guarantee bushels others guarantee revenue, while others are based on county averages. The policy Cliff 2 and I are talking about is Revenue Assurance with the harvest price option. The price is set by averaging the November futures during the month February. This year that price for corn is $4.06. You then purchase a coverage level (up to 85%) of your actual production history (APH). That coverage level is then multiplied by the set price to give you a revenue guarantee. An easy example would be 150 bu/ac APH giving you 127.5 bu. coverage times $4.06 = $517.65/acre revenue guarantee. Yes you pay a premium for this coverage. With the high guarantees this year, you could pay $30 to $50/acre for this kind of coverage. It depends on you APH, county, coverage level,etc. If you are on high risk land it could cost you even more. However, even with these high premiums/acre, a lot of producers can guarantee themselves profit given the high revenue guarantees they can buy.
The deal only gets sweeter as the futures price goes down. To keep your set revenue guarantee, your bushel breakeven increases as the futures price goes down. For example, if the fall price goes to $3, you would now have a loss at any yield below 172.5 bu based upon the above scenario (3 x 172.5=$517).
Hopefully I didn't confuse you too much, it is rather complicated. As you can see, the system is an excellent risk management tool that I wouldn't operate farms without.
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