BULLETIN NO.: MGR-99-004
TO: All Reinsured Companies
All Risk Management Field Offices
All Other Interested Parties
FROM: Kenneth D. Ackerman /s/ Kenneth D. Ackerman
Administrator
SUBJECT: 1999 Crop Revenue Coverage (CRC) Commodity Exchange Endorsement -
Durum Wheat Base Price
BACKGROUND:
The CRC Base Price election formula for Durum Wheat as defined in the CRC
Commodity Exchange Endorsement is based on market conditions for the past
5 years. However, this year projected durum wheat market prices are
substantially different than the formula driven 5-year average. Due to
this unforseen market anomaly the CRC Durum Wheat Base Price would be
substantially higher than the actual market price for durum wheat. Due
to the excessive risks associated with the artificially high prices
generated under the current CRC Durum Wheat policy, the Federal Crop
Insurance Corporation (FCIC) has determined that it cannot provide
reinsurance, producer premium subsidy, and administrative and operating
subsidy unless the policy is revised.
ACTION:
The following actions are effective immediately for the 1999 crop year:
1) FCIC will not offer reinsurance, producer premium subsidy or administrative and operating
expense reimbursement on any CRC Durum Wheat policy unless it is sold with the
amended Commodity Exchange Endorsement approved by the Board (see attachments),
except as specified in paragraph 2 below. Since Federal preemption applied at the time of
application, and continues to apply to the CRC Durum Wheat Policy, Federal preemption
applies to all CRC Durum Wheat
policies.
BULLETIN NO.: MGR-99-004 2
2) This action applies to all 1999 crop year CRC Durum Wheat policies in Arizona,
California, Montana, North Dakota, and South Dakota, except those CRC Durum Wheat
policies in Arizona and California written or applied for by the producer on or before
October 31, 1998. Policies in Arizona and California written or applied for by October 31,
1998, will remain insured under the Commodity Exchange Endorsement in effect at the
time of sale.
3) FCIC will accept, for reinsurance, producer premium subsidy and administrative and
operating subsidy, those CRC Durum Wheat policies that have been revised through an
amendment signed by the producer. FCIC has approved the attached forms amending the
Commodity Exchange Endorsement. If a reinsured company elects to use a different form,
it must submit it to FCIC for approval in accordance with Section V.E. of the 1999
Standard Reinsurance Agreement.
4) Reinsured Companies should inform policyholders their premium will be lower as a result
of the lower Base Price.
DISPOSAL: This Bulletin will remain in effect until December 31, 1999.
BULLETIN NO.: MGR-99-004 3
Attachment A.
The provisions in section (IV) of the Commodity Exchange Endorsement - Wheat (99-CRC-CEE-WHEAT (Ed. 6/09/98)) regarding the Durum Wheat Base Price and Harvest Price for those counties with
a 3/15 cancellation date are deleted. New provisions regarding the Durum Wheat Base Price and Harvest
Price for those counties with a 3/15 cancellation date are added to section (IV) of the Commodity
Exchange Endorsement - Wheat to read as follows:
Durum Wheat - (Insured as durum wheat in counties with a 3/15 cancellation date). Minneapolis Grain
Exchange (MGE)
Base Price (MGE) - The Northern Durum Price multiplied times the selected Price Percentage and rounded
to the nearest whole cent. The Northern Durum Price equals the February harvest year's average daily
settlement price for the harvest year's MGE September hard red spring wheat futures contract (rounded to the
nearest whole cent) plus an adjustment equal to the average of the current year nearby basis and the current 5-year harvest basis. The current year nearby basis is determined during the months of October, November,
December, and January of the current crop year and is the difference between the average daily settlement
price for top milling durum wheat, as reported by the MGE for such months (rounded to the nearest whole
cent) and average daily settlement price for the nearby hard red spring wheat futures contract (rounded to the
nearest whole cent). During the months of October and November the nearby futures contract used to
determine the current year nearby basis for top milling durum wheat will be the December contract. During
the months of December and January the nearby futures contract used to determine the current year nearby
basis for top milling durum wheat will be the March contract. The current 5-year harvest basis is the average
difference between the August average daily settlement price for top milling durum wheat, as reported by the
MGE (rounded to the nearest whole cent) and the August average daily settlement price for the nearby MGE
September hard red spring wheat futures contract (rounded to the nearest whole cent). The available Price
Percentages and subsequent Base Price will be released as an Actuarial Document Addendum (Special
Provisions) by March 10 of the harvest year.
Harvest Price (MGE) - The August harvest year's average daily settlement price for top milling durum wheat
as reported by the MGE (rounded to the nearest whole cent) multiplied times the selected Price Percentage
and rounded to the nearest whole cent. The Harvest Price cannot be less than the Base Price minus $2, or
greater than the Base Price plus $2. The Price Percentage used to calculate the Harvest Price is equal to the
selected Price Percentage used to calculate the Harvest Price is equal to the selected Price Percentage used to
calculate the Base Price. The Harvest Price will be released as an Actuarial Document Addendum (Special
Provisions) by September 10 of the harvest year.
I have read the above referenced policy amendment and agree to the terms and conditions. I realize that if
I do not accept the terms and conditions in this amendment, my application will be rejected or my policy
will be canceled. I understand the amendment will be effective for the 1999 and subsequent crop years.
Policyholder Signature: ________________________________ - Date:____/____/____
Agent Signature: ________________________________ -Date:____/____/____
99-CRC-CEE-WHEAT (Rev. 2/11/99)
BULLETIN NO.: MGR-99-004 4
Attachment B.
The provisions in section (IV) of the Commodity Exchange Endorsement - Wheat (99-CRC-CEE-WHEAT (Ed. 6/09/98)) regarding the Durum Wheat Base Price and Harvest Price for those counties
with a 10/31 cancellation date are deleted for only those CRC Durum Wheat policies written or applied
for after October 31, 1998. For all CRC Durum Wheat policies written by October 31, 1998, the existing
provisions continue to apply for the 1999 crop year only. New provisions regarding the Durum Wheat
Base Price and Harvest Price for those counties with a 10/31 cancellation date are added to section (IV)
of the Commodity Exchange Endorsement - Wheat, in all policies written or applied for after October 31,
1998, to read as follows:
Durum Wheat - (Insured as durum wheat in counties with a 10/31 cancellation date). Minneapolis Grain
Exchange (MGE) Arizona and California
Base Price (MGE) - The Southern Durum Price multiplied times the selected Price Percentage and rounded
to the nearest whole cent. The Southern Durum Price equals the September 15 to October 14 pre-harvest
year's average daily settlement price for the harvest year's CBOT September soft red winter wheat futures
contract (rounded to the nearest whole cent) plus an adjustment equal to the average of the current year
nearby basis, determined during the months of May, June, July and August of the current crop year, and the
current five-year average difference between the August average daily settlement price for top milling durum
wheat as reported by the MGE (rounded to the nearest whole cent) and the August average daily settlement
price for the nearby CBOT September soft red winter wheat futures contract (rounded to the nearest whole
cent). During the months of May and June the nearby futures contract used to determine the current year
nearby basis for top milling durum wheat will be the July contract. During the months of July and August the
nearby futures contract used to determine the current year nearby basis for top milling durum wheat will be
the September contract. Beginning with the 2000 crop year the available Price Percentages and subsequent
Base Price will be released as an Actuarial Document Addendum (Special Provisions) by October 20 of the
pre-harvest year. Effective for the 1999 crop year the CRC Durum Wheat Base Price for any policy written
after October 31, 1998, will be $5.30.
Harvest Price (MGE) - The August harvest year's average daily settlement price for top milling durum
wheat as reported by the MGE (rounded to the nearest whole cent) multiplied times the selected Price
Percentage and rounded to the nearest whole cent. The Harvest Price cannot be less than the Base Price
minus two dollars ($2.00), or greater than the Base Price plus two dollars ($2.00). The Price Percentage used
to calculate the Harvest Price is equal to the selected Price Percentage used to calculate the Base Price. The
Harvest Price will be released as an Actuarial Document Addendum (Special Provisions) by September 10 of
the harvest year.
I have read the above referenced policy amendment and agree to the terms and conditions. I realize that
if I do not accept the terms and conditions in this amendment, my application will be rejected or my
policy will be canceled. I understand the amendment will be effective for the 1999 and subsequent crop
years.
Policyholder Signature: _______________________________ - Date:____/____/____
Agent Signature: ________________________________-Date:____/____/____
99-CRC-CEE-WHEAT (Rev. 2/11/99)