Agriculture lenders are watching with curiosity a crop insurance program being tested in Iowa and Nebraska that can mitigate changes in price as well as yield.

Crop Revenue Coverage, or CRC, is the first private insurance product to offer farmers a guarantee for a stated amount of revenue, according to its developer, American Agrisurance of Council Bluffs, Iowa.

Traditionally, such insurance dealt only with yield, not price.

The insurance "guarantees not only the bushels but also a price going in," so farmers "know how many dollars they can count on," said Willard D. Behrends, regional vice president in the Tecumseh, Neb., office of $140 million-asset American National Bank. He makes farm loans and sells crop insurance, including the new American Agrisurance product.

If successful, that policy drastically change the risk assumptions that lenders put into operating loans, which rely primarily on cash-flow projections.

"Because one can guarantee the operating line of credit with CRC, I would expect a lot of interest by ag lenders," said Art Barnaby, an agriculture economics professor at Kansas State University who helped develop the product.

American Agrisurance senior vice president Barry Cleaveland agreed. "Regardless of yield, regardless of price, they'll know the dollar (amount) per acre will be returned," he said, "so they can loan up to that amount with confidence."

Bankers and other observers saw little downside to the product - except its high premiums, expected to be 10% to 30% above those for typical "multi-peril" insurance.

Producers will have to weigh their crop risks against the higher premiums, said H. Douglas Jose, a professor of agriculture economics at the University of Nebraska.

American Agrisurance, a subsidiary of Omaha-based Acceptance Insurance Cos., is offering the product on a two-year trial to corn and soybean producers in Iowa and Nebraska, starting this year. It said it hopes coverage will be available nationally within three years.

Mr. Cleaveland said he also expects the product to expand into such commodities as sorghum and wheat.

The company developed Crop Revenue Coverage over 18 months, working with farmers, commodity groups, academics, and the government.

It is the first privately developed alternative crop insurance product to obtain approval from the U.S. Agriculture Department, American Agrisurance said.

The policy's revenue guarantee uses variables to determine spring and harvest market prices, based on average closing prices during certain periods.

A Crop Revenue Coverage contract will cover revenue losses from a bad yield, low crop prices, or a combination of both, according to Mr. Barnaby of Kansas State. The contract will automatically increase the coverage - without additional premiums - if the market value of the crop increases, he said.

The idea of a product to guarantee revenue had been batted around for a while, Mr. Cleaveland said. In determining whether to roll out the product nationwide, the company will examine producers' usage, underwriting loss ratios, and administration costs, he said.

Lenders and other observers expect similar products to become more widely available in coming years. "It's probably a matter of time and everybody will have this type of policy," said Mr. Behrends, the Nebraska banker.

Meanwhile, another effect on banks could be that if they sell crop insurance but don't offer CRC, producers may turn to others who do, Mr. Barnaby said.

Crop Revenue Coverage also is expected to increase producers' ability to use alternative marketing strategies such as forward contracting to lock in prices for a certain amount of a commodity, something many farm lenders have been urging in recent years.

If prices went down, producers would get payments that they could use to buy additional product if their yield does not meet what they committed themselves to produce, said Mr. Jose, the University of Nebraska professor. Currently, lack of price guarantees discourages producers from committing themselves to forward contracts.

For now, lenders are watching how the revenue coverage is received in Iowa and Nebraska.

"It'll be interesting to see how this develops," Mr. Behrends said. "My opinion so far is positive. It sounds good - you just have to take it and see if it works."

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