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Wednesday, February 12, 2014

Taking Care of Business:  Crop Insurance


Your February farm checklist should include a visit with your crop insurance agent.  He or she will be happy to see you, and may have the coffee pot on.  Don’t wait until March 3rd rolls around and USDA announces the spring guarantees for Revenue Protection policies on corn and soybeans.  You already have an idea that soybeans will be just over $11 and corn will be around $4.50.  Nothing can be done about the lower guarantee levels compared to past years, but keep in mind guarantees have been lower than they will be this year.  Just go visit with your agent, have a cup of coffee and ensure that the policy on file for you does not need to be adjusted in the wake of the new economic era that we have entered.


The major change from prior years will be the lower guarantee levels, which are based on the performance of the November soybean contract and the December corn contract during the month of February.  All of the closing prices will be average and USDA will apply a volatility factor.  However, since volatility is much lower this year than in past years, the lower volatility factor will reduce your eventual premium.



University of Illinois agricultural economist Gary Schnitkey assures you that nothing in the newly-signed Farm Bill will impact your crop insurance policy or decisions.  The details for this growing season had to be worked out well before Congress eventually settled on farm policy.

There are a couple new issues that may interest you:

1)      The GRP and GRIP policies have been renamed Area Revenue Protection (ARP). That is a policy that might be of benefit if you are more concerned about price risk than yield risk.  It offers a 90% coverage level, and while it is more expensive than a Revenue Protection (RP) policy it will benefit farms that cannot benefit from Enterprise units of all one crop in a county.  ARP will also benefit farms if their APH yield is low compared to what might be expected in their county.

2)      The new concept of Supplemental Coverage Option will provide coverage for a shallow loss of 86% and down to the crop insurance coverage level that is selected.  SCO will not be available until the 2015 cropping season and will only be available for operators who selected the Price Loss Coverage option in the farm program.



One issue many farmers are wrestling with is making ends meet financially, given higher production costs and cash rents, while crop insurance guarantees and marketing prices are much lower.  One may be tempted to opt for a lower coverage level in an effort to cut the premium cost in half.  NO. NO. NO, says Schnitkey.  The higher coverage levels will come closer to covering your cost of production.  A crop failure in the wake of lower coverage levels means burning more of your equity to pay production costs.  He suggests using the harvest price exclusion if you are tempted to cut costs.  That will be a lower premium, your coverage stays high, but if there is a crop failure and prices rise substantially, the crop insurance policy will not pay a higher guarantee.



When you visit with your crop insurance agent, Schnitkey says your checklist of options should include:

1)      Revenue Protection, with coverage likely at 80% or 85%.

2)      Enterprise units, which have more of the premium subsidized.

3)      Trend-adjusted Yield Endorsement to update your yield coverage.



Whether or not you cut the premium cost by foregoing the harvest price option may be determined by your marketing practices.  Schnitkey says, the “harvest price increase provision …. provides useful protection to those farmers who hedge or price grain prior to harvest.  However, one should not place a hedge for their fall harvest, without the harvest price option due to the additional financial risk.



Schnitkey recently presented a 30 minute program to farmers on these exact issues.  Watch a video of his presentation for more help in understanding his recommendations.



The crop insurance decision season has arrived.  February brings the determination of spring guarantees, which will be much lower than past years because of lower commodity prices.  Costs can be reduced in crop insurance programs, but there are some places where it is more important not to cut costs.  Better options may exist.  New group plans are available for 2014, but are not much different than the GRP plans of the past.  Consult your crop insurance agent as soon as possible to line out your 2014 coverage, and don’t wait until the March 15 deadline.

Posted by Stu Ellis on 02/12 at 04:04 AM | Permalink

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