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Farmers Tweak, Up Crop Insurance Coverage

March 5, 2013
Financial Glasses

Last year's drought, combined with rising input costs and crop values are causing many farmers to take more crop insurance coverage, than in previous years.

With a March 15 deadline looming, a higher percentage of farmers are signing up for federal crop insurance, in some cases taking more coverage than in previous years.

Last year’s record drought certainly proved the value of federal crop insurance. It motivated farmers who had previously self-insured or gone "naked" to get with the program. Rising input costs and high potential crop value provide even greater incentive.

"Crop insurance sign-up is running ahead of last year," says Pete Riley, agricultural economist for the Farm Service Agency, USDA, a speaker at USDA’s Agriculture Outlook Conference. USDA’s Risk Management Agency provides a wide variety of insurance options for more than 100 different crops.

Sign-up would have happened even faster if it weren’t for the high volume of claims on last year’s policies. David Lynn, a senior vice president for Farm Credit says that as of Feb. 15, Farmers Mutual had closed on more 90% of its claims from the 2012 growing season. "I think we’ll see an increase in the percent of number of farmers who choose to purchase crop insurance," he says.

Tim Copeland, vice president for Great American Insurance Group, doesn’t expect more farmers to sign up this year. Already, 85% of agricultural land is eligible for coverage from the national crop insurance program, so there’s little room for additional acres to be added. "But we are seeing farmers take more coverage than in previous years," he says.

Higher crop values influence this decision. Farmers, Copeland says, want to tell their bank that they are covered for the same total dollar amount. For example, if they insured 70% of crop value last year, but the value of their crop is expected to fall in 2013, they may elect to insure up to 75% to get the same level of total dollar coverage.

Alan Freking, a farmer from Heron Lake, Minn., is raising his insurance levels for that very reason.

"I just spoke with my agent a few days ago, and she said many are upping insurance levels to 85%," he says. "I was at 80% last year on both corn and beans. I usually insure by optional units, which is a much higher premium than the alternative, enterprise units. I have high-risk ground that pays to insure that way."

Insurance brokers say it’s vital to tailor insurance policies to the needs of your individual operation. Different farmers may have different stomachs for risk, depending on the strength of their balance sheets and capital needs. "My insurance agent is an integral part of my business strategy," says Bill Horan, a corn and soybean farmer in Rockwell City, Iowa.

One of the most difficult decisions is whether to take harvest price exclusion, which bases the amount of insurance protection only on projected prices. "Depending on the product you choose, you could leave several hundred thousand dollars on the table by choosing a product that doesn’t provide protection from changing market prices," says Lynn.

Copeland reports a growing percentage of customers elect to buy insurance based on the history of their county rather than their farm. Also, more farmers are taking low-cost catastrophic coverage (CAT) that insures crops for 50% of APH yield and 55% of the projected price.

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