The complexity of a farmer's crop insurance decision is second only to that of income tax forms. In fact, the vast majority say they rely on their agent to advise them which product and coverage level is best.
Talk to those agents, however, and they are not totally comfortable carrying the weight of that decision. In fact, they unanimously say they wish more farmers would make the effort to better understand the products in order to make a more informed purchase.
Your financial livelihood may be on the line, and every situation is different. Geography and its weather play a major role, of course: The risks are different in Colorado than they are in Georgia. How many acres you farm in a county and how far-flung your fields are also helps determine whether county-based products might work for you.
How many separate farms and landlords you have; how many crops you raise; how much risk you can take all make your decision uniquely yours. Even your choice of hybrids might affect your level of risk—and your premium.
"Crop insurance is recognized as the linchpin in the ag safety net,” says Don Preusser, president of John Deere Risk Protection (JDRP). "It is also one of the most important factors in determining a crop will be grown year after year.”
Variety of Products. That's one reason USDA offers a growing variety of products, says Bob Parkerson of National Crop Insurance Services. "At any one time, there may be as many as 25 pilot programs running, and the 2008 farm bill made it easier to propose new products.”
In 2010, for example, the biotech endorsement, which provides lower crop insurance premiums for certain genetic traits, is being expanded to Colorado, Kansas, Michigan, Missouri, and Ohio. Seed from two additional companies now qualifies.
However, due to changes in the number of operations and acres, some counties no longer will have group products available for corn, soybeans, grain sorghum, cotton and peanuts this year, reports Shirley Pugh of USDA's Risk Management Agency. This includes all counties in 28 states and some counties in Illinois, Indiana, Mich-igan, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin.
In addition, individual companies may offer private-label products. "We encourage customers to add hail coverage,” says Dave Kahle of JDRP, which also offers a Crop Delivery Contract. That agreement covers any gap between the standard crop insurance coverage and the value of contracts on which you have to deliver in case of crop production shortfalls.
The basics for coverage still apply, crop insurance industry consultants say: Grow multiple crops, in various locations, on different types of soil, as often as possible.
Certainly, no one would criticize a producer for deciding to plant the highest-yielding variety for his farm, notes Bill Niebur, vice president for crop genetics research and development for DuPont.
"However, due to how rapidly planting takes place today, a farmer may have an entire farm flowering in a seven- to 10-day window, concentrating production risk,” Niebur says. Planting more than one variety with different maturities may reduce that risk—as well as diminish crunch time and labor needs at harvest.
Given trends in weather and the effects of global warming, risk-reducing agronomic practices and crop insurance will only become more important.
"In the next 30 years, more wars will be fought over water than over oil,” explains Doug DeVries, senior vice president, John Deere Agriculture and Turf. "So time spent studying crop insurance products will be a good investment.”
Pencil Out the Choices
Wet weather definitely posed challenges last year,” says Rob Barley of Star Rock Farms in Conestoga, Pa. "We were able to get the crop planted in a timely manner, but our drying costs are more than 50% higher.”
For the first time, the Barleys chose 80% crop revenue coverage on enterprise units. "We saved 60% on the premiums,” Barley says. "We could have total losses on two or three of our farms and still come out ahead of optional units.”
An enterprise unit combines all acres of a single crop within a county in which the policyholder has a financial interest into a single unit, regardless of whether they are owned or rented, or how many landlords are involved.
"We did have a fairly significant wheat loss,” Barley adds. "Yields were slightly below average and would not have triggered a claim, but prices falling from $8 to $5 per bushel did trigger one.”
Barley views his crop insurance premiums as substitutes for put option premiums. "Knowing our downside is covered before we know our exact yields, we'll usually market up to the number of bushels we have covered. On the remaining bushels, sometimes we'll buy put options—it depends on the year and the cost.”
Insurance Now a Necessity
Despite the occasional frustration of dealing with crop insurance, it is now a necessity on Richard Jameson's Brownsville, Tenn., farm.
"I just figure it as another one of my input costs,” says Jameson, who grows corn, soybeans, cotton and wheat.
"I've got to do all I can to manage risk. I have some irrigation, which helps. I stay diversified with my crop mix. I'm in continuous no-till, which also helps manage risk. And I buy crop insurance. Crop insurance is not perfect by any means, but it does help with risk,” he adds.
A switch to enterprise units. In 2009, Jameson reduced his crop insurance premium by switching to enterprise units based on countywide calamity coverage. He likes the lowered cost. The jury is still out on performance, however.
Jameson intended to plant wheat this past fall and signed up to cover it under crop insurance. Rainy weather delayed harvest of his other crops, however, making it impossible to get wheat planted before the mid-November insurance cutoff date.
"I filed a claim for prevented planting. I think they'll see my claim as legitimate since there are a number of other farmers doing the same thing, but we'll have to see what happens,” he says.
The central Tennessee farmer also wishes he could separate coverage on individual farms between irrigated and dryland acreage. He has not been able to segregate any crop on a single farm number by irrigated and dryland.
"The idea of self-insuring is just not practical at all for me,” he says. "That's the wrong place to try to save money. With my four crops, I'm going to have a claim on one just about every other year because of weather.” —Charles Johnson
Top Producer, January 2010