Risk Management with Insurance Tools
Insurance tools have become an integral part of managing your farming operation. Stay current on insurance tools and how to incorporate them with your current risk management strategies to market your grains throughout the year.
Jan 24, 2013
With Spring Insurance Guarantee levels going to be determined soon it is time to make some crucial insurance decisions that will affect the producers risk management in 2013. At this point most producers already have determine what crop they are going to plant based on crop rotation, fall work , input costs, recent yields and even current prices. The remaining unknowns are what kind of a crop will be produced and what will the value of those crops be throughout the year. This is where crop insurance as a risk management tool comes into play.
Once the producer determines the crop and the insurance spring price is determined there is a period of time for them to finalize their crop insurance decision. Here are some important items to consider.
What insurance product to purchase: Make sure to fully understand what types of products are available. The main policy purchased is the Revenue Protection policy because it factors in both price and bushel risk in its guarantees. Some areas offer a GRIP policy which alters the risk of the producer from their individual production risk versus their historical APH to the individual production risk versus the overall historical county yield.
What coverage level to purchase: The producer should look at all the different coverage levels to see what their revenue guarantee price would be. In doing so try not to focus on the cost of the policy but rather what that coverage level provides. If there is a level that can create a guaranteed revenue coverage price that either matches or exceeds the producer’s breakeven price that should be strongly considered.
Ways to increase the Insurance Revenue Guarantee: Check for the availability of the Trend Adjusted Yield. This is provided by the RMA and gives the producer a synthetic historical yield bump to bridge the gap between the producers APH and current yield potential due to genetics. RMA is also offering products this year that let the producer buy up their levels of coverage beyond traditional levels. There are also many private products not offered by the RMA but instead through the insurance companies. Have an agent explain them and let the producer determine if any of them are a good fit. A very interesting one for 2013 is called Price Flex. It allows the producer the opportunity to purchase additional month averages to substitute as their insurance spring price in case they are higher than what the RMA price is.
If you have an questions you can call me at 707-365-0601 or email me at Jamie@GulkeGroup.com.