Crop Insurance: Don’t Be Penny Wise and Pound Foolish

January 19, 2015 10:16 PM
Crop Insurance: Don’t Be Penny Wise and Pound Foolish

To Jamie Wasemiller of the Gulke Group, crop insurance is not just an expense; it’s an undervalued business tool that farmers want to trim when margins get tight.

“The most frequent question I get is, ‘What level can I drop down to [so I can] save the most amount on insurance?’” said Wasemiller, speaking on AgriTalk with Mike Adams on Monday. And as the point person for crop insurance at the Chicago-based Gulke Group, it’s a question Wasemiller hears a lot, especially with corn prices hovering at $4 and a distinctly bearish outlook for soybeans.

He understands the concern. “In 2015, a lot of us are going to have to pinch our pennies,” he said. “We have a lot of input costs.”

He asserted that reducing insurance coverage can also be a penny-wise, pound-foolish decision for many farmers. “We’re very willing to maybe spend more money on fertilizer, maybe spend more money on seed, and I’m certainly not telling guys not to [spend that money],” says Wasemiller, who also farms in Illinois. “But keep in mind that we can invest a lot of money into things we hope are going to work. …. We know when we buy a [crop insurance] policy, we know what that policy can do for us at any price, at any bushel … It’s really one of those [areas] where you can really see what it does for the operation.”

Listen to Wasemiller's full comments on AgriTalk, where his interview begins around the 12-minute mark:

But making a good decision will require farmers to educate themselves about the 2014 farm bill, which is currently being implemented by the USDA. “The biggest thing we have to remember about crop insurance now is that it is price and it’s bushels,” Wasemiller said. “The combination  of both of those, if we have a rough year, can be very impactful for our risk management within our operation.”

That’s one of the reasons why he’s leery of farmers dropping the more costly individual crop insurance coverage to go with the cheaper county-based coverage. “It’s much harder to manage your operations based on other farmers when you have the opportunities to  base it on your own farm,” he noted.

As farmers consider their coverage options, Wasemiller suggested they look at crop insurance within the context of overall farm operations. “The old adage is that crop insurance is something that should never be used to generate money. I completely agree with that. Crop insurance has its place. But … you can still manage that crop insurance as revenue center or a risk management center that’s helpful,” he said. “It’s just as important as managing what we produce, managing what we spend, [managing] the employees that we have. As the CEO of our operations, each one of those areas—including crop insurance--can be separately managed as a profit/revenue center.”

How are you adjusting your crop insurance coverage in 2015? Are you raising your coverage level, lowering it, or keeping it the same? Tell us why on the AgWeb discussion boards.

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Spell Check

nebraska city, NE
1/20/2015 08:17 AM

  don't carry crop insurance at all. took the money I would have spent and put it into a separate account, now have enough built up that I am basically self insured. In tracking what it would have cost versus what they have paid out I have been up about 1100% versus had I taken crop insurance. Remember, they are betting that what they charge you is a good investment on their part or they wouldn't do it. I just made the same bet upon myself and now I have quite a nice pile of cash that would otherwise be gone. It was a risk for the first 10 years, but risks are what farming is about. If you can't manage your farm finances well enough to not have to rely upon someone else covering a bad, well maybe you should pay a little closer attention to detail

Elma, IA
1/20/2015 12:49 PM

  I have figured out how crop insurance works. You pay the cost and never file a claim. I had a claim the last two years in NE Iowa. Two different agents and companies. I have not been paid by either company as described under the administrative rules set up by RMA (Risk Management Association). I find that I am not alone on these problems as I have talked to may others from different states. I was able to speak with Administrator Brandon Willis of RMA on July 3, 2014. The Administrative Agencies are informed of the issues, however they chose to do nothing. Crop insurance is an unconscionable contract. Two important considerations to a contract are weather there is a gross inequality of bargaining power between the parties to the contract and whether the aggrieved party was made aware of and comprehended the provisions in question. See HUME v. U.S. 132 U. S. 406, 411; 10 S. Ct. 134, 136: 33 L. Ed. 393. The United States Supreme Court approved the definition of an unconscionable contract as one which 'no man in his senses and not under delusion would make on one hand, and no honest and fair man would accept on the other. Crop insurance is a fraud with the way it is administrated. I was told there are over 3000 pages of regulations that apply, yet no one has ever explained these provisions to the contract and have also refused to explain these provisions when I have asked. RMA has completely failed there mission statement and created a fraud upon public policy. I would like to talk with anyone that clearly understands crop insurance.

TJ Wilson
Kiron, IA
1/20/2015 08:32 AM

  I will purchase 85% level, enterprise units, harvest price exclusion. The reason- I purchased Hudson price flex June 2014. My $ per bushel guarantee should be $4.54 corn, and $11.35 beans. This was not cheap insurance. $42/acre corn, and $23/acre beans. That was the premium for price flex only. However, with my high dollar revenue guarantee I can purchase revenue policy in March with harvest price exclusion. This cuts my revenue assurance policy price in half. My advice- buy 85% enterprise units, DO NOT take harvest price exclusion like I will, then lower hail insurance to $300/acre beans and $500/acre corn at 10% deductible. Good luck to all and God bless.