Crop Insurance 101 Protect your balance sheet

February 4, 2010 07:50 AM


The 2008 farm bill requires that farmers have crop insurance on all crops—including forages and pastures—to be eligible for federal disaster payments.

With balance sheets in tatters and equity levels at record lows, crop insurance has renewed importance this year.

"Crop farmers look at crop insurance as a protection of their income, but too few dairy producers take it out,” says Robin Schmahl, a commodity broker and crop insurance agent based in Elkhart Lake, Wis., who is also a columnist for Dairy Today's biweekly eUpdate.

In reality, crops are worth more to the dairy producer than to the crop farmer, he says. If dairy producers have a crop failure, not only are the input costs already spent on the crop, but they must also buy feed for their herd.

In addition, the 2008 farm bill requires that farmers have crop insurance on all crops—including forages and pastures—to be eligible for federal disaster payments. Not having crop insurance is like not having liability or fire insurance—it's a disaster waiting to happen.

"Crop insurance is another way to protect the value of your crops, whether they are used as feed for your dairy or sold on the open market,” says Steve Bodart, a financial analyst with Lookout Ridge Consulting, Baldwin, Wis.

"Producers should look at their cropping operations as separate enterprises that sell feed to the dairy at market value,” he says. "Crop insurance helps protect their hedges if producers are taking positions on the futures market, so they know they can get a return on their crops.”

Jim Kastanek, owner of Total Agri-Business Services in Albany, Minn., agrees. "Crop insurance is part of a dairy producer's risk management plan,” he says. "Producers should be looking at both yield protection and revenue protection on their crops. It's a little more costly, but they will have a safety net to help them through if crops fail.”

Here are some crop insurance options:

  • Crop-hail policies. Not government-subsidized or part of the federal crop insurance matrix of programs. Available directly from insurance companies, they can usually be purchased any time during the growing season.
  • Multi-peril crop insurance. Must be purchased prior to planting, with state-specific deadlines. Covers drought, excessive moisture, frost, delayed planting and disease. Producers select a coverage level from 50% to 85% of yield and are paid when yields fall below. Premiums are based on coverage. Generally subsidized by the federal government up to 50% or more, to encourage enrollment.
  • SURE. The Supplemental Revenue Assistance Payments program, created by the 2008 farm bill to supplement the protection producers purchase from private insurers. Payment is made if actual crop revenue is less than the guarantee, calculated as the sum of all crops in all counties involved in the farming operation. Payment cap is $100,000.
  • ACRE. The Average Crop Revenue Election program, an alternative to USDA's Counter-Cyclical Payment Program. Provides protection based on state revenue. Once a producer signs up for the program, it is irrevocable through the 2012 crop year.

These programs can be complex. "Sit down with your agent well before the deadline so you understand all your options,” Kastanek urges. "The volatility in weather and crop markets, input prices and milk are just too great to be without protection.”

Bonus content:

Crop insurance basics 

ACRE –Average Crop Revenue Election

Is ACRE worth the gamble?

SURE program


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