Injury and Insult: SURE Strategies

August 3, 2008 07:00 PM
 
 
The following information is bonus material from Top Producer. It corresponds with the article "Injury and Insult” by Greg Vincent. It can be found on page 14 of the Summer 2008 issue.
 
 
SURE Strategies In the Face of Disaster
 
While USDA is still evaluating the newest farm law and writing the interpretation of the rules, one thing is emerging as crystal clear: the Supplemental Revenue Assurance Program (SURE) will provide an outlet for several producers who didn't have crop insurance in this year of disasters, thanks to the delays in getting a farm bill through Congress.
 
A provision in the farm bill's permanent disaster title (SURE) allows producers to take advantage yet this year, regardless of your coverage level or policy type. A fee of $100 per crop in each county you farm will make you eligible to receive disaster payments if you qualify, even if you did not have crop insurance this year.
 
Brad Lubben, Extension farm policy specialist at the University of Nebraska says there is a one-time provision in the new farm law that allows farmers to come back and pay the equivalent of catastrophic coverage (CAT) or the non-insurable assistance program (NAP) fees to qualify for the permanent disaster coverage. The deadline for paying the fee at your local FSA office is September 16, 2008. To qualify your farm must be located in declared agricultural disaster county, or be adjacent to a county declared an agricultural disaster. In the event you are among one of only a few farmers in your county suffering a disaster, you can still qualify if you suffer more than a 50% crop loss.
 
"The benefit calculation is a complicated formula because it's a function of the insurance package you bought. The insurance protection level you buy, essentially multiply it by 115% and that's your SURE protection level. So if you buy 70% coverage, you multiply it by 115% and you get about 80% coverage. The limitation to that is SURE can't protect you above 90% coverage. So if you buy insurance at 80%, 115% is 92%. You can't get 92%, it's capped at 90%,” Lubben says.
 
This year, if you pay the CAT or NAP fees, you're basically "betting on the come,” because the regulations are still being written, says Iowa State University Extension farm management specialist Steve Johnson. Since the program puts a cap of $100 per crop, $300 per county, or $900 per farm on the NAP and CAT fees, and any crops already insured with buy-up insurance will count as a credit towards the fees, he believes it's a worthwhile roll of the dice.
 
In future years, Kansas State University Ag Economist Art Barnaby sees opportunity for farmers to reduce their risk by streamlining production. "I think the first strategy you'll see is less wheat in the Corn Belt,” Barnaby says. "There will be a bigger incentive to get the land into corn and soybeans when you consider what you can get from disaster and crop insurance protection. If you're a single enterprise farm, then the SURE program will collapse into an insurance guarantee because it's crop insurance also. So if you only have one crop, it's like another insurance program on that crop.”
 
An example of this is how SURE benefits from a failure of one crop can be cancelled out by a bumper crop of another, says Lubben.
 
"You'll calculate losses across the whole farm on all crops,” Lubben says. "So a wheat failure followed by a good corn crop probably won't get you a payment. But a farm-wide failure of all crops, you're likely to see a SURE payment on top of an insurance payment.
 
The way SURE works would be to essentially cover part of the deductible on other insurance policies. Lubben says. In the event of a true crop disaster, because the program pays 115% of the policy, you are essentially covering the part of the crop that is not covered by insurance policies.
 
"SURE is really designed to cover that shallow loss region. It covers loss at a higher level than where the insurance alone would and it covers losses down to the level where the insurance level would kick in.”
 
Barnaby believes the program is probably better for farmers selecting revenue-type policies. However, the questions won't be answered until USDA is finished evaluating and interpreting the law.
 
"We don't know exactly how the price selections are going to be defined, but the way I read the legislation is the coverage is actually a little higher under SURE if you buy a revenue-based policy, because of the way the price selection issue is done and that's based off of futures,” Barnaby says.
 
"There are about three different ways you can define what the price is. That sounds stupid, but when you read the law there are three ways you can define what the crop insurance price is. It makes a big difference in the outcome.”
 

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