Maximize Your Crop Insurance

January 6, 2016 02:28 AM
 
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Cuts are risky, so consider these alternatives instead

If you feel daunted by the decision of which crop insurance coverage is best for your farm operation, you’re not alone.

“I think it’s easier to rebuild a John Deere B tractor than to choose a crop insurance contract that works well with farm risk,” says Cory Walters, an ag economist at the University of Nebraska-Lincoln.

Yet as with any machinery repair, you can tackle the crop insurance question if you do your homework. 

When it comes to managing risk on your farm in 2016, plenty has changed in a year.

At this time a year ago, producers were wrestling with the choice between Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs introduced with the 2014 farm bill. Since then, some farmers received their first payments this fall under the five-year program.

“We have an idea of what farm bill program payments could be next year in terms of the ’15 crop, and they could be substantial,” says Brad Lubben, a public policy specialist at the University of Nebraska—Lincoln Extension. “But we also know that ARC and PLC do not provide farm-level protection.”

The two programs have delivered more than $5.2 billion in payments for the 2014 crop year but are based on county-level data. Experts caution against using them without other available safety nets. “If someone has a weak financial standing, they may need to buy more crop insurance, not less, because a bad event may force the sale of assets, possibly land,” Walters points out. 

Avoid Outright Cuts. Even with prices below the cost of production, experts strongly advise against cutting back on crop insurance. 

“If we are dealing with lower margins, we have higher risk, not less,” Lubben warns. 

That’s because you could be gambling with your farm’s future. “It appears to me that lots of farmers make their decision based on cost, not on risk,” Walters says. “You have to balance the cost of that premium against the possibility of a bigger indemnity,” which your operation could end up needing this year. 


Crop Insurance Deadlines in 2016

Note these dates as you finalize crop insurance decisions.

Jan. 31: Deadline to purchase whole-farm revenue protection in some counties. Other counties close on Feb. 28 or March 15. 

March 15: Deadline to purchase crop insurance for many crops in key Corn Belt states. 

Aug. 1: Last day to enroll in ARC/PLC for 2016 crop year.


Five Tips to Add Financial Security Across Farm Acreage

Producers can keep crop insurance costs and risk under control with these recommendations from the experts.

1. Research what various coverages might look like for your farm. You can do this using RMA’s online Crop Insurance Decision Tool at rma.usda.gov. RMA also has an interactive Price Discovery tool. Then compare notes with your agent.

2. Think about mixing and matching coverage. You can buy additional products that will increase your coverage while keeping your costs the same. The subsidized percentage of your policy falls as your percentage of coverage rises. 

3. Consider adding trend-adjusted actual production history (APH) to your underlying policy, particularly if you feel your 10-year APH is woefully out of date with actual recent yields. This could add as much as 5% to your average yield. 

4. Explore adding yield exclusion to your underlying policy. It allows you to drop your worst production year, boosting APH. That incremental increase might allow you to trim your coverage level while retaining a similar level of risk protection.

5. Determine whether the Supplemental Coverage Option makes sense based on your operation’s financial needs. This option is available to those who elected PLC and have certain crop insurance policies, like revenue protection.

 

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