Prioritize Crop Insurance

October 26, 2016 02:32 AM
Prioritize Crop Insurance

Chart next year’s plans with your agent this winter

Winter is the perfect time to sit down with your crop-insurance agent to analyze coverage decisions for the following year. Talking through different scenarios is key to making the right choice. 

“Crop insurance is a cornerstone of your risk-management plan,” explains Jason Alexander, vice president of crop insurance for Farm Credit Mid-America. “If you’re just making a decision because it’s what has always been done, you’re not looking at the [long-] term impact of that decision.”

Imagine a corn field in Illinois where the bottom ground floods out but the high ground produces excellent yields, Alexander says. If a farmer has enterprise units, those yields will average out and a claim payment won’t follow.  

Additionally, getting an operating loan without crop insurance is extremely difficult, adds Thomas Zacharias, president of Overland Park, Kan.-based National Crop Insurance Services, an international not-for-profit organization representing private crop insurance companies. Most farmers make borrowing decisions in the winter, so it’s important to have an insurance conversation with your agent before loan application deadlines approach. 

“How much of the crop should you forward price? How much of the crop should you hold? That’s where crop insurance becomes integral,” Zacharias points out. “We don’t know what profit opportunities you can lock in unless you know your cost of production.”

By Anna-Lisa Laca and Nate Birt

Updates on Crop Coverage for 2017 

Whether you grow wheat, corn or soybeans, it’s a good idea to weigh each crop’s insurance needs separately for maximum protection in 2017, says Art Barnaby, ag economist and crop insurance expert at Kansas State University. The first order of business: Update your insurer.

“You want to make sure you get that yield reported to your crop agent,” Barnaby says. “It will raise your actual production history (APH) and your future guarantees.” Risk protection provided to corn farmers for 2017 or 2018 through the Farm Service Agency’s Agriculture Risk Coverage (ARC) shallow-loss revenue protection program will start to decline. In 2018, if the county yield equals the five-year Olympic average county yield, it will require a national average corn price below $3.18 to trigger any payments, Barnaby predicts, meaning it’s no time to cut crop insurance. 

USDA has announced broader insurance changes that go into effect next year. Farmers who grow two crops on one field will be able to modify coverage as needed for most crops in the 2017 growing season. The program will kick off with winter wheat.  

Wheat: For revenue insurance, the price of wheat is $4.59 per bushel. Yet cash at delivery points is $3 or less in states such as Kansas. That means if you buy the harvest price and your crop gets hailed out, you’ll get paid $4.59 at a minimum per indemnity bushel. If the price of wheat rises, you’ll capture the additional gains. Yet if the spread between futures and cash prices widens further by next summer, you’d only get a yield-loss claim check, not a revenue-loss claim. Farmers can explore whether cost-savings can be achieved by rolling hedges forward and holding wheat in on-farm storage or using a soft-wheat contract as a hedge to deliver hard red winter wheat. 

Corn: Expect to see lower insurance guarantees on corn than in the past. For that reason, “I really think this is the kind of year where you wouldn’t want to cut your harvest price option off of that corn contract,” Barnaby says. There’s decent upside potential to corn prices next year, so write your contract to capture possible gains, he adds.

Soybeans: Barnaby’s advice here is the same as to corn producers: Don’t drop the harvest price on your insurance contract. He expects more soybean acres next year than in 2016, a factor you should keep in mind when visiting with your agent about risk and marketing decisions.

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