Protect Gross Revenue

February 5, 2016 01:00 PM
 
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In talking with producers and end users around the country, a common emotion is resonating loud and clear: concern. For many, the word “concern” stirs up negative connotations. I understand why. On the other hand, I find concern creates innovative thinking, keen examination, creativity, a shift in perception and a newfound resourcefulness.

I presented at a workshop recently where attendees filled out a cost analysis on corn for 2016. Only a handful of the 35 producers penciled in a profit, and some breakevens approached $4.50 a bushel. Still, many of the farmers said they’d continue to plant corn—and a lot of it. Why? Because it was still better than other crop options.   

As a risk manager, insurance agent and producer, I’m obviously mindful of cutting costs. As spring approaches, we’re beginning to zero in on production. How can I be savvy and profitable? Where am I inefficient? Ineffective? Where is the fat that must be trimmed?   

Crop insurance premiums tend to be one of the first input costs on the chopping block, which is generally accomplished by lowering coverage level. I certainly understand the thinking—and I struggle with the theory of increasing risk in years when operational risk is heightened. Banks and lending institutions are taking a stronger stance against that theory as well. To make things even more dicey, the University of Illinois recently projected crop insurance premiums could be as much as 10% higher in 2016 than in 2015.  

Concerned? Maybe that can lead to a new solution. There’s a relatively new insurance option called Whole Farm Revenue Protection. While I’ve discussed this option in previous columns, it’s worth reviewing, especially during crucial operational decisions.    

Whole Farm provides a safety net for all commodities on a farm under one insurance policy. It gives expanded insurance options for diversified, specialty crops and organic producers and also offers coverage for animals and nurseries. Whole Farm protects gross revenue. This means it’s based off a producer’s yield and local price movements. 

In a year when many might want to take advantage of a highly subsidized program, this is it. The subsidy allows a producer to guarantee more revenue for less money. So, instead of lessening the Multiple Peril Crop Insurance (MPCI) coverage level, a farmer could switch over to Whole Farm Revenue Protection. He can stay at, or even increase, his coverage level and protect more of the entity’s revenue. Everyone likes revenue. 

Another option is to buy Whole Farm in conjunction with MPCI, adding an even bigger subsidy to the Whole Farm. You will likely be able to buy some MPCI and Whole Farm policies at a lower rate than a year ago and protect more revenue than you ever have before.

Consider Whole Farm Revenue Protection if you:  

  • Are worried there might be worse cash sale opportunities as the year progresses.  
  • Have crops generally subjected to some form of dockage. 
  • Want to lower insurance premiums.  
  • Feel it’s unlikely you’ll receive insurance indemnity in 2016.  
  • Have previously uninsurable crops.
  • Would like to insure more of your entity’s gross revenue.
  • See benefit in having the insurance coverages last months longer than MPCI insurance.
  • Tend to store unpriced bushels into the following year to capture the carry in the market.

The sales closing date on Whole Farm Revenue Protection coincides with the spring sale closing date for the county, which is Feb. 28 or March 15.   

Focus on what really matters, which is revenue because an operation is routinely affected by a multitude of adverse events throughout the year.

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