Review Your Coverage

January 28, 2017 02:42 AM

Crop insurance tips to aid in decision-making

It’s a new year and a new crop, which means farmers need to work closely with their crop-insurance agents to try to secure at or above-breakeven profitability with any available tools.

“It’s very, very important that they take that opportunity once a year to review that policy,” says Sherri Tomhave, crop insurance product and training specialist with Farm Credit Illinois. This annual review is pertinent to the accuracy of the policy regarding all entity and personal information, as well as the actual coverage. 

Make your decisions before the federal government’s spring average price is locked in this February and as global fundamentals tilt away from U.S. producers, particularly on the soybean side of the balance sheet.

Here are five crop insurance tips to consider this winter:

1. Buy the harvest price option. Priced at 2¢ to 3¢ per bushel, the harvest price option is the closest thing to a cheap call option producers can buy, says Jamie Wasemiller, an analyst and crop insurance agent at the Gulke Group. If harvest prices go above the spring average price, producers can realize higher revenues on their 2017 crops. The Harvest Price Option is there to help farmers in scenarios that mainly involve low production.

2. Purchase an 80% or 85% policy when possible. Buying a federal policy with a higher coverage level is simply good risk management, Wasemiller says. Policies at 70% or 75% coverage leave too much risk on the table. “The more crop insurance I can buy with a government subsidy … [the] less bushels I have to protect on my own,” he says. Producers can consult their agent about whether it makes sense to reduce coverage of individual crops from 85% to 80% and add a product such as Whole Farm Revenue Protection, which covers numerous crops and livestock under a single blanket policy.

3. Evaluate enterprise units and trend adjustment. Enterprise unit structure can be applied to a specific county crop, allowing producers to maximize subsidy dollars. “The advantage is I’m going to manage my premium by taking on more of that risk,” Tomhave explains. In other cases, trend adjustment can be applied for a per-acre fee to boost a farm’s actual production history (APH).

4. Consider buying alternate pricing methods. These private products are offered by almost all crop-insurance agents and can supplement federal multi-peril crop insurance (MPCI), Wasemiller says. Although producers will pay more for these products because they are unsubsidized, they can be beneficial by providing a spring price higher than the government-guaranteed price. “You need to weigh the cost versus the reward,” he says. Producers should calculate 2017 breakeven for crops as best as possible, then lock in insurance rates that help them achieve revenue at breakeven or better.

5. Weigh whether to decide for 2018. Between June and August—when commodity prices tend to be at their highest—look at purchasing a private alternative pricing method product at those price levels for your 2018 crops, Wasemiller says. This could help you secure a 2018 spring average price higher than the government price. 

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