Many farmers facing drought this year will collect crop insurance. I have farmland in Southeastern Washington state, and we had a drought and I will for sure collect crop insurance proceeds.
However, the amount you can defer is limited to the portion related to damage not price. Damage is based on yield loss times the base or discovery price before you plant the crop. If the harvest price is exactly equal to the discovery price, then all of your proceeds will be related to yield and thus fully deferrable.
But let’s assume that the harvest price is much lower than the discovery price. In this case, the portion of your proceeds related to the drop in price is extra money you received based solely on the price drop, therefore, those proceeds can’t be deferred.
That is likely the case for most farmers this year. You will take the yield loss times the discovery price. That will be the maximum amount of crop insurance proceeds that can be deferred. The remaining amount will be price and can’t be deferred.
We typically do not have to calculate these numbers. The crop insurance provider usually reports the amount of price and yield loss when they send out the proceeds.
The bottom line is that most crop insurance proceeds this year are likely to be a result of a price drop not a price increase at harvest. Therefore, don’t be surprised to find that you can’t defer all of your crop insurance proceeds.
