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Crop insurance policies cited as a certainty amid the changing perils of crop production

Jan. 20, 2014 | 0 comments


A recap of crop insurance statistics for 2013, a review of a few changes in the federal program for 2014, and a description of the choices on crop insurance available to growers highlighted a winter information meeting sponsored by Badgerland Financial.

The presentation at the session here was given by Kyle Salter, who is a member of the crop insurance team at Badgerland's Fond du Lac area office. State-wide, Badgerland has 35 crop insurance specialists and assistants who serve a trade area that encompasses approximately the southern half of Wisconsin's major agricultural production region.

As a mid-December, farmers in Wisconsin had been paid about $5 million for losses on crops that had been covered by an insurance policy in 2014, Salter reported. For the United States, the most recent estimate is that the indemnity payments will total about $9 billion — a .75 loss ratio on the combination of premiums paid by farmers and the larger share of federal subsidies compared to the very high loss ratio of 1.85 in 2012, he noted.

For 2013, prevented planting was a major reason for the crop insurance claims in Wisconsin that had been processed by Dec. 1, Salter observed. Wisconsin's acre totals on those claims which stemmed from a cold spring and excessive early growing season rains were 277,368 for corn, 89,454 for soybeans, and 3,284 for other crops, he indicated.

Crop insurance overview

As a risk management tool that a great majority of farmers in Wisconsin and elsewhere have chosen to use, crop insurance serves such purposes as protecting crop input costs, underpinning crop sale plans, assuring lenders on collateral, gaining some protection from volatile market prices, and boosting personal income, Salter pointed out. It's a preparation for the unknown, the what-ifs, and the worst case scenarios, he remarked.

The multi-peril crop insurance program, to which the previously cited statistics refer, is overseen by the Risk Management Agency (RMA) of the U.S. Department of Agriculture and administered in cooperation with private insurance companies and agents. Badgerland's participation is as an agent writing policies served by five different insurance companies — Rural Community Insurance Services, Great American, NAU, ADM-Crop Risk Services, and Farmer's Mutual Hail.

Premium rates are the same for every insurance company. Some of those companies and others in the crop insurance business also offer policies for hail insurance, total weather, and other add-on products to the basic products. They are required to pay 100 percent of the indemnities for those insured losses.

Coverage possibilities

In addition to corn, soybeans, and winter wheat, 15 other crops are insurable in Wisconsin. They include forage seeding and production, oats, green peas, sweet and hybrid seed corn, snap and dry beans, potatoes, cranberries, cabbage, apples, mint, and cigar binder tobacco.

Losses covered in the multi-peril policies could be caused by a variety of adverse weather conditions, plant diseases, insects, wildlife, natural disasters, naturally occurring fire, and irrigation system failure. "It's whatever Mother Nature throws at you," Salter commented.

Although titled "hail insurance," the private sector policies in that category also cover losses from fire, lightning, vandalism, and transportation (distance limits apply), Salter noted. He pointed out the growers can collect on both the multi-peril and hail policies.

A related product, which differs between insurance companies, is the wind and greensnap endorsement (typically for corn), Salter pointed out. It is available for an additional premium and has a 10-percent deductible, he stated.

Government subsidies

Under the terms of the existing federal crop insurance legislation, which are unlikely to change much if any under a pending new Farm Bill, there are federal subsidies of 38-67 percent and 53-80 percent on the insurance premium, depending on the type and level of coverage chosen by the crop grower, Salter indicated. Whatever happens in a new Farm Bill will not affect those rates for crop insurance in 2014, he said.

Salter reviewed the basics of the very popular revenue and yield protection policies and seldom-chosen catastrophic (CAT) policy for which the growers pay only an administrative fee of $300, noting that all acres of a given crop (owned and rented) must be insured per county. He also outlined how up to four years of actual production history records play into the formula for determining what yields or revenue can be protected with crop insurance.

For new growers or those without acceptable production records, there are also allowances for transitional yields. Salter pointed out. For those with lots of production records, there is a provision for a yield trend adjustment, for which every county is assigned a rate, on corn and soybean policies but not on organic production, silage, or any CAT policies, he observed.

Price determination

Crop values are determined by using the higher of the projected price determined by the February futures price average for December for corn and for November on soybeans or by the harvest price for those months that's taken from the October futures trades on the Chicago Mercantile Exchange, Salter explained.

All indications are that the projected prices for 2014 will be significantly lower than they were a year ago, thereby reducing the per acre amount of dollar protection and most likely lowering the per acre insurance premiums, Salter observed. He presented examples of the formulas for determining claims for losses — formulas that consider the projected and harvest prices, the insured and actual yields, and the coverage percentages.

Over the past 10 years, the projected price for corn was higher than the harvest price six times and lower four times. For the same period, the harvest prices for soybeans were higher five times and lower five before the rarity in 2013 — the same projected and harvest prices of $12.87 per bushel.

Revenue protection

Salter emphasized that the revenue protection provisions in crop insurance are calculated from those two sets of prices — not on the prices that the insured grower contracted for or received in sales to local elevators, ethanol plants, or other buyers.

Farmers who grow a portion or all of their corn to feed to livestock that they own can also benefit from having revenue protection crop insurance, Salter stated. In a year when feed needs to be purchased, it is likely to have a high cost, he explained.

Growers of brown midrib silage corn can now insure that crop on a tonnage basis with either a yield or revenue protection policy on a price set by the RMA, Salter indicated. Growers need to specify the intent to raise such corn by the March 15 deadline for obtaining a policy on spring-planted crops, he noted.

Policy variations

Several variations from the basic policies are also available for either a higher or lower premium, Salter reported. Those include a harvest price exclusion on revenue protection (a lower premium) and the Enterprise Plus plan.

Salter described Enterprise Plus as a very involved procedure — one that can easily be confusing. He noted that it is available only through Great American and ADM.

Depending on the configuration and location of their crop acres, growers can choose between basic, optional, or enterprise unit structures — each of which affects premium rates and the potential for indemnity payments, Salter observed. He advised working with the insurance agent to understand the specifics and their implications.

Final planting dates

If there would be a repeat of spring planting problems, farmers need to be aware of the established final planting dates and how failing to meet them would reduce the guarantee on crop insurance payments, Salter noted. For Wisconsin, he cited the general planting deadlines of May 31 for field corn, June 20 for sweet corn, June 10 or 15 for soybeans and May 15 or 25 for forage seeding — the latter two varying by county.

For replanting or prevented planting, the affected crop must be at least 20 acres or 20 percent of the chosen coverage unit, Salter pointed out. CAT policies apply for prevented planting but not replanting while group policies do not cover either situation, he added.

Changes for 2014

What Salter considers to be the major change in Wisconsin for 2014 is the availability of revenue and yield protection crop insurance for specialty trait soybeans. This covers small and large-seeded food grade, low linolenic acid, low saturated fat, high protein type, and any other food grade soybeans.

Coverage is provided for organic, irrigated, and non-irrigated production practices. The prices that growers have obtained in contracts with buyers will be used to determine any claims and a separate actual yield base will apply.

Another change for 2014 is one of terminology. What were previously called "group" policies now are described as "area risk protection." What has not changed on those policies, which are not chosen by many growers, will be the practice of comparing expected and actual county-wide yields to determine any loss payments, Salter explained.

That insurance, available for corn, soybeans, and forage on a per acre premium based on the number of acres plus a $30 administrative fee, carries such advantages of less paperwork, no requirement for yield records until 2015, no filing for claims, and the possibility of obtaining a payment after having a good crop year on the insured farm, Salter observed.

The downsides are delayed payment, somewhat higher premiums, no individual coverage, and no coverage for replanting or prevented planting, he added.

Standard reminders

Salter reminded farmers to check on the special conditions that apply to new cropland or land being removed from the federal Conservation Reserve Program. For the latter, he noted that a written agreement is likely to be required for insurance on land cropped more than two years after being out of CRP.

Timely reporting (within 72 hours of damage), accurate production and storage records, working with the insurance and adjuster on silage harvests, and settlement sheets (not weight tickets) from buyers are good starting points for starting the process for a claim and receiving payment, Salter indicated. For tax purposes, there is an option of receiving payment in the next calendar year, he pointed out.

The receipt of indemnity payments does not affect the premium rates for the individual farmer in following years, Salter emphasized. He explained that the rates are set annually for all insured growers from a combination of commodity prices, market volatility, government subsidies, and the grower's production history.

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