Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 02/12/14

Put '14 Crop Insurance on Auto Pilot

Good news is that the new farm bill poses little change in your crop insurance decisions for 2014, so what worked for you in years past should be standard operation procedure this season, University of Illinois economist Gary Schnitkey writes in a recent post on FarmDoc.com. Even the new rule linking crop insurance and conservation compliance won't go into effect until 2015.

One major difference of course is that commodity prices have tumbled in the past year, so if crop insurance guarantees were set for spring crops today, they'd run a mere $4.57 for corn and $11.16 for soybeans in most of the country.( In reality, those tentative prices will be based on February averages of futures prices, so what happens between now and the end of the month could still sway guarantees. ) In any case, the current price projections represent quite a revenue hit compared to 2013 spring guarantees of $5.65 and $12.87.

Schnitkey has long recommended that growers purchase the highest level of coverage possible, since small deductibles mean you'll receive the best chance of revenue protection. He suggests at least 75% Revenue Protection coverage levels with Trend-Adjusted Yields and Enterprise Units to keep policies affordable, but prefers 80% to 85% coverage levels--the most widely used policy types in Illinois. Guys in High risk states like Texas can't buy coverage that high, but it would break the bank anyway, so just buy the maximum.

In recent years, area-based insurance plans have lost favor but can make sense under special circumstances. First, government-backed premium subsidies are tilted toward RP, not the old GRIP/GRP-type policies, so GRIP/GRP became much more expensive. This year, USDA has combined those county-based policies into a new product called the Agricultural Risk Protection Policy (ARPI), but the features remain nearly the same. They work best for irrigators or those with large farms and higher than average county yields. One key disadvantage is that neither covers prevented planting, a major issue in 2013.

The biggest shift in risk management strategies isn't at RMA, but what is offered by private riders. As DTN reported last July, some companies are offering flexing price periods so your entire protection doesn't ride on February or October futures. Hudson Insurance and NAU Country Insurance are among those offerings. In July 2013 growers could price 2014 corn with a Hudson Price-Flex contract at $5.30 guarantee for about 11 cents per bu., or a net of $5.19/bu. Unlike futures hedges, there are no margin calls and growers won't be billed for the service until harvest. How well these products work in the future depends on potential for a rally from today's price levels.

Some operations may also consider supplementing conventional insurance with Total Weather Insurance coverage through Climate Corporation. These policies are sold as "gap" insurance, filling the yield deductible you might have with traditional policies. In reality, you are insuring pre-specified weather events that don't always map to your final yield. But the company's models may work better in the central Corn Belt than in drier parts of the Great Plains. Crop adjusters in northwest Kansas for example, appraised some 2013 spring wheat fields at a half bu. to 1- 1/2 bu. per acre due to freeze and drought, but the farmer still owed Climate Corporation the balance of his premium. Insured growers in parts of Nebraska also experienced near total losses, but never triggered full payouts. The company confirmed the problems, but said such anomalies are rare.

"We provide agents and growers powerful, easy-to-use online tools that show the grower how the weather events specified in the policy would have paid outin each prior year. If the historical weather-based payouts don’t show a good fit with the grower’s historical yield, then the agent will not recommend the policy," Climate Corporation's Vice President Jim Ethington told DTN. So the message seems to be, test drive before buying.

See Schnitkey's post at http://www.farmdoc.illinois.edu/…

See RMA's running daily estimate of 2014 crop insurance guarantees at http://www3.rma.usda.gov/…

Follow me on Twitter@MarciaZTaylor

Posted at 6:23PM CST 02/12/14 by Marcia Zarley Taylor
Comments (1)
Thanks Marcia for the info on TWI. I have no desire to minimize my risks by adding to my risks.
Posted by Curt Zingula at 7:03AM CST 02/13/14
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