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HADDONFIELD, N.J. (DTN) -- With 2014 crop insurance guarantees a mere shadow of their 2012 or 2013 levels, basic crop insurance policies could offer flimsy protection from revenue disasters this year.
So producers like Michelle and John Stewart of Sheridan, Ill., are mounting a counter-offensive: They purchased the maximum 85% Revenue Protection coverage levels on corn land they farm. In addition, they supplemented it last December with a novel rider from a private insurance company that could boost their corn guarantee by about 50 cents per bushel over the spring price. The bonus triggers if they suffer a revenue loss and cost just a few pennies per bushel.
That supplemental coverage could offer some welcome relief. On March 3, the Risk Management Agency finalized federal crop insurance prices on spring crops at $4.62 for corn, $11.36 for soybeans and $6.51 for spring wheat. Without adding contingency plans like the Stewarts, growers would be left with about a 20% reduction from last year's $5.65 spring crop insurance guarantee for corn even though costs of production and cash rents haven't budged.
"While a potential for 50 cents per bushel doesn't sound like a lot, it serves as a good shallow-loss protector in the event of poor yields and/or a decline in prices," said Tom Wise, an independent crop insurance agent in Geneseo, Ill., who sold the endorsement. "If we happen to see corn under $4 this fall, it will add up."
Buy-up coverage is gaining favor as growers face the March 17 crop insurance signup deadline for most of the nation's spring-planted crops. In a webinar sponsored by the University of Illinois last week, economist Gary Schnitkey also urged growers to buy the maximum level of revenue protection with their basic crop insurance plans, then add supplements if they can afford them.
That's because the government heavily subsidizes premiums on coverage up to 85% Revenue Protection policies. Last year, 50% of those top corn revenue policies triggered coverage, versus only 24% of the corn policies insured at the 70% level. "This just illustrates the power of crop insurance protection when prices are lower, particularly at higher coverage levels," he said.
Still, the biggest shift in risk management strategies isn't government-subsidized insurance this year, but what is offered by private insurers. As DTN first reported last July, many insurers are offering 2014 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 bushel, or a net of $5.19 per bushel. However, how well these products work in the future depends on price trends and the sometimes complex contract terms. Cost of coverage can also vary widely among companies, from a few pennies to 15 cents per bushel on corn.
The Stewarts' Higher Price Option (HPO) endorsement is offered by International AG Insurance Solutions, a division of the Australian financial services company Macquarie Group. Although they locked in their terms based on a $5.11 September corn price last December, other HPO alternatives allowed growers to substitute the highest closing prices in January or March if they exceed the Risk Management Agency's conventional insurance guarantees set in February.