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USA - Finalizing crop insurance decisions for 2019

The deadline to purchase crop insurance for corn and soybeans for the 2019 crop year is March 15.

The crop insurance base prices for 2019 revenue protection (RP) and yield protection (YP) insurance policies have been established at $4 per bushel for corn and $9.54 per bushel for soybeans.

Choosing crop insurance coverage is one of the more important risk-management decisions that producers make each year.

Crop insurance premiums for most coverage levels of corn and soybeans in the Midwest should be comparable to 2018 premium levels. Producers should make sure they are comparing apples to apples when comparing crop insurance premium costs for various options or types of crop insurance policies, as well as recognizing the limitations and the differences of the crop insurance products.

Many Midwest corn and soybean producers have been utilizing a minimum of 80 percent RP coverage with “enterprise units” in recent years; however, 2019 may be the time to consider upgrading to 85 percent. In many cases, the 85 percent coverage offers considerably more protection, with only a modest increase in premium costs.

Many producers will be able to guarantee $600 to $700 per acre for corn, and $400 to $500 per acre for soybeans at the 85 pecent coverage level for 2019, particularly when utilizing trend-adjusted APH yields.

Given the tight profit margins for crop production in 2019, some producers may have a tendency to reduce their crop insurance coverage in order to save a few dollars per acre. However, a producer must first decide: “How much financial risk can I handle if there are greatly reduced crop yields due to potential weather problems in 2019, and/or lower than expected crop prices ?”

RP crop insurance policies serve as an excellent risk management tool for these situations. This may not be a good year to reduce insurance coverage, given the uncertainty surrounding crop prices and weather patterns.

Some private insurance companies have “add-on” policies that allow producers to expand crop insurance coverage beyond the 85 percent maximum coverage of federal insurance. It is important for producers to understand the coverage and payment formulas of these policies, as well as to analyze the added premium costs, before purchasing these policies.

Many times, producers automatically opt for “enterprise units” every year, due to the lower premium cost per acre for similar coverage, and probably not totally understanding the differences in coverage between “enterprise units” and “optional units.”

It is important to analyze the yield risk on each individual farm unit, when determining if paying the extra premium for insurance coverage with “optional units” makes sense. If a producer has uniform soil types and drainage, in a close geographical area, and is primarily concerned with a price decline, a RP policy with enterprise units is probably a good option. However, if that producer has farm units that are more spread out geographically, with more variation in soil types and drainage and has greater concerns with yield variability, a RP policy with optional units is worth considering.

The Supplemental Crop Option (SCO) provision of the Farm Bill allows producers that choose the Price Loss Coverage (PLC) farm program option to purchase additional county-level crop insurance coverage up to a maximum of 86 percent coverage. The SCO coverage fills the gap up to the 86 percent coverage level from the coverage level chosen by the producer (75, 80, 85 percent, etc.) for Yield Protection (YP) or Revenue Protection (RP) insurance coverage.

For example, a producer who purchases an 80 percent RP policy could purchase an additional 6 percent SCO coverage at a fairly low premium cost. The tricky part of SCO is that the decision to sign up for SCO coverage for 2019 must be made by the March 15 crop insurance deadline, while sign-up for the new farm program will not occur until the summer months. Producers who are reasonably sure that they plan to choose the PLC farm program option for 2019 and 2020 may also want to consider the SCO insurance coverage option for 2019.

When comparing the insurance coverage and premium costs of RP and RPE insurance policies, there can be considerable added risk in utilizing the RPE policy, which excludes any increases in the insurance guarantee if the final “harvest price” (average CBOT price in October) exceeds the “base price” (average CBOT price in February). If this situation occurs, and a farm unit(s) has a yield loss that exceeds the insurance coverage level, it could result in reduced crop insurance payments or even no payment. This situation regularly occurs in a year with a national drought, such as 2012.

Many producers in the Upper Midwest have been able to significantly enhance their insurance protection in recent years by utilizing the trend-adjusted yield (TA-APH) option, with only slightly higher premium costs. Using TA-APH is a very good crop insurance strategy for most eligible corn, soybeans and wheat producers. The APH yield exclusion (YE) option, where available, allows specific years with low production to be dropped from crop insurance APH yield guarantee calculations.

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