Crop Insurance in Low-Profit/Loss Year

With March 15 looming, farmers have tough choices to make with crop insurance this year.

Economists with the University of Illinois recommend that they seek maximum coverage — 80 percent to 85 percent — to boost crop insurance guarantees.

“From a crop insurance standpoint right now, we’re looking at a scenario where we’re not going to be insuring a profit, but minimizing losses,” Gary Schnitkey said.

He, along with Nick Paulson and Bruce Sherrick, explained this insight during a Feb. 22 webinar.

“Right now, farmers need as much coverage as they can get to protect themselves with Agriculture Risk Coverage,” Schnitkey explained. “We’re looking at a low-profit, loss year.”

In 2015, 86 percent of corn and soybean acreage was covered by crop insurance. The balance of the uncovered acreage, Schnitkey believes, is in share-rent land.

To help farmers estimate and calculate their coverage, the economists also have released new tools through Illinois’ website. Here’s a look at what those tools can do and other crop insights from the economists:

Think long term: Look at the net cost of the insurance over the next several years. It may not be this year, but over time, there’s a tendency to see more payouts than less.

Do not cut premium costs: Although an immediate temptation may be to save money by paying for lower premiums for less insurance coverage, the economists said buy the highest possible amount of coverage to increase the crop insurance guarantee from ARC.

They illustrated this point with an example of a Logan County farm with a 190 bushel-per-acre Actual Production History and Revenue Protection cost $16.56 per acre at the 85 percent coverage level. Buying RP with the harvest price exclusion costs $8.17 per acre for 85 percent coverage.

If cost cutting …: The economist suggestion buying revenue protection with the harvest price exclusion, which eliminates coverage for higher prices at harvest set by futures prices in October. This move tends to provide only downside risk.

Big ARC payments: Between the current low prices and benchmark prices at $5.29 a bushel for corn and $12.27 a bushel for soybeans, Paulson said there will be “a lot of counties with ARC payments, a lot of counties with big payments.”

iFarm Premium Calculator: Users can develop customized estimates of their crop insurance premiums and compare revenue and yield guarantees across all available crop insurance products and elections for their actual farm. This is intended as a quick way to compare insurance premiums.

iFarm Payment Evaluator: Completely updated for 2016, this tool works up a case farm and provides estimates of premiums for all available crop insurance products for basic and enterprise units by coverage level, along with the expected frequency of payments, average payment per acre, net cost per acre and risk reductions associated with alternative crop insurance products and election levels.

FAST Crop Insurance Decision Tool: This is a Microsoft Excel-based spreadsheet tool that contains four components: Farmer-paid premiums for different user entered parameters; insurance payments calculations for user-supplied prices and yields; a history of insurance payments and premiums can be found in the “Historical Analysis” section; and a comparison of farm yields to county yields.

Use an agent: While the farmdoc staff operates as an independent resource for farmers, they do urge farmers to confer with their crop insurance agents in selecting the best insurance option.

Source: Karen Binder, AgriNews

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