There is more than the usual amount of procrastination this year on crop insurance, as many farmers have put off their final decisions on the amount and type of coverage for 2014. "I'm urging farmers to talk to their agent today because the agents are going to be extremely busy those last few days before the March 15 deadline," says Steve Johnson, an Iowa State University Extension farm management specialist.
In a webinar broadcast over the Internet last week, Johnson and Ed Kordick, commodity services manager for Iowa Farm Bureau, discussed risk management strategies and how to develop crop marketing plans using crop revenue protection insurance. "Crop margins are tighter this year and it's going to be very important for farmers to understand how to use the tools available," says Kordick.
Crop insurance is centerpiece of farm safety net
March is always a busy month for crop insurance agents. But this year they'll be busier than usual because crop insurance has become the centerpiece of the financial safety net that is provided by the new 2014 Farm Bill. And with corn and soybean prices sharply lower following the large 2013 harvest and profit margins extremely tight this year, many farmers will want to increase the levels of crop insurance they purchase for the 2014 crop as a way to protect income potential.
Johnson says, "More farmers will buy coverage at the 80% or 85% level than we've ever seen here in Iowa." Premiums will be lower and revenue protection guarantees will be a lot lower this year. Premiums and the initial guarantees are set based on the average February prices for the December 2014 corn futures contract and the November 2014 soybean futures contract.
New farm bill doesn't affect crop insurance for 2014
Farmers purchasing Revenue Protection insurance will be able to have a higher revenue guarantee if the harvest price turns out to be higher than the February average. The February price is commonly referred to as the "projected price" for crop insurance purposes.
Crop insurance agents this past week or two have been able to come very close to determining the premiums, by making estimates for their farmer-clients, as there has been less volatility in the grain market recently.
Johnson also points out that changes in commodity programs in the new 2014 Farm Bill passed by Congress and signed into law earlier this month do not affect crop insurance for 2014. Some farmers have mistakenly put off making crop insurance decisions because they were confused about the provisions in the new farm bill.
Other crop insurance decisions you need to make
First, you have to determine the level of crop insurance coverage that best fits your farming operation this year, says Johnson. Then you'll have to make a few more decisions. "Farmers have the trend-adjusted yield option, or TA, which is designed to help farmers capture the rising yield trends for corn and soybeans," he notes. "I think everyone should use this option. It's the least expensive way to increase your revenue guarantee."
Another decision farmers will have to make is whether to choose the enterprise unit coverage or the traditional basic coverage, which is often referred to as optional unit coverage. Enterprise units measure yield or revenue losses of all of the insured farmer's acres of a particular crop in a single county, both owned and rented acres, to determine if there should be a payout.
Enterprise unit coverage is usually less expensive than optional unit coverage, but the farmer assumes more risk, notes Johnson. That is especially the case if the productivity of your land varies a lot within the county.
Do you need to buy supplemental coverage?
Farmers also have the choice of whether or not to buy supplemental coverage: coverage that is not subsidized by the federal crop insurance program. That coverage can cover things like damage from hail, wind and greensnap, delayed harvest or other crop problems. It provides farmers more protection but farmers have to pay an added premium to get it, says Johnson. "However, supplemental coverage can work well for some farmers, especially if they choose the enterprise unit option."
Many farmers can use their revenue protection crop insurance as a tool in their grain marketing plans, notes Kordick. Farm Bureau members can view and listen to a recorded presentation of last week's crop insurance and risk management webinar by going to the members section at the Iowa Farm Bureau website. The webinar recording also provides an early look at some of the new USDA farm program provisions contained in the new 2014 Farm Bill.