Crop Insurance - Important Points To Ponder

Crop Insurance - Important Points To Ponder

Here are asked questions by farmers about crop insurance coverage for 2012 - and answers to think about as you sign up prior to March 15 deadline.

You've heard that the premiums you'll pay for crop insurance for 2012 are going to be a little bit lower than last year. You also know we are now into February, the month when it's important to watch commodity prices for crop revenue insurance purposes. The other thing to keep in mind is that March 15 is the deadline to sign up for crop insurance this year.

"There is a lot going on with crop insurance, and there are choices you need to think about before you go to your insurance agent to sign up for 2012," says Doug Burns. He's vice president for crop insurance at Farm Credit Services of America, a major provider of crop insurance to farmers in Iowa, Nebraska, South Dakota and Wyoming.

Will I get a reduction in the premium rate I pay for crop insurance in 2012? "There are some rate reductions this year, as the premiums are lower in many cases," says Burns. "But not in all cases. In some counties in southern Iowa, for example, the premiums are slightly higher. USDA's Risk Management Agency or RMA has changed some rates. We're glad to see the lower rates and pass them on to farmers."

USDA's Risk Management Agency has updated the way premiums are calculated for crop insurance, he explains. USDA, through an actuarial analysis, has re-rated risk. This generally should result in lower premiums for farmers in primary Corn Belt states.

Another change that farmers will see when signing crop insurance contracts for 2012 is in Actual Production History or APH yields. RMA, in a pilot program available most everywhere corn is grown in 2012, has recalculated APH yields.

University of Illinois economists put the new premium schedule into last year's computer program to see how things would change for crop insurance this year. For optional units, they find that the reduction in premiums is about 5% to 6%. For basic and enterprise units the premiums will go down more, but that is part of the re-rating effort and also RMA changed the way enterprise units are calculated. In the enterprise unit case, farmers could be looking at premium reductions that will average about 14% in the Illinois study--although it does vary based on where you are at, as far as the premium reduction.

Not only does the premium vary by location but it also varies by unit size. On average, the larger unit sizes do have more of a premium reduction. Just to give you a feel for this—this is the average for Illinois—an enterprise unit with 350 acres will have an 11% reduction, and that same unit with 450 acres will have 16%, so it is pretty sizable.

Those are the numbers for corn. The soybean premium reductions were even greater in the Illinois calculations—averaging anywhere from 5% to 12%. Note that the Illinois economists' premium comparison pitted last year's risk ratings against the update for this year, but ignored the pilot program Adjusted Trend Yield for 2012.

What are the various kinds of crop insurance products? What are the product options for 2012? The most popular product option is Revenue Protection, says Burns. "A high percentage of farmers in Iowa buy the revenue protection policy, which gives you risk coverage on both yield and price," he notes. "We also have the yield products and the GRIP products. Group Risk Income Protection or GRIP policies are based on futures prices and county average yields, rather than individual farm yields."

Revenue protection policies are subsidized by the federal government and sold by crop insurance companies. "We also sell the private products the crop insurance companies offer, such as hail and wind policies, which are becoming more and more popular because of the extensively damaging hail and windstorms that have struck wide areas of Iowa the last couple of years."

"There are various types of crop insurance products being offered to farmers," says Burns, "the revenue policies backed by the federal government as well a number of different crop hail policies through crop insurance companies."

The decisions farmers make for both the multi-peril products and the revenue protection products have to be made by March 15, which is the deadline for signing up for crop insurance for 2012. You need to talk to your agent now and sign up as soon as possible, well before that final deadline. "You don't have to make the hail insurance decision by March 15," says Burns, "but we encourage farmers to visit their crop insurance agent and make that hail insurance decision at the same time they make their other crop insurance decisions. By making all of your crop insurance decisions ahead of the deadlines, it's a lot easier. That way, when you get busy in the field this spring, you won't have to worry about crop insurance."

Determining the yield on your farm—whose data are you going to use? To determine the yield on your farm for crop insurance purposes, are you going to use a county-wide yield estimate? Or your own APH yields? How do those two differ?

Also, should you choose a revenue protection policy or a yield protection policy? That is an individual decision. "We track the yield and history of the farm so you have a data base on that unit or section of ground," says Burns. "And you are buying coverage protection based on your own individual yield. That's different from a group plan, which is not based on what your farm's yield history is. Rather, the group plan, such as GRIP, is based on historical trend line yields for the county."

So there are some differences. There are producers who have interest in both of those types of policies, he notes. But there are differences in those two types of products too.

Farm Credit Services of America has a website with more crop insurance information at www.cropinsurancespecialists.com. "For crop revenue insurance policies, we encourage producers to check and see what's going on with the February futures market contract prices for corn and soybeans, and watch how they average out by the first of March," says Burns. "Meanwhile, we recommend that producers also talk to their crop insurance agent as soon as possible, certainly well before March 15."

While the deadline to sign up for 2012 is March 15, you have to get in to see your crop insurance agent prior to that date. You have to make all your changes to your crop insurance coverage on your level--for your farm, your price and your trend adjusted yield option. That choice has to be done by March 15. Burns adds, "The trend adjusted yield is a very popular endorsement that we will see most producers decide to take when they sign-up for coverage in 2012."  

TAGS: USDA
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