Crop Insurance And The New Farm Program

Crop Insurance And The New Farm Program

Its crop insurance season in Iowa; see your agent now and get coverage lined up for 2014.

Now that the new farm bill has been signed into law, does it change crop insurance for this year? "Not really," says Steve Johnson, an Iowa State University Extension farm management specialist. "Whether a new farm bill was passed or not, crop insurance for 2014 was going to be the same program we've had the past few years. However, with the new farm bill, crop insurance does become the centerpiece of the USDA farm program as a risk management tool for commodity crops like corn and soybeans."

DEADLINE IS MARCH 15: Contact your crop insurance agent soon, well ahead of the deadline. Make sure your agent has all information necessary so you can make an informed decision.

March 15 is the deadline to sign up for crop insurance if you don't already have it, or if you want to make changes in your existing coverage. But don't wait. Johnson urges farmers to make their 2014 decisions early. Contact your crop insurance agent now to discuss your needs and decide on coverage.

Should you move to a higher level of coverage in 2014?
It's the same product as last year that most farmers should choose: revenue protection, with trend-adjusted yield and higher levels of coverage, he says. Subsidies for the crop insurance program are the same this year as we've had in recent years.

The critical question is are you going to move to a higher level of coverage in 2014? "That's what I'm finding statewide as I talk to farmers," he says. Farmers realize they will have much lower revenue guarantees this year than last year because of lower crop prices, and are trying to figure out how to increase their revenue guarantees. In most cases they will probably move from a 75% to 80%, or 80% to 85%, level of coverage in 2014."

How early is too early to sign up for crop insurance?
If you don't contact your crop insurance agent, you'll get the same product at the same coverage level as you had last year. You need to work with your agent and make an informed decision.

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"We don't know the projected crop prices yet for insurance purposes," notes Johnson. "The projected price, or spring price as some people call it, is the February average price for December corn and February average price for November soybeans. But most crop insurance agents will tell you now, roughly, what the crop insurance premium is going to be for 2014. So this is prime time to visit your crop insurance agent and get your coverage lined up for 2014."

While the deadline to have your coverage finalized isn't until March 15, you don't want to push everything into the first two weeks of March. Johnson thinks most farmers will use revenue protection and will have to decide whether they are moving to higher levels of coverage for 2014 crops. By contacting your agent now you can make sure you have all the information necessary to make a decision on or before March 15.

Have there been any changes in cost of crop insurance?
Crop insurance will be cheaper in 2014 than last year but that has nothing to do with the new USDA farm program, he explains. The premiums are lower in 2014 because crop insurance products were re-rated by USDA's Risk Management Agency. The premiums were already set to drop 2% to 5%.

Now, the thing to watch for concerning crop insurance is the February average price for December corn and November soybeans. That projected price is likely going to drop roughly 15% in one year: February 2014 compared to February 2013. That will decrease your revenue guarantee. "In other words, crop insurance will be a lot cheaper in 2014 but for the wrong reason," says Johnson. "It's cheaper because corn and bean prices are lower which means you'll have considerably less revenue coverage."

Setting of spring price also involves volatility factor
When are the spring projected prices announced by USDA? When will you be able to know what the February price is? "On the last day of February," says Johnson. "RMA will probably take a day to approve those prices which are called projected prices or spring prices. So it'll be at least March 3 before your agent knows the final premiums. But the agent can tell you probably within 95% to 98% of what those premiums are going to be.

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USDA's setting of the spring price also involves a volatility factor, or price movement during the last five days of February. "The volatility factors are much lower than we've seen in recent years. Crop insurance will be a good buy in 2014," says Johnson.

Can you change your crop insurance coverage before spring prices are released? Yes, you can make a decision by crop, and by county. You can determine whether you want to use optional units, which is coverage by section, or use enterprise units, which is coverage by county. Those decisions can be made now. "That's what I'm advising farmers to do," says Johnson. "Don't procrastinate just because we have a new USDA farm program to get ready for. Rules for the new farm program will probably be announced this summer and that will determine how the new farm program will operate. Crop insurance will not interact with the new farm program yet -- not for 2014."

When will conservation compliance begin for crop insurance?
Once USDA comes out with rules to implement the new farm program and the program is introduced, you'll see interaction with crop insurance including conservation compliance. That's one of the features in the new farm bill, a provision tying conservation compliance to crop insurance. If you sign up for crop insurance early does that change the compliance later on? No, signing up early doesn't affect compliance, says Johnson.

But sometime in the future you'll go to the FSA office and likely be signing up for one of three new USDA farm programs, he adds. One is ARC, or Agricultural Risk Coverage, available as ARC-county and ARC-farm. Or, you can sign up for Price Loss Coverage, or PLC. So, you'll actually have three choices in the new USDA program.

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You'll also sign the sodbuster and swampbuster forms at the FSA office. That's the conservation compliance provision tying ARC or PLC and crop insurance to your ability to make sure you are in compliance for soil erosion control.

Three new USDA farm program options are likely
In general terms the three programs are ARC county, ARC farm and PLC. "That's the challenge we face this year -- trying to get people up to speed as to what these programs involve so farmers can understand them and make informed decisions," says Johnson. "It will probably be 60 days before we see the regulations released by USDA. Then another six weeks before FSA is able to train county and state FSA staff regarding the new farm program. I think we'll likely have a summer educational effort, meeting with farmers to explain the details and rules for the new USDA commodity crop programs, ARC and PLC."

At farmer meetings this winter, Johnson and ISU colleagues are explaining what they know so far about ARC and PLC "so you can start framing your thoughts," he says. "We still expect to see widespread face-to-face county types of meetings take place but I don't think those will be held until likely late spring or early summer. My best guess is farmers won't be enrolling in the new USDA program at FSA offices until probably late summer."

Meantime, crop insurance is the No. 1 thing farmers need to get taken care of, and the sooner the better, says Johnson. "You have five weeks to make a crop insurance decision. And you have five months to figure out what USDA's commodity crop program will look like. Focus on crop insurance now. The sooner you work with your agent the easier your decisions will be. If most farmers do this, we'll hopefully have less people standing in line to see their agents as we approach March 15."

For farm management information and analysis visit Ag Decision Maker; ISU farm management specialist Steve Johnson's site is available here.

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