Fine-Tune Your 2013 Crop Insurance Decisions

Fine-Tune Your 2013 Crop Insurance Decisions

Make sure you have the right policy that fits the needs of your farming operation.

DEADLINE IS MARCH 15: This is a busy time for crop insurance agents. February is when farmers and agents track the spring corn and soybean price for crop revenue policy purposes. Also, there isn't much time left before the March 15 closing date to meet with your agent and get things firmed up for 2013 coverage.

Iowa farmers need to determine on or before March 15 which federal crop insurance program to choose for 2013. March 15 is the sales closing date. "Most farmers will choose to use revenue coverage," observes Steve Johnson, Iowa State University Extension farm management specialist in central Iowa. He notes, "In 2012 about 92% of the state's insured corn acres and 91% of the insured soybean acres were covered by a revenue protection policy or RP. With the experience from the drought of 2012 still in mind, and dry subsoil moisture this winter, along with uncertain summer weather forecasts for the 2013 growing season, those percentages are not likely to go down in 2013." Johnson provides the following tips to help you choose the right crop insurance options to fit your particular farming operation and risk management needs for the 2013 crop.

Choosing RP coverage and taking Trend-Adjusted yield option
For most farmers, the most likely choice may be to choose RP and take the Trend-Adjusted yield option or TA-option. This option was offered in 2012 for the first time as a way of reflecting the longer-term trend toward higher yields. Each county has updated TA factors for 2013. The TA-option is an annual decision and doesn't affect the farm's proven actual production history or APH.

Three interacting factors are at play that determines the final farmer-paid premiums and are often overlooked prior to the March 15 sign-up deadline for spring planted crops. One factor is that federal crop insurance subsidies are a smaller percentage at higher levels of coverage. Thus, larger percent subsidies are provided at lower levels of coverage. A second factor is that the TA-option in almost all cases creates a larger revenue guarantee. This decision can actually save premium depending on the level of coverage and whether to elect optional or enterprise units. That third factor is the decision to use enterprise unit coverage which carries more risks by grouping all fields of that particular crop together in the county for determining a potential loss payout. 

Key decision you need to make: compare Optional vs. Enterprise Units
However, with a larger percent of federal subsidy the farmer-paid premium for enterprise unit coverage is roughly one-half that of optional units. Let's take a central Iowa farm insuring corn as an example with an actual proven APH yield of 175.5 bushels per acre. Let's use an 80% level of coverage but compare optional to enterprise unit coverage. Note the premium for enterprise units is less than one-half that of optional unit coverage. The assumption in these comparisons is a $6 per bushel December 2013 corn futures February average price equals the Projected Price, and a volatility factor of .22 is being used.

Fine-Tune Your 2013 Crop Insurance Decisions

Now let's look at that same farm that takes the TA-option that creates an adjusted yield of 194.2 bushels per acre. With that in mind, a farmer could choose a lower percentage level of coverage along with the TA-option and still create a larger revenue guarantee due to the higher yield.

Fine-Tune Your 2013 Crop Insurance Decisions

Here's an example of how that might work for 2013 crop
Here's how that might work if you figure an actual APH of 175.5 bushels per acre at an 85% coverage level and a 175.5 bushels per acre and yield guarantee of 149.175 bushels per acre. Taking the TA-option means that the farmer could create a larger revenue guarantee and actually move from 85% down to 80% level of coverage which would guarantee 155.36 bushels per acre. The decision to choose the TA-option, yet choose a lower level of coverage still creates a $37 per acre larger revenue guarantee for almost the identical premium. The farmer-paid premium could remain the same if you elected optional units. That's because the 80% level of coverage has a slightly higher percentage federal subsidy than does the 85% level.

Now compare the premium savings with the TA-option and the use of enterprise unit coverage. Again, if you take the TA-option you can move to the lower 80% level of coverage, create a larger revenue guarantee and with the choice of enterprise units actually decrease your farmer-paid premium by about $3.50 per acre.

Fine-Tune Your 2013 Crop Insurance Decisions

Talk with your crop insurance agent now about various choices
Of course, that scenario may not be the same for every farm and decisions are made for all crops on all farms being insured in that county. Farmers should talk with their insurance agent about their various choices regarding their 2013 crop insurance decisions.

Remember, those decisions might include adding policies for specific perils such as hail or wind. Purchasing these added endorsements are becoming more common, especially if you elect to use enterprise unit coverage or want to manage the deductible not covered by federal crop insurance.

SUMMING UP: Be aware of these changes for 2013
In summary, most farmers should expect few changes in the crop insurance decisions for 2013 compared to last year. Premium rates are actually going to be lower statewide (about 6% for corn and 9% for soybeans in Iowa). That's due to a re-rating of crop insurance products by USDA's Risk Management Agency prior to 2012.

If you are insuring a new farm or if you are bringing CRP ground back into row-crop production, or pasture or hay ground into row-crop production, there is a March 15 deadline to report those intentions to your crop insurance agent. If you planted cover crops last fall, May 10 is the deadline for destroying established cover crops. The final crop insurance payment you must make to pay your premium for 2013 coverage is now due on October 1 instead of November 1, without a penalty attaching.

For farm management information and analysis go to ISU's Ag Decision Maker site and Extension farm management specialist Steve Johnson's site

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