Last-minute considerations to help optimize farmers' 2019 crop insurance

Crop insurance base prices for 2019 revenue protection and yield protection insurance policies are set at $4.00 per bushel for corn and $9.54 per bushel for soybeans. With the crop insurance deadline fast approaching, here are some last-minute considerations to keep in mind:

  • 2019 Crop Insurance premiums for most coverage levels of corn and soybeans in the Midwest should be similar to 2018. Producers should make sure they are comparing “apples to apples” when comparing crop insurance premiums for various options or types of crop insurance, as well as recognizing the limitations and differences of each product.
  • Many Midwest corn and soybean producers have chosen a minimum of 80 percent RP coverage with enterprise units in recent years. This may be the year to upgrade to 85 percent coverage. This level offers considerably more protection with only a modest increase in premiums. Many producers will be able to guarantee $600 to $700 per acre for corn and $400 to $500 per acre for soybeans at this level, particularly with trend-adjusted APH yields.
  • Given the tight profit margins in 2019, some producers may want to reduce their coverage in order to save a few dollars per acre. That producer needs to ask: “How much financial risk can I handle if there are greatly reduced crop yields and/or lower than expected crop prices?” RP crop insurance is an excellent risk management tool for these situations, and 2019 won’t be a good year to reduce insurance coverage given the current uncertainty on crop prices and weather patterns.
  • Some private insurance companies have add-on policies that allow producers to expand coverage beyond the Federal 85 percent maximum. It is important for producers to understand the coverage and payment formulas of these policies, as well as the added premiums, before deciding to purchase them.
  • Producers tend to automatically opt for enterprise units every year, due to the lower premium cost per acre for similar coverage. It is important to analyze the yield risk to determine if paying the extra premium for optional units makes sense. If a producer has uniform soil types and drainage, in a close geographical area, and is primarily concerned with a price decline, a RP policy with enterprise units is a good option. However, if farm units are more spread out geographically, with more variation in soil types and drainage, and there are greater concerns with yield variability, a RP policy with optional units would be better.
  • The Farm Bill’s Supplemental Crop Option provision allows producers that choose the Price Loss Coverage option to purchase additional county-level crop insurance coverage up to a maximum of 86 percent coverage. The SCO coverage fills the gap between the coverage level chosen by the producer (75 percent, 80 percent, etc.) for YP or RP coverage and the 86 percent mark. The tricky part is that the deadline for SCO signup is March 15 while signup for the new farm program will not occur until the summer. Producers who are reasonably sure they will choose the PLC option for 2019 and 2020 will want to consider SCO coverage for 2019.
  • When comparing coverage and premiums of RP and RPE policies, there can be considerable added risk in the RPE policy, which excludes any increases in the insurance guarantee if the final harvest price (average CBOT price in Oct.) exceeds the base price (average CBOT price in Feb.). If this occurs, and a farm has a yield loss that exceeds the coverage level, it could result in reduced insurance payments or even no payment. This situation occurs regularly with a national drought such as 2012. If the harvest price is lower than the base price, the RP and RPE payment calculations are similar, and RPE premiums are slightly lower than RP premiums at similar coverage levels.
  • Many producers in the Upper Midwest have been able to significantly enhance their insurance protection in recent years with the trend-adjusted yield option, with only slightly higher premium costs. Using the TA-APH endorsement is a very good crop insurance strategy for most eligible corn, soybean and wheat producers. The APH yield exclusion YE option, where available, allows specific years with low production to be dropped from crop insurance APH yield guarantee calculations. For information on which counties, crops, and years are eligible for YE, as well as other crop insurance information, go to the RMA web site.

For more information on various crop insurance policies and alternatives for 2019, producers should contact a reputable crop insurance agent. Kent Thiesse has written an information sheet titled: “2019 Crop Insurance Decisions.” To receive a free copy, e-mail him at the address below. 

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal at kent.thiesse@minnstarbank.com.  
 
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