Farm Management Minute: Crop insurance policy review
Instructor, S.D. Center for Farm/Ranch Management
It is quickly approaching that time of year again when you need to select your crop insurance policy levels of guarantee and the corresponding premiums. This is a crucial management decision just as is the selection and rate of other inputs for your operation. Many companies provide an informational group meeting session in addition to meeting with their clients individually. The sales closing date is March 14. Things may be a little different this year in structuring your coverage.
Using corn for an example: One thing we can perceive at this date is that the spring price-based on February’s average of the December futures price- which at this writing is $4.58, could very likely be lower than the 2013 spring price of $5.65. This means that purchasing a 70 percent guarantee level on an APH (Actual Production History) of 150 bu. per acre, will provide coverage of 150bu.*.70*$4.58 per bu equates to a guarantee of just $481. In 2013 those same parameters would have given you a guarantee of $593. We buy insurance to help us recover costs in case of a loss. So will your costs decrease, increase, or remain the same as 2014? Let’s assume they’ve remained the same: You may need to “buy up” to an 80 percent level to achieve the same level of revenue protection. Many choices are allowed the operator when selecting the “tool” that best fits his/her operation. Terms like Optional Units, Enterprise Units, Trend Adjustment, and Harvest Price Exclusion are all essential to understand when selecting the policy for your farm. Different types of hail insurance policies, price flex, and an added price option all are available at various rates and levels of coverage and deductibles.
Pasture, Rangeland, Forage (PRF) and Annual Forage (AF) policies are available and are solely based on rainfall amounts in a specified grid your land is in. There are different time periods to select, as well as coverage levels. This program has a fall signup period, so is something for next season.
Often a crop insurance sales professional is asked “Well, what did I do last year?” or “What do you think I should do?” Yes, I’ve asked them the same thing from my tractor cab on March 13th. Choosing levels of insurance are the same no matter whether health, vehicle, or property. What benefits or deductibles you choose depends on the amount you are willing or capable of paying out of pocket and be able to continue operating. Your agents are part of your business team, listen to options, take them home and consider, then call or stop in for more questions, and make an informed decision.
It is our hope at the S.D. Center for Farm/Ranch Management that the answer to the above question would be “Last year you took what coverage you felt was suitable for your operation given your past experiences and the information available to you at the time.” We are enrolling more farms in our program for 2014. Helping you make the most informed decision based on your own records and trends is what we are about. Contact us at 1-800-684-1969 or http://www.sdcfrm.com