There Are More Options Than You May Realize
By Megan Vaith, Northbourne Organic Crop Insurance LLC
Published May 26, 2023
Part 1 of 3
A farmer’s most dependable safety net continues to enhance with changing farming practices, but will these improvements be permanent?
The federal crop insurance program provides a suite of risk management tools protecting farmers and ranchers from a loss on their crops due to natural disasters such as drought, excess moisture, freeze, hail, insects, and wildlife. Some crops can also be protected against a loss of revenue due to a decline in the market price. Crop insurance is sold and serviced by private insurance companies, all while still being regulated by the federal government. This gives the farmer ample options to design a risk management strategy that best fits their operation without having to price-shop.
So, what options are available to ensure that you have guaranteed revenue for the year? The most popular crop insurance policy is revenue protection as it provides a safety net to farmers on both price and yield. This serves farmers very well for their traditional crops, but is it enough? Coverage is available from 50%-85% with different price points and subsidy levels for option. This means you automatically have at least a 15% deductible on your crops, but most often more than that as 75%-80% are the most common coverage levels. Oftentimes, farmers are disappointed with their crop insurance coverage and feel it doesn’t adequately make up for the difference in years that they fall short of their expected revenue. If you feel you fall into this category, it may be time to look at some of the other options available to make sure your operation is protected for the generations to come.
Whole Farm Revenue Protection (WFRP) is a great option for the specialty or diverse farmer who may not have many crop insurance options available to them. This policy encompasses the entire operation, rather than having an individual guarantee per crop. Since WFRP is protecting the farmer strictly against a loss in revenue, five years of Schedule F history is needed to sign up for the policy. RMA compares the average allowable revenue from those tax forms with the expected revenue for the upcoming crop year. The lower of those two numbers is multiplied by your selected coverage level to establish your guaranteed revenue.
Since this policy is all revenue based instead of yield, claims cannot be finalized until after taxes have been filed for that crop year which is quite a bit more delayed than the traditional crop insurance program. However, this policy can cover almost all crops and livestock where revenue protection can’t so if you’re not afraid of some extra paperwork, this could be a beneficial option to look into! The policy is continuously developing as it’s still considered a pilot program with enhancements and corrections always taking place.
Last year, USDA RMA announced a new Micro Farm program within WFRP which caters to farmers with lower revenue allowing them to not have to provide as much paperwork. This fits well for the farmer who has a small orchard or grows produce that they sell at a local farmers market. Even though this policy was designed for the specialty farmer, it can be utilized to protect the overall revenue of your operation similar to an umbrella policy. Whole Farm Revenue Protection truly caters to all farmers which makes it unique compared to the other policy options available.
Organic farmers and some specialty growers don’t often know the advantages available when it comes to multi-peril crop insurance. Depending on the crop, farmers can submit their crop contracts in order to use their contracted price in place of the established crop insurance price if it’s higher. The rules vary between different crops but oftentimes farmers can increase their price guarantee up to 150% more than the crop insurance price. I believe this is the biggest benefit to these farmers as they can truly personalize their crop insurance policy to what they need for their operation. Producers need to have a special option on their policy by sales closing to accomplish this but don’t have to submit the contracts to their agent until acreage reporting deadline, which is most often July 15th. For example, in 2022 the certified organic soybean crop insurance price was set at $27.41. Some producers were able to secure contracts around $40 per bushel. If a farmer had a guaranteed yield of 52 bushels per acre, the revenue guarantee would be $1,425 ($27.41 x 52 bushels) without a contract. However, with a contract of $40 per bushel, the new guaranteed revenue is $2,080 ($40 x 52 bushels). This is a great way to secure more crop insurance guarantee without having to increase your coverage level.
Ever wonder if you can have insurance on your perennial haying or grazing acres?
Pasture, rangeland and forage (PRF) insurance has been around for a while, but surprisingly hasn’t gained traction nationwide. This policy is unlike any other where it covers you solely for a lack of rainfall in the area where your perennial haying or grazing fields are. The average rainfall is tracked all the way back to 1948 and compared with the current rainfall for the time periods the farmer selects. If it falls below your guaranteed moisture level (90% of average is the highest), then you will collect an indemnity. I personally have wondered why more people don’t use this policy as it’s the most stress-free insurance option available. Acres are signed up in the fall and then moisture is tracked the whole following year. Farmers do not need to report any rainfall or yield information; a claim is automatically opened if the two-month interval that the farmer selected is short on moisture.
To sign up acres, farmers must select at least two different two-month intervals to choose to insure their acres in. For example, farmers can select May-June and July-August to make sure they have coverage on their grass for the months the cows are out on pasture. However, you can choose more intervals if you want and even insure every month of the year. Intervals are weighted, so you can apply more coverage to one interval if desired. For instance, in the scenario above you could make it even and select 50% of your acres to be insured in May-June and 50% in June-July. However, if you are always lacking moisture in May, it may make more sense to put 70% of your acres in May-June and 30% in June-July. The maximum coverage allowance depends on the state and county your land is located in. Need another reason to explore the product further? This policy is unlike your traditional crop insurance policy because it allows you to pick and choose which fields to insure. Under a corn contract, any acre planted to corn in the county automatically must be insured. For PRF, you can just insure one field if you’d like. This insurance is still considered a pilot program so there may be changes in the future on it but as of now, it’s a great affordable option for farmers to make sure they’re protected against a shortage of hay or pastures due to lack of moisture.
Livestock risk protection (LRP) has gained a lot of popularity over the last few years. The policy has been around for quite some time, but they revamped the program in 2021 increasing the subsidy levels which in turn made it more attractive for farmers. LRP covers you solely on a decline in market price for livestock, mainly cattle and swine. Farmers can select from a variety of insurance periods and coverage levels. From there, they can see the expected ending value (predictions for the market price at the end of the time period) and decide if they think that price point is worth insuring at. The prices change daily following the market so there isn’t one major deadline throughout the year, making this a unique product.
Another major benefit to the LRP product is you can virtually insure up to 100% of the value which is typically unheard of in crop insurance. LRP also does not require any major record keeping. Everything is tracked using area pricing so if the price falls below the expected ending value, an indemnity will be paid out. Since this product is subsidized, farmers are starting to turn to insurance to protect themselves on livestock rather than going through a broker. The following example shows a farmer who wants to insure 100 head of feeder cattle at 800 pounds each.
The expected ending value for this timeframe is $230 per cwt.
Coverage – 200 head x 8 cwt x $230 = $368,000 of insurance coverage
Actual Value – 200 head x 8 cwt x $205 = $328,000
Indemnity = $40,000
If you have continued reading to this point, you have realized by now that insurance uses acronyms for nearly everything. You may also have noticed that a fair amount of these products are pilot programs and either may change as time goes on or they won’t be around for the long haul. I think this is an indicator to show how complicated crop insurance really can be and how each producer has different options depending on their farming operation. It is vital that farmers have a close relationship with their agent so they are able to review all options to see what makes sense for them. Most crop insurance products involve multiple touches and deadlines throughout the year to ensure all the reporting is done properly. Make sure that you are working with an agent who fully understands and presents all the options available to you. Think of your operation like a business, who do you want sitting at the table for your board of directors meeting?