Just as you wouldn’t risk allowing your child to operate equipment without being there to protect against disaster, farmers should not be willing to shoulder all the risk in crop or livestock production.
Crop insurance is available for up to 75 percent of your historic yields (85 percent on some crops), and whole farm revenue protection is also available.
Insurance plans are available for roughly 130 crop and livestock classes, from Angus and apples to Zea mays and zucchini. All are eligible for commercial coverage. Those policies provide protection beyond the protection offered by Acre Revenue Coverage (ARC) or Price Loss Coverage (PLC) programs.
March 15 is the last day to purchase corn, soybean or spring wheat coverage. Winter wheat policies must be purchased by September 30.
Start with the basics
ARC and PLC are the two basic U.S. Department of Agriculture (USDA) crop loss protection tools. ARC provides coverage to 65 percent or 85 percent of revenue losses between 76 percent and 86 percent of historical revenue for crops with a Farm Service Agency (FSA) base acreage. Basic coverage is available at no cost to the producer. PLC pays when market prices drop below the reference prices for crops with FSA base acres. This, too, is available on a basic level at no cost to the producer.
Beyond the typical corn and soybeans, crop insurance is available to a wide range of crops in the Northeast, including greenhouse, nursery, fruits and vegetables. In fact, nursery crops (covered to $232 million) account for about 15 percent of the actual value of crop insurance in force in the Northeast. A minimum level of crop insurance, called CAT, is available to all producers, regardless of size, at no premium cost. Higher levels of crop insurance are available. Typically, the premiums are federally subsidized and producers need to pay from a third to half the actual cost of the insurance.
Multi-peril crop insurance lets growers insure against losses due to adverse weather conditions, fire, earthquakes, failure of irrigation water supply, uncontrollable diseases, insects or wildlife damage. While it is highly unlikely to apply in the Northeast U.S., a producer can even buy coverage against volcanic eruption. In practical terms, the lion’s share of money paid to producers for crop losses in this area is for losses due to drought.
New: Trend-adjusted yield
A year ago, corn and bean producers in states like Pennsylvania got a new option they could choose for coverage: Trend- Adjusted yield (TA). This lets the farmer insure more production than their actual average production history and is especially beneficial if the yield line points upward. New York, New Jersey, Maryland and several Midwestern states have had the TA option since 2012. In short, TA offers one of two benefits: Either you will benefit from having a higher insurance yield or revenue guarantee, or you can move to a lower level of coverage and take advantage of higher premium subsidies.
TA was developed to correct an anomaly in figuring production data. The farm’s actual production history is based on anywhere from four to 10 years of actual yield data. Under the traditional method to calculate actual production history, a farmer relatively new to the farming game had an advantage over farmers with decades or more of farm history. The latter actually got penalized under the TA option. That’s because, typically, older yield figures lag behind current production.
TA is equal to the estimated annual increase in county yield and is based on the yields computed by the National Ag Statistics Service (NASS). Each yield reported for the annual production history is adjusted upward by the trend adjustment factor. The result is multiplied by the number of years since the yield was recorded. Not every county has statistics, however, and each county’s numbers are different. In Pennsylvania, for example, just 34 counties have a TA factor for soybeans while 62 have a TA for corn.
To receive 100 percent of the TA, a producer needs to have at least four years of a yield history in the past 12 years. Producers with yields for three of 12 years get 75 percent of the TA, those with two get 50 percent, and those with just one year get 25 percent. Producers choosing the TA yield endorsement for their crop insurance must commit by March 15. There are several nuances in the program; for instance, some farmers can use a TA production history to buy a lower level of coverage but still get a similar yield guarantee. Whether it works on a particular farm requires some pencil pushing best done in a sitdown meeting between the farmer and insurance agent or farm business consultant.
Note that TA is not available on catastrophic, group risk or group risk income protection policies. Likewise, silage corn is not eligible.
For the animals
Dairy producers have a couple of crop insurance options: they can participate in the margin protection program (MPP) or the livestock gross margin (LGM) for dairy, but not both.
In short, LGM guarantees a margin between the value of the milk produced and the cost of feed inputs. USDA publishes expected gross margins for dairy prices as well as for hogs and cattle at http://www.rma.usda.gov each month.
LGM is sold on the last business Friday of each month by crop insurance agents. With LGM, a producer is paid the difference between the gross margin guarantee and the actual gross margin. The price the producer gets at the local market is not used in these calculations. Up to 100 percent of estimated production (up to 24 million pounds) can be insured.
MPP gives a dairy a margin protection payment whenever the average actual dairy production margin for a consecutive two-month period is less than the coverage level threshold purchased. There is no practical limit on this coverage… unless your herd numbers more than 10,000 cows!
MPP, which replaces the MILC Program, requires annual sign-up at the local firm service agency office with an administrative fee of approximately $100.
Crop insurance falls into two broad categories: Yield protection and Revenue protection. There are several different sub-options available.
Revenue protection sets a dollar guarantee for a crop based on the projected target price from the specified commodity exchange. You can set a dollar guarantee for your crop based on commodity exchange price provisions, or you can establish a guarantee with a harvest price exclusion.
Yield protection provides both production loss coverage for crops and prevented planting and replant protection. Coverage typically is shown as a guarantee (approved yield times coverage level).
Group Risk Income Protection (GRIP) pays out when the county’s average revenue falls below the revenue trigger in your policy.
Catastrophic coverage is available, too, typically at 50 percent of approved yield and 55 percent of projected price. This might be expressed as 50/55 coverage in brochures.
Yield guarantee is coverage of the approved yield times the level of coverage times the number of acres covered. Coverage levels typically range from 50 to 75 percent but can go higher.
Group risk coverage (GRC) is based on NASS county average yields, not necessarily the figure for your own farm. The big benefit for GRC is that it eliminates a lot of paperwork and documentation that goes with farm-specific insurance. As long as your yield history is close to or below county averages, it’s a good option.
GRC, like most other plans, becomes void if the producer fails to follow good farming practices or plants a crop or variety that is not appropriate to the county where it is planted. For example, don’t try to insure a cotton crop in Connecticut.
But if, for example, you plant sweet corn and you’re the only producer in your county who grows commercial acreage of sweet corn you may still get insurance as long as you plant appropriate varieties and follow good management practices. Be clear with your insurer about your crop plans before you write any checks.
Where to buy
There are lots of outlets for purchasing crop insurance. The odds are good that there are one or more trustworthy agents in your county. Treat your crop insurance relationship the same way you might treat your equipment relationship—look for a dealer who has been around a while, stocks all the products you need, provides good service, and takes the time to look at your operation rather than offer a one-size-fits-all, take-it-or-leave-it deal.
Local Farm Credit Services offices, RCIS (http://www.rcis.com), Rain and Hail Ag Insurance (http://www.rainhail.com) and AgriLogic Insurance Services (http://www.agrilogic.com) are among the big-name providers. However, don’t shun a local agent just because he does not have a multistate reach. Knowing local conditions is a valuable asset in the crop insurance game. A thorough list of agents is available at http://www3.rma.usda.gov/apps/agents.
Do check every insurer’s AM Best rating. It’s an objective measure of the financial strength and reliability of an insurer. When a multi-county area is stricken with hail, flood or drought, the last thing you need is for your insurer to go down with the rest of the local ag industry.