Profit margins for producing corn and soybeans this year remain quite tight, making crop insurance decisions critical. March 15 is the deadline to buy insurance for the 2017 crop year.

With low grain prices expected to continue, crop insurance is one of the most important risk management decisions a farmer will make, says Doug Burns, vice president of crop insurance for Farm Credit Services of America. He recommends taking full advantage of crop insurance, because “it’s the only input that guarantees revenue.” Burns is based in FCSAmerica’s office at Perry.

Choose the right policy and coverage level that fits your risk tolerance, he advises. “Crop insurance is not a one-size-fits-all product. We encourage farmers to work with someone who understands their financial risk tolerance and can correlate that with the best policy options to meet the farmer’s needs.”

Farmers have several policy options to choose from, including yield protection (YP) policies and revenue protection (RP) policies, as well as other group insurance policy options. There are also decisions about unit structure for using “enterprise units” vs. “optional units.”

Considerations for 2017
Make sure you have the paperwork completed and signed by the March 15 sales closing date. Have you changed entities or created a different business structure on the farm? Let your agent know. You also need to notify USDA’s Farm Service Agency. FSA must have the correct signatures and forms on file.

USDA’s Risk Management Agency regulates, sets rules and oversees the crop insurance industry. There are at least a few changes each year. There is a change in prevented planting coverage on corn for 2017. It’s been reduced a little, from 60% of the original guarantee to 55% beginning this year. Beans are still the same at 60% of the guarantee.

“Keep in mind it’s not 55% or 60% of the APH. It’s the percentage of the coverage levels,” notes Burns. “So for corn it’s now 55% of the guarantee for prevented planting.” There are also a few changes in the replant provision if you have to replant corn to corn or soybeans to soybeans, he says.

One option introduced in 2016 was the Whole Farm Revenue policy. That’s where you take the lesser of the average of your last five years of total revenue or future revenue, and base your policy on it, says Burns. “You can buy that policy in addition to another federal crop insurance policy, as a supplement or it can stand alone. Farmers didn’t show much interest in it last year. But we do get a few questions about it.”

RP is most popular policy
Greater than 90% of all farmers in Iowa buy the revenue protection policy. RP is the most popular because it gives you revenue protection when prices go up and when prices go down. You can buy RP insurance coverage levels from 50% to 85%, in 5% increments. Losses are paid if the final crop revenue falls below the revenue guarantee. “Most farmers are buying RP insurance at the 80% to 85% coverage level,” says Burns.

Another major decision is type of unit structure. Choosing an enterprise unit policy or an optional policy can make a big difference for your farming operation.

If you choose optional units, you get section-by-section crop coverage, he explains. If you choose enterprise units, your corn and soybean acres are covered separately but based on your actual production history. Unit structure makes a big difference in how a claim will be paid.

Given tight profit margins for crops in 2017, some farmers are thinking about reducing their crop insurance coverage to save a few dollars per acre in premium costs. However, ask yourself, “How much financial risk can I handle if there are greatly reduced crop yields due to potential weather problems in 2017, or lower-than-expected crop prices?” RP crop insurance policies are an excellent risk management tool for these situations, and 2017 may not be the year to reduce insurance coverage, says Burns.

Review your coverage
While many farmers have been using a minimum of 80% RP coverage with enterprise units, 2017 may be the time to consider upgrading to the 85% coverage level. In a number of cases, the 85% level offers considerably more protection, with only a modest increase in premium costs. Many farmers will be able to guarantee about $550 to $650 per acre for corn and $435 to $450 per acre for soybeans at the 85% coverage level in 2017, especially when also using trend-adjusted APH yields.

Some farmers have significantly enhanced their insurance protection in recent years by using the trend-adjusted yield (TA-APH) endorsement, with only slightly higher premium costs. The APH yield exclusion (YE) option 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, visit www.rma.usda.gov.

“Probably the most important message we have for farmers in 2017,” sums up Burns, “is to really know your cost of production. Again, crop insurance is the only input that guarantees revenue. Making the right crop insurance choice is very important. It’s the most important risk management decision a farmer will make.”