Wallaces Farmer

Few crop insurance changes for 2018

For this year’s coverage, there are some strategies you may want to consider.

January 31, 2018

4 Min Read
DEADLINE: If you want to make changes in your crop insurance coverage for 2018, talk to your agent now. Deadline to make changes is March 15.

By Steve Johnson

The USDA Risk Management Agency has released rates needed to calculate a 2018 crop insurance premium. The Revenue Protection rate changes suggest slightly higher corn premiums and lower soybean premiums.

Given that 2018 projected prices and volatilities are trending lower than the February 2017 values, premiums in 2018 could be near or slightly lower than those of the previous year. As a result, premium changes likely will not influence 2018 crop insurance decisions or planting intentions.

Minor changes for 2018 include:

• Yield cups (minimum levels) will no longer be automatically included on your crop insurance policy. In the past, when a new yield record was added to a farm’s annual production history, the APH had a cup of 10%; that is, the proven yield was not allowed to decline by more than 10% in one year.

• Prevent plant buy-up has been reduced from +10% to +5%. If you had chosen to buy up coverage for prevented planting in the past, you could pay a higher premium and buy up to 10% more coverage. Now you can only buy up to 5% additional coverage.

• “Practical to replant” has been changed. Insured farmers will now have only to plant 10 days into the late planting period to qualify for replant coverage.

Revenue Protection (RP) is the most popular type of crop insurance policy Iowa farmers select annually. Choosing Revenue Protection guarantees the insured a level of revenue, based on the new crop futures price average in February multiplied by your farm’s average yields — the annual production history. Insured farmers can buy coverage between 50% and 85% of the revenue guarantee. Last year, in a typical Iowa county, the guarantee typically ranged from under $400 to more than $650 per acre of corn depending on the coverage level. RP can also include a higher price guarantee that’s set in the fall (harvest price), if the futures price average in October rises above the February average.

Looking for ways to save on premium
If they don’t want that harvest price, insured farmers can buy Revenue Protection with the Harvest Price Exclusion (RPwHPE). In some areas, that might cut your premiums in half, but caution should be used.

Typically, about the only time Corn Belt growers get widespread indemnity payments from crop insurance is after a drought. If drought is widespread enough to affect the Corn Belt, corn prices usually rise. Growers with the cheaper RPwHPE would collect little or no indemnity payments.

Another way to cut premiums is to use the APH Yield Exclusion authorized by the 2014 Farm Bill. It allows you to toss out a low-yield year from your APH, if your county also had average yields at least 50% lower than the previous 10-year average. That will raise your APH, and if it goes up more than 5%, you could lower your coverage level from say 85% to 80% and pay a lower premium. You would have the same dollar guarantee, but you’ll pay less for it because of the higher subsidy rate for lower coverage levels.

For most counties in Iowa, the Yield Exclusion isn’t an option. That’s because those counties haven’t had yields below 50% of their average in any of the most recent years.

Another method to reduce premium costs is shifting from smaller optional units at the farm level to an enterprise unit that includes all of a farm’s fields in a county. It may be worth the insured farmer’s time to review this structure with their crop insurance agent well in advance of the March 15 deadline for making 2018 changes.

Preharvest marketing with RP
Perhaps the greatest advantage of RP crop insurance is the ability to lock in commodity prices in the spring and early summer when futures prices are normally higher than the spring projected price guarantee. An example might be a farm with 80% coverage level and an APH of 180 bushels an acre. The insured could sell up to 144 bushels an acre and have those bushels protected by the higher of the spring projected price guarantee or the harvest price.

Each year for five straight years new crop corn and soybean futures prices have traded above the crop insurance spring projected prices (usually peaking in April to mid-July). Thus, preharvest marketing with Revenue Protection crop insurance should be considered annually. And the uncertainty of South American production can also provide higher soybean futures prices from mid-November to January.

You can learn more about crop insurance and the USDA farm financial safety net at rma.usda.gov.

Johnson is an Iowa State University Extension farm management specialist. Contact him at [email protected].

 

 

 

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