Ron Smith 1, Senior Content Director

March 10, 2010

3 Min Read

Hill County, Texas, farmer Albert Sulak admits that about 10 years ago he was a bit skeptical about the value of crop insurance.

“I thought about insuring my vehicles, my house and I knew I needed health insurance,” he said. He decided to try crop insurance and still was not impressed for two or three years. “I didn’t need it,” Sulak said, during the Blackland Income Growth (BIG) conference in Waco. “Then I had two or three dry years.”

And last spring made a believer out of him. “We had a late freeze that hurt our wheat crop. Crop insurance kept some of us in business after that loss. With the expenses involved in making a crop these days, we need crop insurance.”

Jason Johnson, Texas AgriLife Extension economist-management, said records prove the point. “In the past 15 years of Texas crop insurance history and loss ratios, only four years did Texas farmers pay more for insurance than they got out of it. Variable weather patterns in Texas make crop insurance valuable.”

He said government subsidies for insurance premiums make coverage an even better bargain. For catastrophic (CAT) coverage, the government pays the premium and the policy covers 55 percent of crop price and 50 percent of yield. “That’s not much protection,” Johnson said. “Higher protection levels get less federal subsidization, but coverage may be as high as 85 percent of production and 100 percent of price.”

He said Actual Production History (APH) “protects farmers from a wide range of natural causes at levels from 50 percent to 85 percent. Farmers can select the range they want and premiums are higher at the upper levels of protection.” Price coverage levels are set by the Risk Management Agency.

Some wheat and grain sorghum farmers may be eligible for group risk plans (GRIP) that protect against widespread crop failure. Coverage is based on average yield for a county. If yield drops below a certain level covered producers receive payments regardless of individual farm yield. “A farmer could have losses on his farm and receive no payment or he could have no losses and receive a payment,” Johnson said.

He said crop revenue coverage (CRC) protects against production and market losses. Price protection is based on new crop futures prices with coverage ranging from 50 percent to 85 percent, available in 5 percent increments.

“If prices are higher by harvest, the revenue guarantee increases accordingly,” Johnson said. This policy works something like a put option to establish a price floor.

Some sorghum growers may opt for income protection policies that provide a minimum gross income per acre at 65 percent to 85 percent of expected revenue.

Johnson said crop insurance covers two of the three legs of risk farmers face with each crop. They can insure against production and price losses, but can do nothing about production costs. “No policy addresses that,” he said.

He also recommended that farmers evaluate their individual needs before selecting a policy. “If a farmer has good marketing skills he may just need APH coverage. If not, he might need CRC. Pick a level of coverage that protects an individual farm.”

Johnson said lenders may require farmers to pick a product that focuses on individual losses and not on county averages.

He said farmers in the Texas Blacklands have received significantly more money from crop insurance than they have paid in, especially for wheat, cotton and corn. Coverage at 65 percent to 75 percent seems to be a popular range.

“In 2009 and 2008, insurance paid off for Blacklands farmers. In 2007 insurance did not pay, but that was a good crop year.”

Policies are also available for pasture and rangeland. Coverage on those is based on rainfall. “This is especially good for hay producers,” Johnson said.

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About the Author(s)

Ron Smith 1

Senior Content Director, Farm Press/Farm Progress

Ron Smith has spent more than 40 years covering Sunbelt agriculture. Ron began his career in agricultural journalism as an Experiment Station and Extension editor at Clemson University, where he earned a Masters Degree in English in 1975. He served as associate editor for Southeast Farm Press from 1978 through 1989. In 1990, Smith helped launch Southern Turf Management Magazine and served as editor. He also helped launch two other regional Turf and Landscape publications and launched and edited Florida Grove and Vegetable Management for the Farm Press Group. Within two years of launch, the turf magazines were well-respected, award-winning publications. Ron has received numerous awards for writing and photography in both agriculture and landscape journalism. He is past president of The Turf and Ornamental Communicators Association and was chosen as the first media representative to the University of Georgia College of Agriculture Advisory Board. He was named Communicator of the Year for the Metropolitan Atlanta Agricultural Communicators Association. More recently, he was awarded the Norman Borlaug Lifetime Achievement Award by the Texas Plant Protection Association. Smith also worked in public relations, specializing in media relations for agricultural companies. Ron lives with his wife Pat in Johnson City, Tenn. They have two grown children, Stacey and Nick, and three grandsons, Aaron, Hunter and Walker.

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