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What's Your Crop Insurance Plan For 2011?

What's Your Crop Insurance Plan For 2011?

Farmers are facing several choices when purchasing 2011 crop insurance. Those include combining different tracts of land. The choice will affect the premiums you pay each year as well as the size and likelihood of any indemnity payments.

Farmers producing corn, soybeans and other insurable crops are currently in the process of making crop insurance purchasing decisions. The deadline to purchase crop insurance for 2011 is March 15, and there are a number of new things to consider this year.

Iowa State University Extension economist William Edwards is one of the key speakers at a series of meetings being held around the state to help farmers with crop insurance decisions. The meetings started this past week. He also delivered crop insurance information and answered questions from farmers via a webinar that was broadcast on Feb. 17, statewide via the Internet.

Farmers facing several choices for 2011 crop insurance

"Crop producers have several choices for combining different tracts of land when purchasing crop insurance," says Edwards. "Each combination of tracts that is insured independently of other combinations is called a unit. One particular farming operation may have one unit or multiple units. Units can be designated as optional, basic, enterprise or whole farm. The choice you make will affect the premiums you pay each year, as well as the size and likelihood of any indemnity payments received." Edwards describes the various choices you have.

Optional units. Farms that are owned or cash-rented by the operator and are located in different township sections can be insured individually in optional units. The guarantees, premiums, production and potential indemnity payments are calculated separately for each optional unit. Likewise, a separate production history is needed to establish the actual production history (APH) yield.

Optional units give the most protection against isolated weather losses such as hail or wind, but also have the highest premiums. Optional units can also be created when the same crop is being grown under distinctly different farming practices, such as irrigated and dryland corn.

Basic units. Farmers can combine all the land they own or cash rent in different sections in the same crop into one basic insurance unit. All the acres of each crop are considered together when establishing guarantees and payments.

Farms rented under a crop-share lease, however, must each be in a separate basic unit. The crop share landowner can also insure his or her interest in the crop as a separate basic unit. Basic units receive a premium discount compared to optional units.

Enterprise units. An enterprise unit combines all acres of a single crop within a county in which a policyholder has an interest in a single unit, regardless of whether they are owned or rented, or how many landlords are involved. The insured crop must be grown in two or more township sections within the county.

Under new common crop insurance policy rules, at least two of the sections must contain 20 acres or more of the crop. Or if the unit contains fewer than 100 total acres, then at least two sections must contain 20% or more of the total acres.

Whole farm units. Growers who are willing to combine all their insured crops into a single insurance unit can gain additional premium discounts. This is called a whole farm unit. The amount of the discount will depend on the proportion of the total acres planted to each crop. Whole farm units are available for revenue protection insurance, but not for yield protection policies.

In general, the more tracts of land that are combined into a single insurance unit, the less likely it is that a yield loss on just one tract will trigger an indemnity payment. This is particularly true if the tracts are dispersed throughout the county. One tract may get hailed out, but that production loss can be offset by average or better yields on another tract.

For that reason, farmers who buy enterprise or whole farm units should consider also purchasing add-on insurance for isolated losses from hail, wind and/or fire.

On the other hand, if a farmer is primarily concerned about declining market prices, any unit structure under a revenue protection policy gives the same price risk protection. This is because the same prices used to set the level of guarantee and the actual revenue each year are applied to all insured acres, regardless of the size number or location of the units. Thus, aggregating land into larger insurance units doesn't diminish price risk protection. Given the current high levels of futures prices for corn and soybeans, the chances of lower prices occurring by harvest may be greater than usual in 2011.

Premiums will be lower when you aggregate acres into larger units

Perhaps most important, aggregating acres into larger units will result in lower overall insurance premiums. The table accompanying this article (see below) shows an example of typical farmer premiums for corn, for land in Story County in central Iowa, under different unit structures.

Table 1. Typical Premiums, Story Co. per ac.*

Coverage Level

Corn, Basic Units

Corn, Enterprise Units



















*Example only. Actual premiums will differ.

The discount for enterprise units arises because the overall production risk is reduced by including more acres in a policy, and because the percent premium subsidy from USDA's Risk Management Agency is higher. Many farmers who have moved from basic to enterprise units have opted to increase their coverage levels, which provides a higher overall revenue guarantee for same or less cost.

Enterprise units will probably result in less frequent, but larger, indemnity payments compared to basic units. Once the crop is harvested, however, the bushels are generally commingled before they are marketed, and the dollars received from the sale of the crop will go into the same bank account. Thus, guaranteeing a minimum revenue for all the combined farm acres is consistent with the overall financial management of the business.

TAGS: USDA Extension
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