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Corn+Soybean Digest

What Level Of Crop Insurance Do You Need?

Crop insurance decisions need to be made by March 15th, especially for federal crop insurance products. Now is the time to be thinking about what policy and the percent coverage you need.

Every operation is different. Each of you has a different financial and psychological ability to bear risk. That determines what and how much insurance you need. Let's take a closer look at each.

As others indicate, revenue insurance products are generally preferable to regular multi-peril products, as they are tied to price. With low world coarse grain carryover stocks, having the fall price option may be of great benefit in 2003 if there are production problems anywhere in the world.

Therefore, look at purchasing crop revenue coverage (CRC) or revenue assurance (RA) with the harvest option this year.

Even if you have irrigated crops, insurance is a good investment. It gives you the confidence to make forward sales during the summer months, before you know actual production. This is generally when pricing opportunities are best.

The next question: How much insurance is needed? This varies with each operation, so let's look at some examples.

Let's assume you need $275/acre gross income on soybeans to cover your payments, operating expenses, living, depreciation and a $50/acre profit. This is your marketing goal and, if achieved, should result in a good return on assets and equity.

The concept of insurance should be to insure costs, not profit. So, in this example, subtract $50/acre profit from your projected gross needs of $275. This leaves $225. If your operation is highly leveraged and you have significant debt on machinery, insure all of these costs.

Let's assume the February average of November futures will be $5.50. Divide the $225 by $5.50 and this will give you the bushels you need to insure ($225 ÷ $5.50 = 40.9 bu). If your actual production history (APH) is 50 bu/acre, this would require an 80% coverage policy (40.9 ÷ 50 = 81.8%).

If you are well established financially and have little or no machinery debt, you probably don't have to insure your machinery costs. Let's say your machinery costs are $50/acre. You then need to cover $175/acre. This should take care of most of your out-of-pocket production costs.

So, $175 divided by the $5.50 anticipated price would be 31.8 bu, which is what you should insure. The 31.8 divided by your APH of 50 is 63.6%. A 65% coverage policy should adequately cover you.

Now consider your psychological propensity to bear risk and you can tweak your policy up to 85% in the first case or down to 60% in the second case.

In the case of coverage for corn, the same logic applies. I have a plan on my desk that requires $371 gross/acre, which includes $50 profit. Insuring all costs including machinery would require $321/acre coverage.

Assuming the February average of December corn futures will be $2.50, you would need to insure 128.4 bu ($321 ÷ $2.50 = 128.4 bu). If your APH is 158, then you should look at an 80% CRC or RA policy (128.4 ÷ 158 = 81.3%).

Once again, if you have little or no machinery debt and your machinery cost is $55/acre, you need $266 coverage ($321 - $55 = $266). That would calculate to 67%, so you might look at a 70% coverage policy ($266 ÷ $2.50 = 106.4 bu or 67.3% of your 158-bu APH).

Having this kind of data arms you well as you go to your crop insurance agent and say: “This is what I need, let's look at the price,” rather than getting sold something you don't need.

Moe Russell is president of Russell Consulting Group, Panora, IA. Russell previously spent 26 years with Farm Credit Services as a division president. For more risk management tips, check his Web site ( or call toll-free 877-333-6135.

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