Lower Crop Prices Mean Important Crop Insurance Decisions

3/8/2014 7:00 AM
By Chris Torres Regional Editor

SYRACUSE, N.Y. — The March 17 sales deadline to apply for crop insurance is fast approaching, and that means farmers will have big decisions to make before then.

Charles Koines, a crop insurance consultant with the New York Crop Insurance Program, told a group of producers at the recent New York Farm Show that the big point he’s emphasizing this year is the potential impact lower corn and soybean prices might have on revenue protection policies.

When it comes to crop insurance, revenue guarantees are tied to the crop futures price, which the government released on March 1. The price for corn — $4.56 a bushel — was calculated based on the average futures price in February for the December 2014 contract. For soybeans — $11.36 a bushel — the price is based on the November 2014 contract.

Those numbers are much lower than the 2013 projected prices. Corn, for example, was $5.68 a bushel.

With the likelihood of high input costs, Koines said it puts farmers in a situation where they may have to increase their coverage levels to get the same amount of coverage as last year.

“You’re going to have to increase your coverage level by as much as 10 or 15 percent if you want to be on the same level as you were last year,” Koines said. “If you just want to cover your input costs or your cost of production, you could perhaps go to a lower coverage level. But if you truly forward-contract and you are going to be basing your coverage on the projected price, which we all know is going to be lower, you’re going to have to definitely look at a higher coverage level if you want to be equivalent to what you had last year.”

Farmers have many options to choose from when it comes to crop insurance. Koines said he likes revenue protection.

“I like revenue protection because with revenue protection, you have two coverages: yield coverage and revenue coverage. You’re protecting both,” he said. “So if harvest prices are lower than the projected price, you still have coverage because although the harvest price is lower, your coverage level hasn’t gone down. If it goes up, the coverage has gone up. This could happen this year. The price is real low now, but you don’t know what will happen between now and the fall.

“If they are higher, you have a higher coverage level at harvest, but you don’t pay an extra premium. Your premium stays the same at the projected price,” he added.

But revenue protection does come with a higher price tag.

“When you put the two together, the premiums on revenue protection are higher than yield, on average 10 to 12 percent higher,” he said. “You got to look at the benefit. Nothing is free in this world, so you get what you pay for. You’re getting a much better product.”

Revenue protection policies, he said, haven’t sold well in New York in comparison to neighboring states such as Pennsylvania. Koines said it’s all about educating producers.

“I guess the producers here in New York and in the East, they probably forward contract less than they do in the Western states and therefore they are not looking at revenues as much as they want to protect the yields,” he said. “But now, farmers are more conscious of revenue as they have ever been. With escalating prices of all their inputs, perhaps they’ll look at something more than just yield coverage. Every year, we see more and more producers going to revenue coverage.”

Koines said the recently passed Farm Bill hasn’t affected subsidy levels paid by the government to help farmers get crop insurance. The government pays more than 60 percent of premiums for crop insurance.

“We expect the subsidies to stay the same and then our premiums will fluctuate with loss experiences,” he said. “As we’ve shown, we’ve had significant payments made on apple producers, and they definitely saw an increase in their premiums.”

In 2012, Koines said the state’s crop insurance program paid out $46 million — exceeding premiums paid in — largely due to a catastrophic apple crop.

Here are some important dates to keep in mind:

While the sales deadline is listed as March 15, for the Northeast it is March 17 largely due to March 15 falling on a Saturday.

The production history due date is April 29.

The acreage reporting date is July 15.

The premium billing date is Aug. 15.

Failure to report acreage could mean a loss of coverage.

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