7 months, 3 weeks ago by DTN AgDay
Farmers nervous about a slew of weather issues
Farmers nervous about a slew of weather issues this spring expect to lock in higher insurance levels. Others are bracing for the normal damage from hail or just setting a foundation in the event of a sudden catastrophe. Most of the U.S. spring-planted crops have until March 17 to be signed up for crop insurance coverage, but what choices growers make depend on their own individual risk and willingness to bear it.
"Last year, we went to 85% coverage for the first time and we'll probably do that again," said Terry Jones, of Williamsburg, Iowa, who farms around 6,000 acres with his brother. "The difference between 85% coverage and 75% coverage was about $100 per acre more revenue." That could be critical, given that subpar moisture levels are Jones' big concern.
Dave Dvorak in West Liberty, Iowa, bumped up his coverage last year for the first time to 85% from 80% because he saw the possibility of prices going down. This year he plans to repeat the high coverage, not because of the price risk, but because his subsoil moisture is depleted. "We have adequate soil moisture in the first two feet, but below that there's nothing," said Dvorak.
To keep costs manageable at the higher coverage, many farmers are choosing the more subsidized enterprise units versus optional units. The federal government subsidizes 53% of the enterprise unit premium at the 85% coverage level compared to a 38% subsidy for optional unit premium for 85% coverage. The enterprise unit factors the loss of revenue across all your fields of the same crop in that county when calculating your indemnity payment. With the optional unit, you can insure each field.
"I worry more about a catastrophic loss across my operation than a field-by-field loss. So, I go with the enterprise units because they are so much cheaper," explained Jones.
It all depends upon the type of risk you're willing to carry, said Charmain Nelson, Texas Farm Credit Services crop insurance specialist. "Generally, Texas farmers carry 70% coverage. This year, we've had some bump up to 80% coverage, but that's still rare. Farmers in Texas generally pay $13 to $20 per acre in crop insurance premiums," Nelson said. In contrast, an Illinois corn grower with a 186-bushel Trend-Adjusted Yield and enterprise unit coverage will pay about $21 per acre for 85% coverage this year, a rate Southerners can only admire from afar.
One young southern Texas sorghum and cotton grower went to 80% coverage on his cotton ground to better manage his risk on his mostly rented acres. The maximum coverage level for cotton and corn is 85%. The maximum coverage for grain sorghum is 75%. Traditionally on his cotton acres, he bought 75% coverage using optional units. But this year, he increased his cotton acreage coverage level and switched to enterprise units. This saved $10 an acre compared to the lower coverage on optional units for his cotton ground.
For lower-risk grain sorghum acres, the young farmer bought 70% coverage using enterprise units. "Even when we have a complete drought and get zero cotton yields, the grain sorghum ground will have half a crop. I view my crop insurance on grain sorghum as catastrophic coverage at the lowest cost I can get," he explained. The federal government subsidizes 80% of the premium cost for 70% coverage on enterprise units.
Sam Simmons also farms in southern Texas, but at 57 years old, can afford to take more risk on his cotton ground, so he justifies having a lower coverage level than young farmers trying to get established.
It's like having a higher deductible with a lower annual payment, he reasoned. "My main concern is a catastrophic loss caused by a hurricane or tropical storm late in the season. I buy 60% coverage on my upland cotton and expect to cover 90% of my input costs." He can afford to "self-insure" smaller losses and said, at levels above 65% coverage, the higher premium cost of insurance is close to his actual benefit if he would incur a loss.
"My strategy is if I have a total loss to be able to survive until the next year," said Simmons. "If you have continuing crop insurance claims in my area, you're not going to make it."
While using enterprise units is less expensive, it depends on how uniform your fields are, and whether that is the best option for your farm. Some of Dean Taylor's central Iowa corn and soybean fields within a mile of each other have a great variation in yield, depending on the weather. In dry years, the Prairie City, Iowa, farmer may collect insurance on his ridge areas. While in wet years, he may have a level field wiped out by floods.
"It depends on the risk of your farm," said Taylor, who buys option-unit coverage and additional hail/wind/fire insurance.
Fire is one of his main concerns. These past dry summers, central Iowa has had some fires started in rural areas and he also has land that butts up to a national wildlife refuge which has controlled grassfires every year.
Hail is more of a risk for the Safraneks who irrigate corn in central Nebraska. "Our philosophy is to buy the cheapest multi-peril crop insurance in case of some unforeseen catastrophe and ramp up hail insurance, which is our main risk," said Craig Safranek in Merna, Neb. "Droughts don't affect us much except in the dry corners of our pivots, and usually the higher corn prices resulting from a drought more than makes up for that loss. Because we irrigate, we rarely have yield losses deep enough to collect on multi-peril insurance. But hail can totally wipe out a field in minutes."
Given that many growers will be bargain hunting this year, Iowa State Extension specialist Steve Johnson recommends all farmers look into the Trend Adjusted Yield option. Using a typical central Iowa farm with an actual yield of 175.5 bpa, Johnson applies the Trend Adjusted yield factor and the farm's yield shoots up to 194.2 bpa.
"It's a pretty good deal for the farmer," said Johnson. "He can stay at a higher subsidized coverage level and still get more of his yield covered than before."