The Benefits Of Crop Insurance

Many people I know had the same opinion of last year for agriculture: I’m glad 2012 is over! Let’s face it, people who make their living from agriculture have really been hit hard this past year and it’s kind of affected their thinking going forward into this year.

So let’s review. Last spring, growers thought they would have steady $6 commodity prices and raise 200-bushel corn. They were thinking everything in agriculture is good.

But you don’t have to move these numbers very far for growers to start losing money. The early projection was for growers to plant 97 million acres of corn in 2012, so what was the likelihood that commodity prices would stay up? And because of a nice spring, many growers were planting corn in the middle of March last year, with good soil conditions. So at the start of the 2012 season, the marketplace was setting up for a really large corn crop. So there was a lot of concern commodity prices could drop to the $5 per bushel level.

The Crop Insurance Safety Net

So what could these growers do to manage their risk? For many, purchasing crop insurance was the answer.

But what kinds of crop insurance policies could growers purchase? For most, there are five different types.

First is Yield Protection. With this kind of policy, growers are protected against a production loss for crops for which revenue protection is available but not selected. It also provides prevented planting and replant protection. This policy allows growers to protect their bushels, and nothing more. In 2012, Yield Protection policies set the spring price for corn at $5.68. And for every bushel the grower lost, he or she was going to get paid $5.68 regardless.

Then there’s a Revenue Protection policy. This is probably the most common policy, especially for your larger acre growers. It is a tool that allows producers to manage both their yield and price risk. The policy is structured to allows growers to “lock in” a certain level of revenue, which is usually yield times price.

Then there’s the Revenue Projection with Harvest Price Exclusion. This is essentially the same as a Revenue Protection policy, except that the amount of insurance is based upon the projected price only. This policy can protect a grower, but there is no bushel guarantee with this plan. So growers could end up not getting covered if the spring prices for corn are significantly different than the fall prices were when the policy was purchased.

Finally, there are the Group Risk Protection and Group Risk Income Protection policies. These are multiple peril insurance programs designed to help growers protect their crops from disastrous losses. However, these policies only protect growers when yields are low all over the county they are in, not when isolated problems hit an individual’s crops. In addition, neither provide coverage for prevented and delayed planting or reduced grain quality, such as aflatoxin damage.

In 2012, most Group Risk Protection policies were based off of the county’s yield projection. This was figured out in many cases by using the yield surveys conducted of the county’s growers.

As for the Group Risk Income Protection plan, this was based on the county’s revenue projections. This policy is popular with growers that might not have the records to prove what their production would have been for the year or for growers that consistently outperform the county average. Growers can also buy up to 90% of their coverage using this kind of policy. Historically, when a grower has bought this policy, they are most concerned about price. Also, for every $1 lost using this kind of policy, growers would get paid $1.66.

Buying Into Profit

So by buying these types of policies, most growers were able to purchase profit in 2012. How many of you have heard that crop insurance doesn’t work, it doesn’t pay? You might hear a lot of growers talk that way. But you’ve probably also heard many growers say: “I have crop insurance, so I’m fine.” But it all depends upon which kind of coverage a grower has whether or not crop insurance can help them out in a bad crop year.

We were at record revenue levels going into 2012. So what are we looking for in 2013? On the commodity market, we are getting close to that $6 per bushel for corn level again, so growers can set a $6 spring price with their insurance policies for 2013.

So what are growers concerned about going into the year? The drought continues. Much of the country is still dealing with the after-effects of the drought from 2012. In some parts of the country, the drought area is continuing to grow.

Also, some experts are projecting that more than 99 million acres of corn will be planted in 2013. That’s a huge number. If this happens, this could move corn commodity prices down to $4.05 per bushel. And that would really do some financial damage to some growers.

So with the drought, we have production risk. And with that much corn being produced, we also have a price risk. So for 2013, I don’t foresee the need for crop insurance going away or becoming less important than it was during 2012.

Leave a Reply

Management Stories

The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stewardship Certification Program
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
ManagementReport: U.S. Farmland Values On Average Continue Gradual Decline
June 27, 2016
Land price movement has been in the forefront for farmers, landowners, lenders and land brokers for a decade now during Read More
Allen Summers Asmark Institute PSM Training
EmployeesAsmark Institute Sponsors 25 ResponsibleAg Auditor Training Scholarships
June 21, 2016
The Asmark Institute has announced plans to provide 25 scholarships through their affiliated State fertilizer and agrichemical associations to help encourage Read More
Trending Articles
The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stewardship Certification Program
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
Food IT
Industry NewsCalifornia Event Will Mix Ag And Tech Professionals To Explore IT Solutions
June 20, 2016
Silicon Valley is hot on agriculture, and an upcoming event in California will bring together the food and tech industries Read More
Monsanto Luling Plant
Eric SfiligojWhat’s Next For Monsanto?
May 31, 2016
For the folks at Monsanto’s headquarters in St. Louis, MO, it has been an eventful few weeks. Back on May Read More
Soybean Plant closeup
Industry NewsMonsanto Rejects Bayer Bid; Open To More Talks
May 25, 2016
Monsanto Co, the world’s largest seed company, turned down Bayer AG’s $62 billion acquisition bid as “incomplete and financially inadequate” Read More
Eric SfiligojPity The Monsanto Haters
May 23, 2016
An old saying goes thus: “Be careful what you wish for. You just might get it.” Given current events, there Read More
Monsanto Luling Plant
Crop InputsReport: Bayer Eyeing Monsanto For Possible Mega-Merger
May 16, 2016
Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. in a deal that would create the world’s Read More
Latest News
Industry NewsCompass Minerals Names Protassium+ Sales Director
June 28, 2016
Compass Minerals, the producer of Protassium+ sulfate of potash, has named Scott Johnson director of sales for Protassium+ North America. Read More
Eric SfiligojThe British Leave Vote Impact On EU Agriculture
June 27, 2016
Like virtually everyone else in the world this past week, I’ve watched the global reaction to Britain’s vote to exit Read More
Valent David Nothmann
Crop InputsValent Names David Nothmann Vice President Of Marketing
June 27, 2016
Valent U.S.A. Corp. has announced the appointment of David Nothmann as vice president of marketing. Nothmann will be responsible for Read More
The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stew…
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
CropLife 100BRANDT Contributes To Mayo Clinic
June 27, 2016
BRANDT, a leading agriculture retailer and manufacturer of specialty agriculture products, has pledged a sizable donation to the Mayo Clinic Read More
ManagementReport: U.S. Farmland Values On Average Continue Gradua…
June 27, 2016
Land price movement has been in the forefront for farmers, landowners, lenders and land brokers for a decade now during Read More
AdjuvantsPrecision Laboratories Introduces Intact Xtra For Use W…
June 27, 2016
Precision Laboratories announces the launch of Intact Xtra, an adjuvant designed for applicators who want to maximize spray applications and Read More
Key Cooperative’s new liquid fertilizer, crop chemical, and seed facility in Grinnell, IA stores 1.5 million gallons of liquid fertilizer and 120,000 gallons of crop chemicals.
Retail FacilitiesKey Cooperative Facility Features The Latest In Murray …
June 27, 2016
When Key Cooperative wanted to improve the overall efficiency at its new state-of-the-art facility in Grinnell, IA, it turned to Read More
Allen Summers Asmark Institute PSM Training
EmployeesAsmark Institute Sponsors 25 ResponsibleAg Auditor Trai…
June 21, 2016
The Asmark Institute has announced plans to provide 25 scholarships through their affiliated State fertilizer and agrichemical associations to help encourage Read More
Kennebec Elevator
CropLife 100Wheat Growers Celebrates Kennebec Elevator Grand Openin…
June 21, 2016
Over 250 patrons and guests were on hand to celebrate Wheat Growers’ Kennebec Elevator grand opening. South Dakota Secretary of Read More
Land O Lakes
Industry NewsLand O’Lakes To Acquire Ceres
June 20, 2016
Land O’ Lakes, Inc. and Ceres, Inc. have announced that they have signed a definitive merger agreement under which Land O’Lakes Read More
Food IT
Industry NewsCalifornia Event Will Mix Ag And Tech Professionals To …
June 20, 2016
Silicon Valley is hot on agriculture, and an upcoming event in California will bring together the food and tech industries Read More
LegislationVilsack Christens WinField Crop Adventure, Talks Monsan…
June 17, 2016
The WinField Crop Adventure grand opening ceremonies at Fair Oaks Farms (near Winemac, IN) welcomed USDA Secretary of Agriculture Tom Read More
Crop InputsFields of the Future: WinField Doubles Down with Agri-E…
June 16, 2016
Land O’Lakes, Inc., joined by Agriculture Secretary Tom Vilsack, today will host Fields of the Future, a live broadcast about Read More
Bayer sign
Crop InputsMonsanto Turns Back Bayer Again
June 14, 2016
Bayer AG’s bid to buy Monsanto Co. for more than $60 billion has hit an impasse that could pose a Read More
Young Corn Field
Crop NutritionNext Generation Of Nitrogen Efficiency Technology Conve…
June 13, 2016
Commodity price projections indicate farmers will continue to face tight margins again this year. Delivering higher yields and more bushels Read More
Industry NewsLa Crosse Seed Acquires Cover Crop Solutions Brand
June 10, 2016
La Crosse Seed announces that it is the new and exclusive owner of the entire family of brands of Cover Read More