Hurricanes and Derechos - How To Move Forward From 2020

The year of 2020 has certainly been one for the record books – and we’re not just talking about the COVID-19 pandemic. It has brought us some of the wildest, most unpredictable weather events in recent history. One event in particular, a derecho storm that smashed through the Midwest on August 10, 2020, caused damage in Illinois, Ohio, Minnesota, Iowa and Indiana.

2020 Derecho
The rogue derecho storm that raged across the Midwest on August 10, 2020, caused more than $7.5 billion in damage – more than most hurricanes. The storm was the second-costliest U.S. disaster in 2020, impacting 37.7 million acres of farmland.

According to the National Oceanographic and Atmospheric Administration (NOAA), the derecho was the second-costliest U.S. disaster in 2020, impacting 37.7 million acres of farmland across the Midwest – 14 million of those in Iowa alone, according to the Iowa Soybean Association.

The costliest U.S. disaster of 2020? Well, that was Hurricane Laura, which caused $14 billion in damage when it ravaged the Gulf Coast in August, according to NOAA. In fact, Laura was one of twelve named storms (yes, that’s a record) and six record-tying hurricanes to hit the United States in 2020.

These devastating weather events caused headaches for farmers in many ways, including loss of crops and lower yields due to crop quality issues, extended harvest time, potentially the need for specialized equipment to pick up downed corn and other crops, increased fuel and labor costs and other unanticipated expenditures that could turn a banner year into a financial disaster in the course of a few weeks.

According to risk management experts with Ag Resource Management, these events bring up an important reminder:  It’s time to start moving forward from 2020.

“It’s absolutely critical for growers to re-evaluate their risk management plan every single year,” says Matt St. Ledger, an Area Manager with Ag Resource Management based in Haubstadt, IN.  “Every year, new insurance products become available, and those need to be evaluated. Some years, new or different adjustments are allowed on your Actual Production History (APH) calculation. A farmer’s crop mix can change year over year. There’s a lot to be evaluated each year to make sure the risk management plan is going to cover the farming operation adequately.”

Before beginning the process of calculating risk management, it’s important to select the right experts to partner with, according to Billy Moore, President of Insurance at Ag Resource Management.

“In terms of risk management, the grower wants to avoid having multiple agents covering different areas of the operation,” he says. “It’s critical that their risk management plan evaluates and manages the risk in every part of their farming operation. That’s the way we approach our clients. Everything we do is aligned toward achieving those overarching goals.”

In addition to this alignment, farmers need to work with a risk management partner who will customize a risk management plan specifically to their farming operation’s needs. Ag Resource Management takes a unique, proactive approach to lending and risk management.

“A balance sheet is what has been,” says Moore. “Looking at your APH, your crop insurance policy, your planting intentions and any contracts you may have, that’s looking at what can be – it’s looking at the potential of a specific farmer’s operation. We lend money based upon that potential.”

Another thing that makes Ag Resource Management unique is the ag lending technology that it uses to evaluate a farm operation’s potential.

“We have the ability to see farm by farm, acre by acre, what the best potential for that farming operation is,” says St. Ledger. “The technology allows us to dive into deep detail on any specific farm, looking at the best potential crop mixes and risk management plan to produce the best potential profit for that operation. We know every farm has its own unique potential, and that’s what we gear our lending and risk management planning toward.”

Moore and St. Ledger laid out a step-by-step plan they follow with clients when planning for the upcoming crop year:

Step One: Get Your APH Adjustment Correct Now

“A lot of things have been added this year to the APH calculation, such as the quality loss option that will address some of those quality issues,” says Moore. “It allows the growers to be able to use their pre-adjusted yield calculation into their APH, and that’s going to be a big feature that’s going to benefit those who had quality issues.”

For more information, contact your nearest Ag Resource Management area manager or visit armlend.com.

For example, new for the 2021 crop year, the Quality Loss Option (QL) allows exclusion in quality loss from an APH database in circumstances where a quality loss occurs. Get a fact sheet on the Quality Loss option at https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Quality-Loss-Option.

For those whose losses came through production versus grain quality, there are other adjustments in the APH calculation that can be made.

In addition to adjusting the farm’s APH, Ag Resource Management will review other critical information such as the farm’s FSA-578 annual acreage report form, the operation’s budgets, projected input costs and other key factors.

Step Two: Analyze the Good and Bad of 2020

It’s always uplifting to recount the successes of each crop year. However, it’s even more critical to evaluate what didn’t go so well.

“You have to be willing to look at what went wrong as well as what went right,” says St. Ledger. “New revenue products will start coming out in December. That’s why it’s important to work with your risk management partner to have an analysis done of your farm operation, so you’ll be in the best position to evaluate these new products when they start rolling out.”

Step Three: Evaluate New Offerings

Step three, says Moore, is evaluating these new products. Are they necessary to cover any “risk gaps” in the operation and reduce exposure? This is another area where having a forward-looking, experienced risk management partner, like Ag Resource Management, is crucial.

“I tell every grower I sit down with that it’s my job to find where those exposures or risk gaps are,” says Moore. “We want to take out the minimum amount of insurance needed to put them into a position where they can pay their bills and go farm for another year. That’s our business – to help you keep that farming operation going year after year.”

Ready To Grow Your Operation?

Ag Resource Management takes a unique, proactive approach to lending and risk management.