Managing production risks for the American farmer starts with utilizing the Federal crop insurance program. This excellent system offers a variety of different insurance plans at reasonable prices. More than 90% of broad-acre, row crop farmers participate in the program and the majority engage in revenue protection.
Revenue protection manages loss of production and price risk, whether it’s the risk of prices going up or managing the risk of prices falling. The Federal crop insurance program contains many options you should learn about and understand. Many growers fail to ask questions and fall into the trap of taking the same policy as their neighbor or taking the policy they’ve always taken. Getting the most out of your risk-management investment requires a customized program that works for your farm.
Successful execution relies on good record keeping with timely and accurate reporting of your actual production history (APH) to the agent. Growers also need to make sure their agent is updating their APH and obtaining a correct quote annually.
The APH quote should show the per acre cost and per acre coverage. Once you understand the per acre cost of insurance and per acre liability, it gives you the power to become a better marketer because you know the guaranteed income per acre. This allows you to spend what you need on inputs to help your crop reach its yield potential. The APH offers in-depth visibility into your operation that is not available elsewhere.
Private insurance can fill risk gaps
Managing production risks with revenue protection insurance is critical, but it may not cover a grower completely. Such as when input costs do not fall as fast as the downward trending market, this leaves the farmer in a precarious position. Many times, where they will be operating on thin or even negative margins.
The good news is private insurance products can fill this void. Several carriers offer products that provide a band of coverage over the top of a multi-peril policy. For example, a standard multi-peril policy includes a deductible of 15% to 25% depending on what level of coverage was elected at sale closing date. Growers can potentially minimize that deductible to as little as 5% or 10% in the private market. This delivers a lot of extra assurance for just a little bit of additional money.
“Every grower should shop for products that provide protection beyond their multi-peril plan. While putting together the crop plan, it’s so important to discuss this with the agent to determine if additional coverage is needed.” ~Billy Moore, Ag Resource Management President of Insurance and Field Operations
Marketing strategy offers protection and peace of mind
Having a safety net allows farmers to confidently take advantage of pricing opportunities encountered during the year.
For example, a 200 bu/A farmer who purchased 80% RP coverage is guaranteed 160 bushels at the established price of $4/bushel. The farmer has $640 worth of liability on every acre. If a pricing opportunity arises where the farmer can book 140 bu/A, it provides the assurance of locking in those bushels. No matter what comes along, the crop insurance policy provides the money needed to get the farmer out of the delivery contract or the marketing tool used.
Marketing opportunities vary across the country. Up until planting time, it’s possible to use these marketing strategies. Once the crop is planted, if another opportunity arises that is profitable, the farmer can lock in additional bushels and take advantage of the price using forward contracts.
“Farmers can set a price floor and double protect themselves from things that could go wrong during the year. You’re not leveraging the dollars twice, but you’re protected in two ways.” ~Billy Moore, Ag Resource Management President of Insurance and Field Operations
In closing, building a customized risk strategy for your farm isn’t easy. The key is to work with an agent who can answer your questions and lay out all the available options to you. At the end of the day, find a person you trust who can provide wise counsel and set your operation up for success in the future.
Contact Ag Resource Management to create your customized plan of insurance.
Top Questions to Ask Your Agent
Building a customized plan of insurance for your farm requires asking a lot of questions and taking a deep dive into the policy structure to learn all your options. Not sure where to even start? We’ve developed a short list of questions to start the conversation and open the discussion about possible production risks on your farm.
• Does your farm have flood-prone ground?
• Is your operation widely spread across the county/state?
• Do you have some pieces of land that performed drastically better than others?
• What is your unit structure?
• What is your level of coverage?
• What is your actual production history (APH)? What will be the impacts of prevented planting to your APH for the coming year?
• Contract pricing endorsement?