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Crop Insurance and Risk Management

Date: 
Author: 
Rob Moline
Educational Opportunities: 
Articles
Interests: 
Grain, Young, Beginning Farmers
Home > Education & Events > February 2019 > Crop Insurance and Risk Management
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As you meet with your trusted Crop Insurance Officer, and contemplate what plan fits your operation, it’s important for you to know all of the different options available to you. Building a risk management program with Multi-Peril crop insurance is not a cookie-cutter solution, and not all crop insurance officers are created equal. As you prepare to meet with your trusted partner, I encourage you to ask yourself these questions to better prepare:
  • What is most important to you and your operation in purchasing insurance?
  • What is your individual risk management philosophy?
  • How do you utilize your guarantees to market?
  • What is your cost of production by crop or even by field?
By answering these key questions, you will be better suited to select the right plan so you are protected for the future. Formulating a plan suited for your individual operation will help you attain the goals you have set for the coming years.

Mulit-Peril crop insurance is the base for any risk management plan. However, there are several options available, including:  Revenue Protection, Yield Protection and Area Plans.  A majority of producers are utilizing Revenue Protection.  Revenue Protection will set a base guarantee with the average price in the month of February, looking at November 2019 for soybeans and December 2019 for corn.  With Revenue Protection a producer will utilize their own 10 year production history.  They then have the option to utilize optional or enterprise units.  Optional gives you a guarantee on each individual section, while enterprise will group crop by county.

In order to determine the bushel guarantee for your operation, you choose a percentage of coverage, multiplied by your actual production yield history.  That bushel guarantee is then multiplied by the spring price to get your baseline revenue coverage.  Most importantly, you must answer the question “What is your cost of production?” As producers, knowing your cost of production will help you determine how profitable your operation is.

Knowing your cost of production, will tell you what level of revenue you need to attain, in order to mitigate any potential losses.  Crop insurance isn’t meant to insure a profit, but to help mitigate the size of losses you have the potential to incur.  As a subsidized product, it’s important to maximize the Revenue Product at the highest levels, to match where you want to be.

With the base set, you now have to ask, “What’s the biggest peril that you worry about?”  When I ask this to producers, often times the answer is hail. A key factor to remember, is that hail takes off the top bushels produced, meaning those are the first bushels lost.  If hail is a concern for you, it’s important for you to look at coverage options for your operation when meeting with your trusted crop insurance partner.

When looking at Multi-Peril and Hail, it’s important to understand your total dollars of coverage.  Say for example, you were to get hailed out, are you okay with the amount of coverage you have?  Knowing that value is extremely important; and there are different options available to get you there.  We’ll first look at hail insurance. There are multiple options available to get you the needed coverage, and different premiums for the amount of money you want to spend.  Wind can be a large peril as well.  There are wind policies that can be utilized if that’s one of your concerns.  Looking at total dollars of coverage, there are revenue and bushel products that can guarantee you up to 95% of your trend adjusted APH, by offering higher levels of coverage options.  We have seen the success of these products by helping our producers guarantee additional dollars over their current Multi-peril coverage.  Ultimately, you as a producer need to decide what’s most important to you. How many dollars of coverage do you need, and how much do you want to spend to get that level of coverage?

There are a lot of questions that need to be answered, along with identifying goals. Each producer should strive to work with their trusted crop insurance partner to find the right individualized plan for their operation.  No single operation has the same goals, cost of production and/or risk tolerance.  Take the time to develop your goals, understand risk tolerance, create or update your grain marketing plan and determine your cost of production.  Knowing these details will help you be successful in mitigating your risk and achieve your goals.  Contact us at Compeer Financial to help you put together a risk management plan for your individual operation today.

Contact a crop insurance officer today!
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