Finalizing crop insurance decisions for 2020

By Kent Thiesse

The deadline to purchase crop insurance for corn and soybeans for the 2020 crop year is March 16. The crop insurance base prices for 2020 revenue protection (RP) and yield protection (YP) insurance policies have been established at $3.88 per bushel for corn and $9.17 per bushel for soybeans. The 2020 base prices are a decline from 2019 base prices of 12 cents per bushel for corn 37 cents per bushel for soybeans. Choosing crop insurance coverage is one of the more important risk management decisions that producers make each year.

Following are some key items to consider when making 2020 crop insurance decisions:

  • Crop Insurance premiums for 2020 should be similar to 2019 premiums, or slightly lower.

2020 Crop Insurance premiums for most coverage levels of corn and soybeans in the Midwest should be similar or slightly lower to comparable 2019 premium levels, due to reduced base price levels for both crops in 2020, and a relatively low volatility levels.

  • There are a wide variety of crop insurance policies and coverage levels available.

      Make sure you are comparing “apples to apples” when comparing crop insurance premium

      costs for various options or types of crop insurance policies, as well as recognizing the limitations and the differences between the various crop insurance products.

  • Use caution in moving forward with Area Risk Protection (ARP) crop insurance plans.

Some insurance companies have been promoting the ARP crop insurance option for 2020, due to the ability to purchase up to the 90 percent coverage level, using the same price structure as RP policies. However, be aware that ARP policies use county-level yields for APH yield guarantees and final harvest yields, whereas RP policies utilize the farm APH yields to calculate the initial insurance guarantee. There is also no yield protection against isolated yield losses on individual farm units with APH policies. APH works best if your primary risk management concern is price protection, but not as well to protect for yield risk.

  •  View crop insurance decisions from a risk management perspective.

Given the tight profit margins for crop production in 2020, some producers may have a tendency to reduce their crop insurance coverage, in order to save a few dollars per acre. However, a producer must first decide: How much financial risk can I handle if there are greatly reduced crop yields due to potential weather problems in 2020, and/or lower than expected crop prices ? RP crop insurance policies serve as an excellent risk management tool for these situations, and 2020 may not be a good year to reduce insurance coverage, given the current uncertainty surrounding crop prices.

  • Take a good look at the 85% coverage levels, especially when using “enterprise units” with RP insurance policies. 

Many Midwest corn and soybean producers have been utilizing a minimum of 80 % RP coverage with “enterprise units” in recent years. 2020 may be the time to consider upgrading to the 85% coverage level, especially for soybeans. In many cases, the 85% coverage level offers considerably more protection, with a modest increase in premium costs. Many producers will be able to guarantee near $550.00 to $700.00 per acre for corn, and near $350.00 to $475.00 per acre for soybeans, at the 85% coverage level for 2020, particularly when utilizing trend-adjusted APH yields.

  • Analyze crop insurance “add-on” policies.

Some private insurance companies also have “add-on” policies that allow producers to expand the crop insurance coverage beyond the 85 percent maximum coverage allowed with Federal crop insurance, as well as adding special hail or wind insurance coverage. It is important for producers to understand the insurance coverage and payment formulas of these policies, as well as to analyze the added premium costs, before deciding to purchase the “add-on” policies.

  • Analyze the value of “Optional” versus “Enterprise” crop insurance units.

Many times, producers automatically opt for “enterprise units” every year, due to the lower premium cost per acre for similar coverage, and probably not totally understanding the differences in coverage between “enterprise units” and “optional units”. It is important to analyze the yield risk on each individual farm unit, when determining if paying the extra premium for insurance coverage with “optional units” makes sense. If a producer has farm units that are more spread out geographically, with more variation in soil types and drainage, and has greater concerns with yield variability, they may want to consider “optional units”. 

  • “Supplemental Crop Option” (SCO) insurance possibility.

Producers that chose the “price loss coverage” (PLC) farm program option for 2020 have the option to purchase additional county-level SCO crop insurance coverage up to a maximum of 86 percent coverage. The SCO coverage fills the gap up to the 86% coverage level from the coverage level chosen by the producer (75%, 80%, 85%, etc.) for Yield Protection (YP) or Revenue Protection (RP) insurance coverage. For example, a producer that purchases an 80% RP policy could purchase an additional 6% SCO coverage at a fairly low premium cost. SCO insurance calculations utilize the same base and harvest prices as traditional crop insurance policies; however, SCO utilizes county average yields rather than farm-level yields. 

  • Use caution when considering RPE insurance policies to reduce premium costs.

If the “harvest price” (average CBOT price in Oct.) for corn or soybeans is lower than the “base price” (average CBOT price in Feb.), the RP and RPE payment calculations function similarly, and RPE premium costs are slightly less than RP premiums at similar coverage levels. However, there is a considerable added risk in utilizing an RPE policy when the final “harvest price” exceeds the “base price”, and your farm unit(s) have a yield loss that exceeds the insurance coverage level (such as in a year with a national drought).

  • In most instances, utilize the Trend Adjusted (TA)-APH endorsement for 2020.

Many producers in the Upper Midwest have been able to significantly enhance their insurance protection in recent years by utilizing the TA-APH option, with only slightly higher premium costs. Using the TA-APH endorsement is a very good crop insurance strategy for most eligible corn, soybeans, and wheat producers.

  • Where to get more information on 2020 crop insurance alternatives.

A reputable crop insurance agent is the best resource to find out more details of the various coverage plans and to more information regarding 2020 crop insurance decisions.

Following are some very good web sites with crop insurance information:

USDA Risk Management Agency (RMA):    http://www.rma.usda.gov

University of Illinois FarmDoc: http://www.farmdoc.illinois.edu/cropins            

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal at kent.thiesse@minnstarbank.com.  

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