Time to assess 2021 crop insurance options

By Kent Thiesse

During the next few weeks, many farm operators will be finalizing their crop insurance decisions for the 2021 crop year, with March 15 being the deadline to purchase. The rise in corn and soybean prices in the past several weeks will likely enhance the available crop insurance coverage for 2021 compared to recent years; however, premium costs are also likely to be higher than a year ago. Producers have several crop insurance policy options to choose from, including yield protection (YP) policies and revenue protection (RP and RPE) policies, supplemental crop option (SCO), enhanced coverage option (ECO) and other private insurance policy options. There are also decisions to be made around using “enterprise units” versus “optional units,” as well as decisions on the use of “trend adjusted” APH yields.

In recent years, most farm operators chose revenue protection (RP) or revenue protection with harvest price exclusion (RPE) insurance, which provides a guaranteed minimum dollars of gross revenue per acre (yield x price). This minimum guarantee is based on yield history (APH) and the average CBOT prices for December corn futures and November soybean futures during the month of February.

The RP and RPE insurance policies essentially function the same, except the guarantees on RPE policies are fixed at the base price level and are not affected by harvest prices that exceed the base price. The revenue guarantee for RP policies is increased for final insurance calculations, if average CBOT prices during October are higher than the February CBOT prices, which is why the RP policies tend to be more popular for corn and soybean producers.

For producers who purchase RP and RPE insurance coverage levels from 50 to 85 percent, losses are paid if the final crop revenue falls below the revenue guarantee. The final crop revenue is the actual yield on a farm unit times the CBOT December corn futures price and November soybean futures price during the month of October. As of Feb. 8, the 2021 estimated crop insurance Spring base prices in the Upper Midwest for YP, RP, and RPE policies were estimated at $4.50 per bushel for corn and $11.56 per bushel for soybeans. This compares to 2020 base prices of $3.88 per bushel for corn and $9.17 per bushel for soybeans. The 2021 crop insurance spring base prices will be finalized March 1.

Many producers in the Upper Midwest have been able to significantly enhance their insurance protection in recent years by utilizing the trend-adjusted yield (TA-APH) endorsement, with only slightly higher premium costs. The APH yield exclusion (YE) option allows specific years with low production to be dropped from crop insurance APH yield guarantee calculations. Several counties in the Upper Midwest and Plains States are eligible for YE for corn and soybeans in some of the past several years. For information on which counties, crops, and years are eligible for YE, go the RMA web site.


SCO and ECO insurance coverage

The Supplemental Coverage Option (SCO) coverage is only available to producers who choose the Price Loss Coverage (PLC) farm program option for the 2021 crop year. Approximately 75 percent or the corn base acres and 14 percent of the soybean base acres in the United States were enrolled in the PLC program in 2019 and 2020 and were eligible for SCO insurance coverage. The deadline for 2021 farm program sign-up is March 15, which is the same as the enrollment deadline for 2021 crop insurance. As a result, farm operators will need to consider SCO insurance coverage at the same time that they are finalizing their 2021 farm program choice. The federal government subsidizes 65 percent of the premium for SCO coverage, so farm-level premiums are quite reasonable.

SCO allows producers to purchase additional county-level crop insurance coverage up to a maximum of 86 percent coverage. For example, a producer who purchases an 80 percent RP policy could purchase an additional 6 percent SCO coverage. SCO is a county revenue-based insurance product that is somewhat similar to some of the area risk protection crop insurance products that are available. The calculations for SCO function very similarly to RP insurance policies, since they utilize the same crop insurance base price and harvest price. The biggest difference is that SCO uses county level average yields, rather than the farm-level APH yields that are typically used for most RP and YP policies. As a result, the SCO and RP insurance policies may achieve different results.

The Enhanced Coverage Option (ECO) is a new crop insurance option that is available for 2021. ECO provides area-based insurance coverage from 86 percent up to 95 percent coverage, utilizing county yields similar to SCO coverage. Producers can choose between 90 or 95 percent ECO coverage. Unlike SCO coverage, the purchase of ECO coverage is available with selection of either the PLC or ARC-CO farm program choice for 2021. Producers can utilize both ECO and SCO together, in addition to their underlying RP or YP insurance policy.

It is possible for a producer to collect on an individual RP policy, but not collect on a SCO or ECO policy, or vice versa. For example, a producer with an 80% RP policy may have a loss that qualifies for an insurance indemnity payment, while the county as a whole may not meet the threshold to qualify for a SCO or ECO payment. It could also be possible to collect a SCO or ECO payment for a county-level revenue loss, while not qualifying for a RP insurance indemnity payment at the farm-level. Interested producers should check with their crop insurance agent for details on SCO and ECO insurance coverage and premiums for 2021.


Bottom line on crop insurance decisions

Given the likely higher crop insurance prices for both corn and soybeans, many producers will be able to provide a desirable level of risk protection for crops in 2021. At current price levels, many producers will be able to guarantee near $650 to over $800 per acre for corn, and near $450 to over $600 per acre for soybeans by utilizing 85 percent RP insurance coverage level in 2021. Producers can further enhance their revenue guarantees through “buy-up” crop insurance coverage and “wind” and “hail” endorsements offered by private insurance companies, or through the purchase of SCO or ECO insurance coverage. Sometimes crop insurance decisions can be more difficult in years such as 2021 with increased Spring base prices and insurance guarantees and higher crop insurance premiums, as compared to insurance options in recent years.

A reputable crop insurance agent is the best source of information to find out more details about the various crop insurance products that are offered, to get premium quotes, and to help finalize 2021 crop insurance decisions.

Contact me if you want to receive a free copy of an informational sheet titled: “2021 Crop Insurance Decisions.”

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

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

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

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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