Manage Your Risk with Crop Insurance

A visit with Chris Simons reveals how crop insurance can protect your farm not only from big disasters, but also from small losses over time.

One young farmer who has benefited from crop insurance is Chris Simons in Oneida County, New York. He began farming on his family’s dairy growing up, and has since begun his own grain enterprise. When the dairy transitioned to organic, the Simons decided to begin growing their own grains instead of purchasing organic corn from off the farm. Chris showed an interest in growing field crops, and applied for a first time farmer loan from FSA to get started on his own. His banker recommended crop insurance, so he contacted his local agent to begin the process.

Crop insurance has helped Chris Simon mitigate risks of production loss

Chris said, “My area in Remsen, NY was devastated last year. From May until mid-June we got 40 inches of rain, and I planted one field three times before it got established because of the rain. If it wasn’t for the crop insurance, I would have had to just cut my losses and give up. When all was said and done, it was probably the best investment I’ve made.”

All farms take on the risk of failure due to unexpected weather events and natural disasters, and farmers have an interest in managing their risk in any way possible. They can diversify their farm enterprises or modes of income, and plan for the most resilient cropping systems, but crop insurance is another available layer of protection. Farms can increase their resilience with crop insurance not only in the rare disaster year when there is total yield loss, but also on small losses that occur more frequently.

Crop insurance policies are risk management tools that many agricultural producers can purchase from private insurance companies. The Risk Management Agency (RMA), part of the USDA, works with these private insurance agencies to create and subsidize the programs for American farmers. They offer several different types of policies for over 100 crops, including different types of insurance coverage for specific commodities, as well as increased options for organic and transitional acreage.

Producers can be protected from yield loss due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease under most policies. The producer selects a percent of a predicted price/yield to insure (50-85%), and if the return on the harvested crop is less than what was insured, then the producer will receive an indemnity payment based on the difference. Other plans insure historical revenues instead of yields, or revenues of the whole farm instead of an individual crop. The producer works with an agent from a private insurance company to decide what policy will work best for their farm. The key to positive outcomes from your insurance is good communication with your agent.

Help for New and Beginning Farmers
The 2014 farm bill has provisions that will help new and beginning farmers purchase crop insurance and enhance the crop insurance that beginning farmers already have. A beginning farmer will be exempt from paying the $300 administrative fee for catastrophic coverage policies, and receive premium subsidy assistance for certain coverage policies. When establishing the Actual Production History (APH), beginning farmers can use the county base yields at higher rates than other farmers. Additionally, in certain instances, a beginning farmer may use the production history of another farm operation they were previously involved with for his/her own policy, if their involvement was substantial.

The 2014 farm bill has provisions that will help new and beginning farmers purchase crop insurance

Chris Simons had the advantage of being able to base his policy on the county yield average for organic soybeans, which was 40 bushels/acre. Organic farmers often experience lower yields when they first transition from conventional forms of weed control and fertilization. The opportunity to use conventional yields to create his Actual Production History (APH) increased Simon’s chance for indemnity payments. This is likely to change, as there will likely be separate T-yields (transition yields) for organic crops starting in 2015. Organic corn, soy, wheat, and some other vegetables can now be insured at actual organic pricing.

Although there is a lot of paper work, Chris worked with his agent and found the process easier than he expected. For established grain farmers that have track records from past seasons, RMA will take your yield record average from the past three seasons as your APH. From there, you can buy coverage for whatever percentage you and your agent figure will be appropriate for your farm. Chris has more fallow land he plans on cropping and insuring, and his APH will now be based on not only county averages but also his own production history. “As I plan for the future, I will definitely cover my yields with crop insurance.”