In the early days of crop insurance, it meant multi-peril insurance – reimbursing a farmer for losses due to hail, or drought, or flooding.
And you can still get it, but most farmers don’t; they opt for some form of revenue insurance, which pays if a farmer’s gross returns from a crop decline, either due to weather disaster or a collapse in prices.
“There are different programs,” Scott Gerlt, program leader for U.S. crop market and policy analysis with the University of Missouri’s Food and Agricultural Policy Research Institute told Ozarks Farm & Neighbor. “Some guarantee revenue, some guarantee yield. If it’s a yield program and your fall yield falls below your guarantee level, you receive a payment. If it’s a revenue program and your revenue in the fall falls below your guarantee, you receive a payment.”
The guarantee price is based on futures prices in Chicago, so a sharp marketer can get a bonus from revenue insurance. Producers also have a choice of coverage level, anywhere from 50 to 85 percent in 5 percent increments. The cost of the policy increases with the level of coverage.
You can also insure anything from a single field to your entire enterprise.
“Generally, the higher level you insure at, the bigger the discount because there’s a natural hedge built in there,” Gerlt said. “Your individual yield guarantee is based off of an historical average of your yield; the price is determined by the spring planting price of the futures market.”
The 2014 Farm Bill introduced a new commodity support program, Agricultural Risk Coverage, that was designed to dovetail with revenue insurance, but Gerlt said they’re only partially complementary.
“Generally, crop insurance traditionally covered yield risk; now, it’s more revenue, whereas most of your Farm Bill type programs tend to cover price risk. So they’re covering slightly different things,” he explained.
Arkansas has some of the lowest crop insurance enrollment in the nation, because the state’s most valuable crop is rice, and rice farmers expect to grow a full crop. The crop is grown in a flooded field, and drought losses are nonexistent.
“Prevented planting insurance has been one that farmers have found useful and have used, but historically that’s probably the only part of the insurance that has ever been much of a benefit to a rice farmer,” Arkansas Farm Bureau Assistant Director for Commodity Activities and Market Information Brandy Carroll told OFN.
It’s not for lack of trying. For the better part of a decade, rice growers have worked with USDA’s Risk Management Agency (RMA) on developing policies they can use. The revenue plans are a start, last year it wasn’t available to rice producers because the price discovery mechanism failed; there was virtually no trading in rice futures during the price establishment period. This year, Carroll said, RMA has rectified the situation.
One instrument developed specifically for rice growers is a downed crop rider. Rice farmers use a special head to harvest lodged plants but it’s slow and expensive, and some of the grains are still lost. The rider covers some of those expenses and losses. There is also a new margin policy, beginning this year; it’s available in virtually every U.S. rice producing county, and is also being offered on a very limited basis in a few other states on other crops. The margin policy is based on county yields and covers some of the input costs, Carroll said.
It’s important to note that crop insurance premiums are subsidized by the federal government at an average of about 60 percent of the cost; that’s in part why the revenue plans are more popular than yield based plans.
