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Farmers should know history in weighing insurance coverage


By Stan Maddux

 WEST LAFAYETTE, Ind. — Corn and soybean producers are urged to know the history of their farms and surrounding areas before deciding the type of crop insurance to purchase for 2020. 

 Less coverage to avoid a significant price jump for higher end policies might be good enough on farms with a better track record of avoiding the extremes of Mother Nature. That was the advice of Jim Mintert and Nathan Thompson, agricultural economists at Purdue University during a February 24 webinar from the West Lafayette campus.

Mintert said he normally recommends policies covering 90-percent or more of crop revenues but encouraged farmers to weigh their options since the cost of those premiums have gone up from 25 to 50 percent at least in some parts of the state. “Those products do seem to be getting much more expensive than they were in the past.”

 History will also help in deciding on policies offering lesser coverage. For example, Thompson said 85-percent coverage on crop revenue costs about twice as much this year as premiums containing 80-percent revenue protection.

 “You’re getting probably a little better protection but you’re paying for it for sure.  You got to educate (yourselves) if that additional cost is going to provide enough of a benefit to offset’’ cost, Thompson said.

Mintert argues 80-percent revenue protection on corn, for example, provides $563 in coverage per acre. 85 percent coverage on corn has a $598 per acre pay out while the cost of those premiums is $8.57 more per acre, and the higher cost would not be economical unless there was a return on the policy at least once every four-years on average for a prospective buyer’s farm and surrounding area.  “Know the history of your farm.  What is the frequency triggering a payment,” he said.

 Farmers were also strongly advised not to switch to less costly policies then buying supplemental coverage to make up for the lost protection.  Mintert says chances are both policies would not fill the coverage gap entirely from what was provided by the original plan.  ‘’You can do that but recognize you don’t have the same level of coverage you had before,’’ he said 

Supplemental policies are a better option, though, for producers with existing 75 percent or less protection depending on their situations, Thompson argues.

Mintert added coverage for prevented planting acres seems to be a very good buy for 2020 considering the record number of unplanted acres during last year’s record wet spring.

 Farmers were also strongly advised to consider enterprise units to economically and effectively guard against losses. Enterprise units due to changes in government subsidies offer substantial savings on premiums compared to options or basic units of coverage while providing adequate protection.

In some cases, Mintert said farmers with enterprise units have been able to increase their coverage levels while reducing premium costs. 

Currently, Thompson said 60 to 65 percent of the acres of corn in Indiana are enrolled in the enterprise units. “Think about that from a strategies standpoint,” Mintert said.

Farmers were also recommended to have coverage for losses incurred when prices at harvest dip below earlier projections.

 Harvest prices are projected based on the February average for November and can be locked in under contract but farmers are committed to those prices which can differ substantially at times judging by history.   Mintert stated the projected harvest price for corn stands at $3.91 per bushel while soybeans are $9.20 per bushel.  “On that basis, we strongly recommend people have the harvest price option included.”