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Spring cover crops and crop insurance eligibility

February 14th, 2013

Contributed by William Edwards, extension economist, wedwards@iastate.edu

Some livestock producers established a cover crop after they harvested corn this fall to provide extra forage. If they hay or graze the cover crop, will this affect their crop insurance coverage for 2013?

According to program specialists at the Risk Management Agency (RMA) office in St. Paul (which administers programs in Iowa), cover crops such as rye, for example, that were established in 2012 are not insurable themselves, but will not affect the insurability of subsequent crops planted  this year if certain rules are followed. 

The RMA filed a statement for 2013 that allows spring haying, harvesting or grazing of cover crops up to May 10 without affecting the eligibility of the following grain crop for multiple peril crop insurance coverage. The growth of the cover crop must be terminated either mechanically or with herbicide before any subsequent crop can be planted. Planting a grain crop into a living cover crop is not permitted.

The RMA definition of a cover crop is “a crop generally recognized by agricultural experts as agronomically sound for the area for erosion control or other purposes related to conservation or soil improvement.”

For further details check with your local crop insurance agent.

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Crop Insurance

Fall harvest prices & indemnity payments

October 18th, 2012

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu.

The USDA Risk Management Agency (RMA) will release the final fall harvest prices for revenue protection crop insurance policies on November 1st. As of October 15th, those harvest prices are near $7.50 per bushel for corn and $15.38 per bushel for soybeans.

These final harvest price numbers are the final piece of information to finalize potential indemnity payments for Revenue Protection crop insurance coverage. Iowa farmers chose Revenue Protection on 92% of the insured corn acres and 91% of the insured soybean acres in 2012.

Many Iowa farms that suffered significant production losses in 2012 will receive indemnity payments over the next few months reflecting these harvest prices. Both the December corn futures price and the November soybean futures price have increased between the projected price (determined in February) and the harvest price (determined in October) periods. Should a production shortfall occur, that loss would be compensated at the higher harvest price. Farms that chose to insure their crops with a Yield Protection policy may also receive an indemnity payment for yield losses, but the loss will be paid at the February price level.

Many farmers use revenue protection coverage along with pre-harvest marketing strategies and commit a portion of their guaranteed bushels to delivery. This harvest price is critical if any lost production must be replaced at higher market prices for on-farm feeding or to fulfill delivery on a forward cash or hedge-to-arrive grain contract.

Shortfall of contracted bushels

Once farmers realize that they cannot deliver all the bushels they’ve contracted, they should work with the grain merchandiser on a strategy to make up the shortfall in bushels or pay the replacement value of those bushels.

To illustrate how indemnity payments are determined an example of Revenue Protection (RP) coverage for corn is featured.

2012 Revenue Protection (RP) example:

A loss occurs when the bushels of corn produced for the unit fall below the production guarantee as a result of damage from a covered cause loss. This example assumes 175 bushels per acre APH yield, 75-percent coverage level, and basic unit coverage.

175 bushels per acre X .75 = 131.3 bushel guarantee*

100 bushels per acre actually produced

131.3 bushels – 100 bushels = 31.3 per acre loss

31.3 per acre loss X $7.50 per bushel (harvest price determined in October) = $234.75 net indemnity*

* Figures shown on a per acre basis. Guarantees and losses are paid are on a unit basis. See individual policy provisions.

Summary

As long as the farmer did not commit to delivery of more than the 131.3 bushels per acre, he or she should have adequate fund to make up the shortfall in bushels or pay the replacement value of those bushels.

Delaying settlement beyond early November leaves farmers in a speculative position for those bushels that they were unable to deliver. Should the futures price move even higher beyond this time frame, the replacement cost would increase. Regardless, the need to work with the grain merchandiser is critical should you fall short on contracted bushels.

Adapted from USDA RMA’s 2012 COMMODITY INSURANCE FACT SHEET, Corn—Crop Revenue Coverage, January 2012.

Updated information on fall harvest prices will be posted on the AgDM blog and website as it becomes available.

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Client Corner: How is crop insurance split in a crop-share agreement?

September 5th, 2012

Contributed by William Edwards, extension economist

Question: How is crop insurance split in a crop-share agreement?

Answer: Under a crop share lease each party is responsible for insuring his or her own share of the crop. Every crop insurance policy states the percent interest that the policy holder has in the crop. For a 50/50 share lease, this would be 50%. The premiums, guarantee, and any indemnity payment would be multiplied by this percent. It is not common practice to include this in the lease agreement, because each party makes the decision to insure his/her share of the crop independently. To insure a share of the crop, talk to a crop insurance agent. It does not have to be the same agent for tenant and land owner. For more information on farmland leases, see the Ag Decision Maker Leasing page.

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Crop Insurance

Preparing for a Crop Insurance Review of APH Yields

August 17th, 2012

Contributed by Steve Johnson, Extension Farm Management Field Specialist.

A large number of Iowa farmers are likely to make a claim for crop insurance losses as a result of the 2012 drought. A number to keep in mind is a $200,000 claim. At that level or higher for at least one crop in a county a review will be triggered as required by the USDA Risk Management Agency. That $200,000 amount could be due to loss of either production or price, depending on the type of policy purchased.

Those farmers will need to provide actual production history (APH) records, which will include an APH review for 2009, 2010 and 2011 crops as well as the 2012 crop to be harvested.

Prior to 2012, the trigger amount was a loss of greater than $100,000. Even with the dollar amount of indemnity payment doubling, a large number of reviews are anticipated. Reviews will be carried out by insurance company representatives.  Farmers are advised to start collecting documents as soon as possible to help expedite the review. These reviews are normally triggered once a claim has been worked and determined to be over the $200,000 threshold for at least one crop in a county.

This review process typically is done during the harvesting period. The purpose of the review is to validate reported production, which means a variety of documents can be utilized, including settlement sheets, load records, bin measurements, loss papers, livestock feeding records or other approved records that would verify acres and production.

The farmer’s main responsibility is to provide three years of verifiable production evidence for the units of the crop being reviewed. Claims for 2012 will not be paid until this process is completed. This could delay receiving an indemnity payment at a time that many farmers have cash flow constraints resulting from the drought.

Consider the use of these recommendations to prepare for an APH review and for any spot checks or audits in the future:

  • Keep all of your production records for at least three years.
  • Separate production records by crop, practice, type, unit and the crop year in which the production actually occurred.
  • Sort production records by the FSA Form-578 (to identify each crop and separate them by unit and county), settlement sheets and soft records.
  • If your grain is farm-stored, have grain bin measurements taken by a third party representative including 2012 production.
  • If you had the grain weighed before you stored or sold it, provide any scale tickets that contain weight and volume measurements.
  • If scale tickets are used from grain carts, the print on these tickets can become unreadable with time, make photocopies.
  • Do not split truckload tickets and bins between units unless you have soft records for production that is commingled.
  • Print combine monitor records and keep them with your settlement sheets. These records must show location of the field, name of crop, date and pounds or bushels harvested. Also records should provide the unit number that correlates with the field identification.
  • Even if you have only a share of a crop, make sure that you will be able to provide records for the entire crop if necessary.
  • Feed production records should be kept at the time the grain is fed, preferably as a record ledger with dates and amount fed.
  • Keep and file all signed appraisals.
  • If a claim will total $500,000 or more, RMA will be notified and a representative can be chosen to participate in the review.

Note that soft records are primarily used for breaking out production by a unit such as load records and yield monitor records, while hard records would be actual production numbers such as settlement sheets, scale tickets, appraised production, adjuster measured production, or feed production records.

Farmers that anticipate a claim of $200,000 or more for at least one crop in a county should begin work with their crop insurance agent to prepare for the APH review.

Ag Decision Maker (AgDM)

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Crop Insurance

Drought Questions: Crop Insurance Indemnity Payments and Flex Lease Bonus Payments

August 9th, 2012

Contributed by William Edwards, extension economist

Question: How do crop insurance indemnity payments factor into flex lease bonus payments?

Answer: Crop insurance indemnity payments can be included in the gross crop revenue value used to determine the cash rent payable under a flexible lease, if gross revenue is used to set the rent or the bonus portion of the rent. The payments should be net of the farmer paid premiums paid, however. This is true even in years when no payments are received, that is, premiums should be subtracted from the gross revenue before the percentage is applied to calculate the rent or bonus. In this way the landowner is indirectly standing a share of the insurance coverage which is supporting the gross revenue and rent each year. If the acres included in the insurance unit include multiple rented or owned farms, it may not be practical or fair to divide the crop insurance proceeds and premiums among the farms, however. How to handle crop insurance premiums and payments should be discussed at the beginning of the lease period.

For more on Flexible farm leases, see Ag Decision Maker Information File C2-21, Flexible Farm Lease Agreements, Information File C2-21, Flexible Cash Rent Lease Examples, and Management the Financial Risks of Drought-damaged Crops with information on Flexible Farm Leases that Work. Other drought resources from ISU Extension and Outreach are available on the Dealing with Disasters website.

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Crop Insurance, Farmland Leasing

Drought Questions: Cover Crops and Crop Insurance

August 6th, 2012

Contributed by William Edwards, extension economist

Question: If I chop my corn for silage now, can I establish a cover crop for grazing or haying this fall and next spring? Will this affect my crop insurance coverage next year?

Answer: According to program specialists at the Risk Management Agency office in St. Paul (which administers programs in Iowa), emergency forage crops, such as rye, for example, can be established, grazed and harvested yet this year. These crops would not be insurable, but neither would they affect the insurability of crops next year.

If the crop would reemerge next year, it would continue to be uninsurable, but it could be grazed. The cover crop could not be harvested mechanically, however, and it would need to be destroyed either mechanically or with herbicide before any of it reached the heading or budding stage to allow the corn or soybeans following to be insurable.

Double cropping is not an approved practice in Iowa for crop insurance purposes. The reasoning is that the first harvested crop depletes much of the soil moisture, and the practice is not wide enough used to develop sound premium rates. Hence, the forage crop and the following grain crop could not both be harvested in the same year. 

The only exception would be if the corn or soybean crop following the cover crop was insured with a group crop insurance policy such as GRIP or GRP. However, these policies require that all the producer’s acres of that crop in the same county be insured under the group plan, and guarantees and indemnities are based on county average yields rather than farm level yields.

For further questions check with your local crop insurance agent.

Ag Decision Maker (AgDM)

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Crop Insurance

Drought Economics: Frequently Asked Questions

July 31st, 2012

Have questions regarding crop insurance, valuing corn silage, or the ACRE Program? Chad Hart, ISU extension and outreach economist has compiled answers to address many of the  questions that have come to ISU Extension and Outreach in the last several weeks concerning the 2012 drought. The PDF publication is available through the ISU Extension and Outreach Frequently Asked Questions page. More resources are also available for crops, livestock, home & yard, and financial concerns.

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Crop Insurance, Crop Outlook, Farm Bill

Managing the Financial Risks of Drought-damaged crops

July 27th, 2012

Contributed by Steve Johnson, Extension Farm Management Field Specialist.

As a companion piece to the information presented in the Drought webinar from ISU Extension and Outreach, ISU Extension field specialist Steve Johnson looks at the effects of drought related announcements this week and the effect on crop insurance. Steve’s second webinar is focused on farmland leases, specifically flexible leases. The agendas for the 30 minute presentations are listed below along with links to the webinars and other related resources from ISU Extension and Outreach.

Management the Financial Risks of Drought Damaged Crops

  • Highlight the latest announcements from USDA regarding disaster declaration and emergency programs
  • Discuss crop insurance coverage, likely claims and indemnity payments
  • Pricing non-delivery of contracted grain and silage from drought-damaged corn
  • Discuss farm financial management decisions
  • Highlight ISU Extension web resources
  • Highlight and Iowa Flex Lease Performance
  • Provide ISU Extension Farmland Leasing Resources and Websites

Flexible Cash Farm Leases that Work

  • Overview of the 2012 Iowa Cash Rental Rate Survey
  • Summarize Iowa Cash Rent Trends and Rents as a % of Gross Crop Value
  • Discuss Potential for Flexible Cash Farm Leases and Case Study Farm
  • Summarize 2013 Estimated Costs of Crop Production (early estimates)

Related resources

Ag Decision Maker (AgDM)

An agricultural economics and business website.

Crop Insurance, Crop Outlook, Farmland Leasing

Questions or financial concerns related to drought…

July 25th, 2012

Have questions on financial concerns related to drought, crop insurance, etc.?

Leave a comment with your question and we will find the best experts to answer your questions at Iowa State University. Several commonly asked questions on crop insurance are also available here.

Other options for assistance from ISU Extension and Outreach include: Crops Watch Blog, Iowa Beef Center Blog, Hortline – Call 515-294-3108 (10 a.m. to noon and 1-4:30 p.m., Monday through Friday) or hortline@iastate.edu, Iowa Vegetables blog. Or, call the Iowa Concern Hotline at: 1-800-447-1985. By calling Iowa Concern one has access to an attorney for legal education, stress counselors, and Information and Referral services for a wide variety of topics.

Ag Decision Maker (AgDM)

An agricultural economics and business website.

Crop Insurance, Crop Outlook, Crops, Livestock, Other

Drought and Income Tax Deferral of Crop Insurance and/or Disaster Payments

July 24th, 2012

Roger McEowen, Center for Ag Law and Taxation, has written an article addressing issues that may arise from deferral of crop insurance and/or disaster payments as a result of the 2012 drought. “The Internal Revenue Code allows deferability of crop insurance proceeds if certain requirements are satisfied.” The article, available on the CALT website, focuses on deferability and payment trigger under current policy, including examples. For more information, read the full article,  The 2012 Drought and Income Tax Deferral of Crop Insurance and/ or Disaster Payments .

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Crop Insurance, Legal & Taxes