Contributed by Steve Johnson, Extension Farm Management Field Specialist, firstname.lastname@example.org.
When Iowa farmers are determining on or before March 15 which federal crop insurance program to choose, they tend to use revenue coverage. In 2012, about 92 percent of the state’s insured corn acres and 91 percent of the soybean acres utilized revenue protection (RP). With the experience from the drought of 2012, dry subsoil moisture and uncertain summer weather forecasts; those percentages are not likely to go down in 2013.
For most farmers, the most likely choice may be to choose RP and take the Trend-Adjusted yield option or TA-option. This option was offered in 2012 for the first time as a way of reflecting the longer-term trend toward higher yields. Each county has updated TA factors for 2013. The TA-option is an annual decision and doesn’t affect the farm’s proven actual production history (APH).
Three interacting factors are at play that determines the final farmer paid premiums and are often overlooked prior to the March 15 deadline for spring planted crops. One factor is that federal crop insurance subsidies are a smaller percentage at higher levels of coverage. Thus, larger percent subsidies are provided at lower levels of coverage. A second factor is that the TA-option in almost all cases creates a larger revenue guarantee. This decision can actually save premium depending on the level of coverage and whether to elect optional or enterprise units. That third factor is the decision to use enterprise unit coverage which carries more risks by grouping all fields of that particular crop together in the county for determining a potential loss payout. However, with a larger percent federal subsidy the farmer paid premium for enterprise unit coverage is roughly one-half that of optional units.
Let’s take a central Iowa farm insuring corn as an example with an actual proven APH yield of 175.5 bu. per acre. But that same farm that takes the TA-option, can create an adjusted yield of 194.2 bu. per acre. With that in mind, a farmer could choose a lower percentage level of coverage along with the TA-option and still create a larger revenue guarantee due to the higher yield guarantee.
Here’s how that might work. An actual APH of 175.5 bu. per acre at an 85 percent coverage level and a 175.5 bu. per acre and yield guarantee of 149.175 bu. per acre. Taking the TA-option means that farmer could create a larger revenue guarantee and actually move from 85 percent down to 80 percent level of coverage which would guarantee 155.36 bu. per acre. The farmer paid premium could remain the same or lower, depending on the choice of enterprise or optional unit coverage. That’s because the 80 percent level of coverage has a slightly higher percentage federal subsidy than does the 85 percent level.
Of course, that scenario may not be the same for every farm and decisions are made for all crops on all farms being insured in that county. Farmers should talk with their insurance agent about their various choices regarding their 2013 crop insurance decisions. Remember, those decisions might include adding policies for specific perils such as hail or wind. Purchasing these endorsements are becoming more common, especially if you elect to use enterprise unit coverage or want to manage the deductible not covered by federal crop insurance.
In summary, expect few changes in crop insurance decisions for 2013. Premium rates are actually going to be lower statewide (about 6 percent for corn and 9 percent for soybeans). The drought of 2012 is not yet affecting premium rates. If you are insuring a new farm or are bringing CRP, pasture or hay ground into row crop production there is a March 15 deadline to report those intensions. May 10 is the deadline for destroying established cover crops. The final crop insurance payment is now due on October 1 instead of November 1, without a penalty attaching.
Early planting dates remain the same in Iowa. That’s April 11 for corn and April 21 for soybeans. Crops planted before those dates are not eligible for replant coverage of roughly $40 to $45 per acre. Those acres are, however, still insured and require that best management practices be used which still might require replanting.
An agricultural economics and business website.