Corn and soybean yields have been better than expected for many farmers in Iowa for 2023, but for many farmers who were caught in the drought areas, reduced yields plus the reduced Fall harvest insurance price for both corn and soybeans may trigger crop insurance payments.
A farmer who uses the cash accounting method may elect to postpone reporting insurance proceeds on damaged crops from the year of damage to the following year if 50% or more of the crop is normally sold the year following production. This is determined on a crop-by-crop basis.
Read the full article from Charles Brown, extension farm management specialist, in this month’s Ag Decision Maker newsletter, https://www.extension.iastate.edu/agdm/articles/brown/BroNov23.html.
The Rainfall Index – Pasture, Rangeland, Forage (PRF) Insurance policy is an area-based insurance plan that covers perennial pasture, rangeland, or forage used to feed livestock. It provides producers a risk management tool to cover forage losses due to lack of the precipitation needed to produce forage for their operation. The coverage is based on precipitation expected during specific intervals and is not design to insure against ongoing or severe drought. This policy is available for all counties in Iowa.
United States Department of Agriculture Risk Management Agency (RMA) offers seven livestock plans and an annual forage insurance plan. Talk to your crop insurance agent to help you decide the option that is right for your operation, or use the Agent Locator to find one near you.
The PRF (Pasture, Rangeland and Forage Insurance) policy is an area-based insurance plan that covers perennial pasture, rangeland, or forage used to feed livestock. It provides producers a risk management tool to cover the precipitation needed to produce forage for their operation. This policy is available for all counties in Iowa.
RMA offers seven livestock plans and an annual forage insurance plan. Talk to your crop insurance agent to help you decide the option that is right for your operation, or use the Agent Locator to find one near you.
Contributed by Steve Johnson, Retired Extension Farm Management Field Specialist, firstname.lastname@example.org
Question: What is Margin Protection Crop Insurance?
Answer: Margin Protection (MP) is an area-based insurance plan that provides coverage against an unexpected decrease in operating margin (revenue minus input costs). This decrease could be caused by reduced county yields, decline in commodity prices and/or increased prices of select variable cost inputs or any combination of these perils. Because MP is area-based (county yields), an individual farm may have a decrease in its margin but not receive an indemnity or vice-versa. RMA Frequently Asked Questions
Question: Why does MP have a September 30th deadline to purchase the policy?
Answer: The discovery periods for both the MP projected price and selected variable costs are mid-August through mid-September. Thus, the MP Expected Margin from the Risk Management Agency (RMA) and premiums are not known until after September 15th. MP is typically an add-on, shallow loss product to an underlying base product with individual coverage (Revenue Protection (RP) policy or a Yield Protection (YP) policy).
Question: If I have a base policy and MP, will I owe the full premium for both policies?
Answer: Insureds will owe the full premium as determined from the actuarial tables for your base policy. However, you will receive a premium credit for your MP policy because any indemnity payments from the base policy will wholly or partially offset indemnity payments from the MP policy, reducing the potential indemnity payments under the MP policy. This is the basis for the premium credit. The amount of the premium credit will depend on the producer’s historical unit yields relative to the county yields for the same years. The premium credit is determined when all information needed to establish liability under the base policy is known, which is after the approved yield has been established and the acreage report filed.
Question: When will the premium for my 2023 crop MP policy be due?
Answer: September 30, 2023, the same time when the premium is due for the underlying base policy.
Question: If MP crop insurance policies have been around since the 2017 crop year. Why is there so much interest for the 2023 crop?
Answer: The MP projected prices using 2023 crop December corn futures is expected to average nearly $6.00/bushel for the discovery period. The November soybean futures price will likely average more than $13.20/bushel. These record high projected prices create a much larger minimum trigger margin and thus the potential for a potential indemnity.
Question: Can I buy MP with another Federally reinsured crop insurance policy for the same crop?
Answer: Yes, you can buy MP and also buy a Revenue Protection (RP) policy or a Yield Protection (YP) policy (denoted as a base policy) on the same acreage. The base policy and the MP policy must be purchased from the same Approved Insurance Provider (AIP), however, the base policy and the MP policy may be purchased from a different insurance agent or insurance agency. If you buy a base policy, you will receive a credit to your MP premium because indemnity payments from the base policy are used to offset indemnity payments from the MP policy. To receive a premium credit, the base policy type and practices must match the type and practices elected on the MP Policy. You may buy any optional coverages or endorsements available for the base policy except the Supplemental Coverage Option Endorsement (SCO) or the Enhanced Coverage Option (ECO). SCO and/or ECO are not allowed to be purchased on the same crop you purchased MP on. Note MP cannot be purchased if you have Whole Farm Revenue Protection (WFRP) policy covering the same crop in the same county.
Question: What are the premium subsidies for MP?
Answer: MP offers the same premium subsidies as other existing area-based plans, which vary by coverage level, as follows:
For 70% coverage, the subsidy factor is 0.59;
For 75% and 80% coverage, the subsidy factor is 0.55;
For 85% coverage, the subsidy factor is 0.49; and
For 90% and 95% coverage, the subsidy factor is 0.44.
Question: Since this is an area-based plan, how are the costs determined?
Answer: Variable costs reflect futures prices for fertilizer and diesel fuel. Interest rates are determined by the 30-day fed fund rate averages. Note that these select variable costs could vary slightly by county.
Question: Do you get both the MPCI and Margin Protection indemnity or the difference?
Answer: You get the higher of the two indemnities. Since the base policy indemnity will be paid out first, that amount could be subtracted from the MP indemnity if the MP indemnity is larger.
Question: When will my agent be able to quote an accurate cost per acre premium for purchasing MP on a crop?
Answer: After Sept. 15th when the projected prices and costs will be determined. The final premium credit will also be impacted by the farm’s APH in the underlying base policy.
Question:If there is an MP indemnity, when are losses paid?
Answer: MP losses are paid when final area (county) yields are available, in the spring of the following year or after June 16.
If an indemnity is due, the Approved Insurance Provider will issue the payment no more than 30 days after the date the final county yield is determined.
Question:What are the inputs used to determine MP coverage and losses? How are they determined?
Answer: Two types of production inputs are specified, those subject to price changes and those that are not subject to price change.
Variable-price inputs subject to price changes are, for example, diesel fuel, interest, and certain fertilizers for which projected prices to the following April are calculated by the USDA Risk Management Agency (RMA). Price changes for these inputs, along with county yield changes and changes in the price for the commodity, determine whether an indemnity is paid. Inputs subject to price change by crop are:
Fixed-price inputs are seed, machinery operating costs (other than fuel), and similar expenses. These inputs affect the amount of insurance coverage, but do not directly determine whether an indemnity is paid. Price inputs not subject to price change by crop are:
Pre-harvest machinery, seed, lime, herbicide, and insecticide costs;
Pre-harvest machinery, seed, lime, and herbicide costs.
Question:Do the variable-price input costs vary by county?
Answer: The cost per acre will vary by county whenever the expected county yield (ECY) differs. Since most counties have slightly different yield values, the variable-price input costs and thus premiums would vary.
Question: Do the variable-price input costs vary between irrigated and non-irrigated acres?
Answer: Yes, when the expected county yield (ECY) differs between irrigated and non-irrigated practices in a county. Note some counties do not have enough irrigated acres so in these situations the RMA will have the same ECY for both practices. In areas where there are more irrigated acres, there will be a different yield between the two practices; thus different variable-price input costs and premiums.
Iowa State University Extension and Outreach Farm Management Specialists, https://www.extension.iastate.edu/ag/farm-management, provide expertise regarding crop insurance and adverse events. Losses due to adverse weather conditions such as hail, frost, freeze, wind, drought, and excess moisture are insurable losses under multiple peril crop insurance. In 2021, the impact of drought conditions has continued for much of Iowa. Losses due to drought are an insurable loss under multiple peril crop insurance. Another dynamic added to the mix is yield loss due to chemical drift, which is not a covered loss under multiple peril crop insurance.
Question: How many of Iowa’s corn and soybean acres are covered by crop insurance?
Iowa farmers planted 23 million acres of corn and soybeans in 2021. Approximately 90% of those acres have been insured using Revenue Protection (RP) multiple peril crop insurance. These insurance policies can guarantee various levels of a percentage of the farm’s average yield times the higher of the projected price (average futures price in the month of February) or the harvest price (average futures price during the month of October), using the November 2021 futures contract for soybeans and the December 2021 futures contract for corn. Most farm operators carry a guarantee of their APH from 65% to 85% level of coverage. The projected prices (futures average prices in February 2021) were $4.58/bu for corn and $11.87/bu for soybeans, respectively.
Question: What should an insured farmer do once a crop loss is recognized?
Notify the insurance agent within 72 hours of the discovery of damage, but not later than 15 days after the end of the insurance period. A notice of loss can be made by phone, in writing or in person. Although drought loss is not immediate, farmers should contact their agent as soon as they feel a loss is present.
Continue to care for the crop using good farming practices and protect it from further damage, if possible.
Get permission from the insurance company, also referred to as your Approved Insurance Provider (AIP), before destroying or putting any crop to an alternative use.
Question: Who will appraise the crops and assess the loss?
The crop insurance company will assign a crop insurance adjuster to appraise the crop and assess the loss. The insured farmer must maintain the crop until the appraisal is complete. If the company cannot make an accurate appraisal, or the farmer disagrees with the appraisal, the company can have the farmer leave representative sample areas. These representative sample areas of the crop are to be maintained – including normal spraying if economically justified – until the company conducts a final inspection. Failure to maintain the representative sample areas could result in a determination that the cause of loss is not covered. Therefore, no claims payment to the producer. Once appraised the crop can be released by the company to be:
Destroyed – through tillage, shredding, or chemical means; or
Used as silage or feed.
Question: Once released, may I harvest my corn as silage for feed?
Check with your crop insurance company. In a county where corn can be insured as grain only, the corn will be released, or harvested as silage or sold as feed. Any grain will be counted as production for your claim. In a county where corn can be insured as silage, the harvested silage will be counted as production.
Question: What is the difference among insurance units?
Many farmers have chosen to insure their crops using enterprise units in order to pay less expensive insurance premiums. Under enterprise units, losses are calculated by crop by county. Therefore all the corn planted by a farmer in a given county would be added together to determine a loss. If a farmer has chosen optional units, then losses are calculated by crop by field unit. Premiums are typically higher if choosing optional units but a good yield on one field does not cancel out the loss on another field.
Question: When will farmers be receiving indemnity payments for their crop insurance losses?
Adjusters will be busy with the increase in losses in areas that have been impacted. As soon as you are finished harvesting notify your insurance agent and an adjuster will be assigned to you. Insurance companies cannot defer payments to the next tax year, but claims adjusted late in the year may not be paid out until the following year.
Question: What is the maximum price that the harvest time indemnity price (average October futures price) can reach?
The maximum harvest indemnity price values for 2021 are twice of the projected price; or $9.16/bushel for corn and $23.74/bushel for soybeans, respectively.
Question: Can indemnity payments be deferred for income tax purposes until 2022?
A taxpayer using the cash method of accounting claims the income in the year they receive the payment. The insurance company will send the insured a 1099 form showing the amount and tax year to report the income. A farmer, if they are using the cash method of accounting for reporting taxes, can elect to defer crop insurance payments if the loss is due to yield loss and they normally sell more than 50% of their crop the year following harvest. They cannot defer any loss that is due to price loss. Farmers that are using the accrual method of accounting for reporting taxes cannot defer crop insurance payments.
Question: Will I be asked to provide proof of my bushels this year for crop insurance verification?
All multiple peril crop insurance users are subject to production verification on a random basis. If a claim that exceeds $200,000 is filed for an individual crop and policy, verification of production is automatically required by regulation. This also requires a 3-year audit.