Crop insurance coverage-frequently asked questions

Map showing ISU Extension Farm Management Specialists
Iowa State University Extension and Outreach Farm Management Specialists

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.

Drought damaged corn; photo courtesy of Meaghan Anderson, Extension Field Agronomist
Drought Damaged Corn; Photo courtesy of Meaghan Anderson, Extension Field Agronomist

Question: What should an insured farmer do once a crop loss is recognized?

  1. 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.
  2. Continue to care for the crop using good farming practices and protect it from further damage, if possible.
  3. 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:

  1. Destroyed – through tillage, shredding, or chemical means; or
  2. 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.

Additional Resources

Ag Decision Maker Crop Insurance Files, https://www.extension.iastate.edu/agdm/cdcostsreturns.html#insurance
Managed Haying or Grazing of CRP Acres, https://www.extension.iastate.edu/agdm/livestock/html/b1-60.html
Ag Decision Maker Crop, Livestock, and Weather Outlook resources, https://www.extension.iastate.edu/agdm/outlook.html
ISU Extension and Outreach Drought Resources, https://www.extension.iastate.edu/disasterrecovery/drought
Special Rule for Taxing Crop Insurance and Disaster Payments, https://www.calt.iastate.edu/blogpost/special-rule-taxing-crop-insurance-and-disaster-payments
RMA Crop Insurance and Drought-Damaged Crops, https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Crop-Insurance-and-Drought-Damaged-Crops
RMA Extends Deadlines, Waives Interest Deferral for Emergency Drought Relief, https://www.rma.usda.gov/News-Room/Press/Press-Releases/2021-News/RMA-Extends-Deadlines-Waives-Interest-Deferral-for-Emergency-Drought-Relief
RMA Authorizes Emergency Procedures to Help Drought-Impacted Producers, https://www.rma.usda.gov/News-Room/Press/Press-Releases/2021-News/RMA-Authorizes-Emergency-Procedures-to-Help-Drought-Impacted-Producers

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March USDA Prospective Plantings and Grain Stocks Summary

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the March 31, 2021 USDA reports.

For most of the March 31, 2021 stats, USDA’s new numbers were below expectations and that was good news for the markets. Corn and soybean plantings are above last year’s levels, but below trade guesses. Corn stocks were below both last year’s level and trade expectations, while soybean stocks were below last year, but slightly above expectations. The acreage change will drop USDA’s projected corn production by 141 million bushels (now setting at 15 billion bushels) and soybean production by 121 million (new estimate for 2021 is 4.4 billion bushels). The changes will further tighten 2021/22 projected ending stocks. For soybeans, if I held soybean usage to USDA’s earlier estimates, ending stocks fall to 24 million bushels (an incredibly low number). Thus, expect some major shifts in both crop usage and price estimates for the 2021 crops, once USDA starts the monthly projections in May (until then, USDA’s last complete set of estimates is from the Ag Outlook Forum in February).

Chad shares insights on these numbers and more in his latest Ag Market Outlook video. Latest slides on Ag Market Outlook.

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Big report day for USDA

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Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports: WASDE, Annual Crop Production, and Grain Stocks.

As the market reaction shows, today’s release was a set of favorable reports. In the Annual Crop Production report, USDA ended up reducing 2020 crop plantings by roughly 200,000 acres and the national corn yield estimate by 3.8 bushels per acre. That reduced 2020 estimated corn production by 325 million bushels. Soybeans saw a similar drop, with the national yield estimate down 0.5 bushels per acre and estimated production lowered 35 million bushels. Looking at the state-level data, the corn production losses covered most of the Corn Belt, from the Dakotas to Ohio, with only the southern states (Kansas and Missouri) seeing an increase in the yield estimates. Iowa’s corn yield estimate was lowered 6 bushels, to 178 bushels per acre. For soybeans, the state-level data showed more variability, with Illinois, Missouri, and North Dakota gaining in yield, while most other states declined. Iowa’s soybean yield estimate was lowered by a bushel, to 53 bushels per acre.

The December crop stock levels came in at or below expectations. While USDA’s estimate of soybean stock levels landed well within the trade range of estimates, the corn stocks were estimated at least 250 million bushels below any of the published trade guesses. Crop usage for feed and exports has continued to chew through this year’s crop quickly.

Turning to the WASDE report, USDA bumped up 2019/20 corn feed usage by roughly 75 million bushels, which lowered 2019/20 carryout. For 2020/21, plugging in the 325 million drop in production (from the Annual Crop Production report), total supplies were lowered by 400 million bushels. To partially offset, USDA lowered expected feed (down 50 million), export (down 100 million), and ethanol (down 100 million) usage, based on higher expected prices. But that still implies a 150 million bushel decline in 2020/21 ending stock, dropping the estimated stocks to 1.55 billion, which would be the lowest level we’ve seen in several years. With all of these corn changes, USDA raised its 2020/21 season-average price estimate by 20 cents, to $4.20 per bushel. The changes to the soybean balance sheet mainly concentrated on the 2020/21 outlook. Given the smaller crop, USDA raised soybean imports by 20 million bushels, partially offsetting the yield loss. But soybean usage continues to expand. Domestic crush was raised 5 million bushels.  Exports were raised 30 million bushels. The only soybean usage category that declined was seed and residual, by 13 million. Overall, 2020/21 soybean ending stocks were lowered 35 million bushels, to 140 million bushels in total, continuing the trend of tightening over the last several reports.  USDA’s 2020/21 season-average price estimate was increased 60 cents, to $11.15 per bushel.

See presentation on latest Ag Market Outlook

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December USDA WASDE Summary

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Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest WASDE report.

The trade was hoping to receive some additional demand strengthening, but USDA’s update provided next to no changes. The December report is almost always about demand, as the corn and soybean supply numbers are rarely changed in this month’s report (saving up the changes for the “final” estimates in January). The corn numbers remained as in November, with 2020/21 ending stocks at 1.7 billion bushels and the 2020/21 marketing year average price estimate at $4 per bushel. The only demand shift in soybeans was for domestic crush, up 15 million bushels. That lowered 2020/21 ending stocks to 175 million bushels, so the market should be getting close to “pipeline” levels (stock projections that are low enough where price can rise significantly to limit usage and hold the stocks at that level, preserving a small reserve going into the next marketing year). The 2020/21 marketing year average price estimate was raised 15 cents to $10.55 per bushel.

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November USDA WASDE Summary

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Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest WASDE report.

Compared to trade expectations, USDA lowered corn and soybean yield and production estimates and raised corn exports by more than expected. The slide in yields was across a broad swath of the country, reflecting the longer-term impacts of the drought and the extremely dry crops were brought in (yield loss due to crop moisture being below to well below average). Corn dropped 2.6 bushels per acre, knocking 215 million bushels out of total production. Soybeans dropped 1.2 bushels per acre, taking 98 million bushels out. For soybeans, the yield drop dominated the other small tweaks and the lack of adjustments to crush and exports. With the new soy stocks to use ratio now below 5%, the report provided another upward leg for the soybean market. USDA raised its 2020/21 season average to $10.40, the futures market was already at $10.60 and added roughly 30 cents today.

For corn, the yield drop was only part of the story. USDA also projected exports to rise to 2.65 billion bushels, a record. The export rise can be chalked up to a near doubling of expected corn sales to China. Most of those Chinese sales have already been made (roughly 85%), but only 15% of the targeted exports to China have been delivered at this point. 2020/21 ending stocks were lowered to 1.7 billion bushels (lowest level since 2013/14) and the USDA season-average price estimate rose to $4 per bushel. The futures market was at roughly $3.70 before the report, so for corn, USDA is already projecting continued price strengthening.

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