Crop Insurance Coverage Frequently Asked Questions in Times of Drought or Floods

Contributed by Charles BrownFarm Management Specialist, Iowa State University Extension and Outreach, crbrown@iastate.edu, 641-673-5841

In 2018, again some Iowa farmers are suffering the extremes of drought in the Southeast and floods in the North and Northeast. Both losses due to drought and flooding are an insurable loss under multi-peril crop insurance. Another dynamic added to the mix this year is yield loss due to chemical drift or misapplication, which is not a covered loss under multi-peril crop insurance. Especially in Southeast Iowa, due to drought conditions, again there will be claims for losses on corn and soybeans.

Important Point: Do not destroy a crop, comingle grain from previous years or different owners or harvest for silage before contacting your insurance agent. Bins must be measured before comingling grain. When in doubt call your agent.

Question: How many of Iowa’s corn and soybean acres are covered by crop insurance?

Iowa farmers planted 23.2 million acres of corn and soybeans in 2018. Approximately 90% of those acres have been insured using Revenue Protection (RP) multi-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 2018 futures contract for soybeans and the December 2018 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 2018) were $3.96/bu for corn and $10.16/bu for soybeans, respectively.

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 and/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 is 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 Southeast Iowa. 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 2018 are twice of the projected price; or $7.92/bu for corn and $20.32/bu for soybeans, respectively.

Question: Can indemnity payments for drought be deferred for income tax purposes until 2019?

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 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.

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Flood damaged crops, crop insurance payments, and lease contracts

William Edwards, retired extension economist, on issues from flooding regarding crop insurance, rented acres and looking ahead to 2017.

edwardswm_finalSome Iowa corn and soybean producers are facing substantial if not complete crop losses due to flooding. Fortunately, nearly 90 percent of Iowa’s corn and soybean acres are protected by Multiple Peril Crop Insurance (MPCI).

Crop insurance

Most Iowa producers purchase crop insurance policies with a 75 to 85 percent level of coverage. This means that if crops are a total loss, the producer must withstand the first 15 to 25 percent of the loss. However, in 2016 nearly 90 percent of the crop acres insured in Iowa were covered under Revenue Protection policies, which offer an increasing guarantee if prices increase between February and October. So far, this has added about $.80 per bushel to soybean guarantees, while the current corn futures price is actually below the February average. Moreover, since Revenue Protection (RP) policies are settled at the average nearby futures price during the month of October, rather than local cash prices, farmers receive a bonus equal to the fall grain basis in their area.

Producers with crops that have been totally destroyed by flooding will not have to incur the variable costs of harvesting. This could save around $20 per acre for soybeans and perhaps $50 per acre for corn, depending on potential yields and drying costs. Nevertheless, even producers who carried insurance at a high coverage level could be looking at net revenues near or below those obtained from normal yields this year.

2016 flooded bean field

Potential losses

For example, assume an insured tract has an expected corn yield and insurance proven yield of 175 bushels per acre. A normal crop marketed at $3.00 per bushel would bring $525 per acre. The insurance indemnity payment for an 80 percent RP guarantee, zero yield, and a February futures price of $3.86 would equal 175 bu. x $3.86 x 80% = $540. Saving $50 in harvest costs would give an equivalent of $590 per acre, or $65 above the value of a normal crop.

For soybeans, assume both the expected yield and the proven yield are 60 bushels per acre, and the crop could be marketed at $9.00 per bushel. Gross income for a normal crop would be $540 per acre. The insurance payment for a complete crop failure and a $9.65 October futures price would be 60 bu. x $9.65 x 80% = $463. Savings of $20 in harvesting costs brings the equivalent of $483 per acre, or $57 below the value of a normal crop.

In many cases, of course, flooded acres will make up only a portion of the insured unit, so production from non-flooded acres will be averaged in with the zero yields from the flooded acres.

The real question is how much will it cost to clean up fields and bring them back into production next year? Most Iowa farmers have not had experience with fields being under water for extended periods of time, so effects are difficult to estimate. Problems will range from physically removing debris to leveling eroded areas to restoring fertility.

Flooded field, 2016

Rental contracts

What do these questions imply for rental contracts? A great deal of uncertainty, for one thing. Lease agreements in Iowa continue in effect for another year under the same terms if they were not terminated on or before September 1.

Landowners will have to bear the burden of mitigating flood damages – that goes with owning property. But, a better solution may be for renters and owners to work together to repair the damage and bring the land back into production. Farm operators may have access to machinery that can help accomplish the job that owners do not. In return, tenants should be compensated for their efforts, either directly, through a significant discount on the 2017 rent, or with a long-term lease.

Next year

In some cases there may be doubt as to whether land flooded this year can even be planted next year. Risk Management Agency rules state that land must be physically available for planting to be insurable. Land that cannot be planted due to weather events that occurred before the sales closing date (March 15 in Iowa) is not eligible for prevented planting payments. When operators report their 2016 production, they can request that their 2016 yield histories reflect a value equal to 60 percent of the county “T-yield” rather than a zero or very low yield.

Close communication and cooperation between owners, crop insurance agents and renters can be a “win-win” strategy in the long run, but recovery may take several years.

Additional information about managing flood damaged cropland will be available from Iowa State University Extension and Outreach as the waters recede and the situation is assessed. Keep in mind, dealing with issues from flooding can be stressful. Reach out to resources such as the Iowa Concern Hotline, with trained staff who are available to listen.

Iowa Concern –All calls, chats, and emails are free and confidential. Language interpretation available.

  • 24/7 Phone Support – Trained staff take your calls via a toll-free hotline at 1-800-447-1985.
  • Live Chat Services – Live chat for online, one-on-one support.
  • Email an Expert – Send your questions related to legal issues, finance, stress and crisis or disaster to our staff.

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