By Marcia Zarley Taylor
DTN Executive Editor
HADDONFIELD, N.J. (DTN) -- With 2014 crop insurance guarantees a mere shadow of their 2012 or 2013 levels, basic crop insurance policies could offer flimsy protection from revenue disasters this year.
So producers like Michelle and John Stewart of Sheridan, Ill., are mounting a counter-offensive: They purchased the maximum 85% Revenue Protection coverage levels on corn land they farm. In addition, they supplemented it last December with a novel rider from a private insurance company that could boost their corn guarantee by about 50 cents per bushel over the spring price. The bonus triggers if they suffer a revenue loss and cost just a few pennies per bushel.
That supplemental coverage could offer some welcome relief. On March 3, the Risk Management Agency finalized federal crop insurance prices on spring crops at $4.62 for corn, $11.36 for soybeans and $6.51 for spring wheat. Without adding contingency plans like the Stewarts, growers would be left with about a 20% reduction from last year's $5.65 spring crop insurance guarantee for corn even though costs of production and cash rents haven't budged.
"While a potential for 50 cents per bushel doesn't sound like a lot, it serves as a good shallow-loss protector in the event of poor yields and/or a decline in prices," said Tom Wise, an independent crop insurance agent in Geneseo, Ill., who sold the endorsement. "If we happen to see corn under $4 this fall, it will add up."
Buy-up coverage is gaining favor as growers face the March 17 crop insurance signup deadline for most of the nation's spring-planted crops. In a webinar sponsored by the University of Illinois last week, economist Gary Schnitkey also urged growers to buy the maximum level of revenue protection with their basic crop insurance plans, then add supplements if they can afford them.
That's because the government heavily subsidizes premiums on coverage up to 85% Revenue Protection policies. Last year, 50% of those top corn revenue policies triggered coverage, versus only 24% of the corn policies insured at the 70% level. "This just illustrates the power of crop insurance protection when prices are lower, particularly at higher coverage levels," he said.
Still, the biggest shift in risk management strategies isn't government-subsidized insurance this year, but what is offered by private insurers. As DTN first reported last July, many insurers are offering 2014 flexing price periods so your entire protection doesn't ride on February or October futures.
Hudson Insurance and NAU Country Insurance are among those offerings. In July 2013, growers could price 2014 corn with a Hudson Price-Flex contract at $5.30 guarantee for about 11 cents per bushel, or a net of $5.19 per bushel. However, how well these products work in the future depends on price trends and the sometimes complex contract terms. Cost of coverage can also vary widely among companies, from a few pennies to 15 cents per bushel on corn.
The Stewarts' Higher Price Option (HPO) endorsement is offered by International AG Insurance Solutions, a division of the Australian financial services company Macquarie Group. Although they locked in their terms based on a $5.11 September corn price last December, other HPO alternatives allowed growers to substitute the highest closing prices in January or March if they exceed the Risk Management Agency's conventional insurance guarantees set in February.
NAU Country Insurance was the first to originate the so-called Multiple Price Discovery concept in 2012. It has been so popular, seven or eight competitors launched similar products this year. Sales of NAU's Multiple Price Discovery products jumped about 1,200% this sales season compared to last, said Gene Grimsley, a regional marketing manager for NAU. In NAU's case, growers could price crops on November, December or January averages, if they were higher than the February pricing period. This year, those corn averages ran $4.61, $4.58 and $4.51, so none of those months bested RMA's $4.62 February price.
With Hudson Insurance's Price-Flex option, growers can choose any month of the year, or a basket of months, for settlement dates. For example, an early-bird Macon County, Ill., grower who elected Price-Flex in July 2013 fixed his 2014 crop insurance guarantee at $5.24 per bushel. That's on top of the maximum 90% county-based crop insurance coverage known as an Area Risk Protection plan (the replacement for GRIP). So far, that private coverage has bumped his crop insurance protection per acre up about $100 per acre, said Chris McCray, Silveus Insurance Group in Warsaw, Ind.
Farmers have until the March 17 crop insurance closing date to purchase alternate coverage based on April, June or July 2014 averages of the December corn futures or November soybeans, McCray said. So it might not be too late to benefit should corn rally during planting or perhaps a summer pollination.
Plugging leaks in the crop insurance safety net is a necessity for many producers this year, Schnitkey emphasized.
"Not since 2010 have crop insurance guarantees been this low," he noted, yet growers are carrying much heavier burdens from cash rent and other overhead expenses in the interim. Based on University of Illinois budgets, Schnitkey estimated a typical Illinois corn grower with average cash rents could be losing anywhere from $41 to $48 per acre this season, with southern Illinois most vulnerable.
A Sagamon County, Ill., corn grower who maxed out insurance with a 186 bushel Trend-Adjusted Yield, 85% Revenue Protection with Enterprise Units, could guarantee 2014 revenue at only $729 per acre, about $150 per acre lower than last year's $893 per acre guarantee, Schnitkey said. To trigger any claims with a normal yield, the grower would need harvest prices to dip to about $3.91. If the grower attempted to save a few dollars with a 70% policy, fall prices would need to tumble to $3.22 per bushel to generate any claims, a Doomsday scenario most land-grant university economists consider highly unlikely.
Given those options, the Stewarts and scores of other farmers aren't taking any chances. "When corn prices move down $1.25 per bushel, this is one way to buy back some of that protection," NAU's Grimsley said.
Marcia Zarley Taylor can be reached at email@example.com
Follow Marcia Zarley Taylor on Twitter@MarciaZTaylor
For all of RMA's spring price guarantees go to http://www3.rma.usda.gov/…
See a recap of historical RMA spring and fall corn price guarantees on DTN's Minding Ag's Business blog.
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