HOW CAN CROP INSURANCE PROTECT YOU?

2022 is shaping up to be an interesting year for agriculture. With high input costs, high prices, political uncertainty, and possible supply chain issues, producers are looking for cost effective ways to protect their operations the best way possible. Utilizing all the products/tools crop insurance offers is not going to be the answer to all your problems, but there are many effective options to consider.
The month of February is very important because of price discovery. During this time, insurance prices are set for spring crops. We look at the CME Futures Contracts for soybeans in November and December for corn. The average daily close of these contracts are used to set the spring prices and in turn affects your coverage. The higher the spring prices, the higher your per acre guarantee will be. I predict the prices we see during this February Price Discovery will be higher than years past. Premium prices will also increase with higher prices, but it is important to remember that the volatility in the February markets will also affect premiums. These are the factors that set your crop insurance coverage, per bushel price, and premiums.
Utilizing your basic crop insurance policy is something we are all familiar with. Through your basic policy you are insuring overall revenue guarantee. Your revenue guarantee is figured by your bushel guarantee from your production history database and the set spring price. It is important to know your bushel guarantees so you figure how much coverage is needed to protect your operation. When you feel your guarantees are low that is when we know it is time to see if it is cost effective to raise your coverage levels.
Looking at your coverage level each year is a good practice to have, but this year it will be as important as ever. As producers, we want to insure we are protecting the money we are putting into growing a crop. You should ask yourself if your current coverage levels will cover your increased expense for this crop season. This answer will be different for each person and might be hard to come to a clear decision. To help answer those questions we will be sending out approved yield guarantees so you can work through this decision. We are also available to answer questions or provide you with any further information you may need.
Two major products that you probably already are familiar with are replant and hail. These have been widely used in the past. The replant option gives you extra replant coverage on top of what is already built into your basic policy. This protects your option to replant if you plant prior to the initial plant date and starts paying on the first acre instead of adhering to the 20 acre/20% rule. Hail functions as its own policy that gives you protection against hail, fire, and wind over the coverage of your base policy. Hail also offers coverage for perils such as transportation, storage, and vandalism that are not necessarily covered in your base policy.
Beyond these two options and your basic crop insurance policy there are other private products offered that can help add protection to your operation. These products can sometimes be pricey, but in our current conditions they are proving to be cost effective.
-RPP: Revenue Price Protection is a very simple product that increases the set spring price by a percentage determined by you up to 20%. For example, if the spring corn price comes in at $5.50 and you purchase RPP at 10% you would add $0.55 per bushel to your guarantee. Your new per bushel spring coverage price will be $6.05.
– RPO-MCO: Revenue Price Option with Market Coverage Option allows you to increase your spring coverage price up to $0.25 higher on corn and $0.60 higher on soybeans than the established base price. Next, this allows you to pick any CME daily closing price up until March 15th and make that your price guarantee for the spring. This allows you to watch the daily markets and if you see a price you like, act on it. The second option is to add the discovery period of May, June, July, or a combination of these months. This allows you to capture potential higher future prices in each of these 3 months. With RPO- MCO you can use these options in a variety of ways to raise your spring guarantees up to $1.00 on corn and $2.00 on soybeans over the base spring price while still guaranteeing your final price won’t come in lower than $0.25/corn and $0.60/soybeans over the set spring price.
-BAND: BAND coverage allows you to have supplemental yield, revenue, and revenue price harvest exclusion coverage in addition to your base policy. BAND is the most customizable product for each operation, but the real value lies in the option to increase your spring and harvest price. You can select to increase your spring and harvest price guarantee for a select percentage higher than the base price. For example, if the spring price of corn is set at $5.50 you can elect to raise this 20% to $6.60. If the harvest price comes in at $6.00 you get the 20% increase to make your new harvest price guarantee $7.20.
These products can prove to beneficial alone or combined in a number of ways. On my operation I am choosing to go with the replant and RPO-MCO. With increased input for this planting season, I wanted to review my coverage to ensure I was protecting my investment. First, with replant I have personally seen this pay off for my operation by giving me the extra coverage I need to make those replant trips across the field when needed.
When it came to looking at how to increase my overall guarantees I found RPO-MCO to be a more cost-effective solution for my operation rather than increasing my coverage level from 75% to 80%. I will be combining 2 RPO-MCO options ($0.25/$0.60 over spring price and adding price discovery to May-July). The premium prices will vary for every operation, but my cost for this will be $13.48 acre/corn and $9.16 acre/soybeans. These prices added a minimum of $31.50/corn and $24.00/soybeans guarantee per acre while giving me the potential to add up to $126.00/corn and $80.00/soybeans.
There are many ways to evaluate these premiums and increased guarantees. When first weighing my options, I was hesitant to spend any more money for insurance on this upcoming crop. As I studied this product I considered other input costs. For corn, this product costs about the same as applying an additional 13 pounds of nitrogen. The potential return could range anywhere from $0.25 to $1.00 extra per bushel to my guarantee. For my operation the additional coverage looks as if it is a good value compared to spending the money elsewhere in producing the crop.
Will this option always pay off? The answer is no! Today we know that we will be facing tight grain supplies which should lead to good prices until fall. What we don’t know is what mother nature has planned for us this year. If we have hot dry weather and prices advance even further, this product will not pay off as the fall harvest price for crop insurance could be higher than the additional coverage we purchased. If that is the case this money will be spent for nothing. It is not probable that the grain markets will continue to advance from these levels through the entire summer. There is always a top and a decline as products become too high priced and consumers start looking for substitute products. RPO-MCO is a new product I will be using for my operating and then evaluating its performance to see if it was a valuable investment.
While this is just one example of how these products can help protect your bottom line, this is not the only answer. The value of these products are different for each operation. If you see an option you’d like more information on or would like to utilize, I encourage you to contact our office to discuss the possibilities. We are happy to help answer questions as you analyze the benefits to your operation.