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Published March 24, 2014, 09:55 AM

March 17 was big day for crop insurance

March 17 was the deadline for buying or modifying crop insurance for most spring-planted crops.

By: Jonathan Knutson, Agweek

It doesn’t get much attention outside agriculture, but a key date on most farmers’ calendars has come and gone.

March 17 was the deadline for buying or modifying crop insurance for most spring-planted crops. Farmers, working closely with their insurance agents, typically make their final decisions on 2014 yield and revenue protection crop insurance in the first two weeks of the month.

Experts who talked with Agweek after the deadline say many area farmers increased their coverage levels from a year ago.

“The tighter margin (on projected 2014 crop profits) has encouraged them to increase their coverage,” says Kent Thiesse, farm management analyst and vice president with MinnStar Bank in Lake Crystal, Minn.

Higher coverage provides more protection, but at a greater cost.

For most farmers, higher coverage levels’ additional protection justifies the higher premiums, says Andy Swenson, farm management specialist with North Dakota State University Extension Service.

Premiums have dropped from a year ago, increasing the appeal of higher coverage levels, he says.

Crop prices have fallen sharply in the past year, reducing the rate at which crops can be insured. Because crop insurance prices are lower, premiums also are lower than they were a year ago.

Dan Weber, a Casselton, N.D., crop insurance agent, says his clients typically saved a few dollars per acre on premiums this year, assuming they kept their coverage the same as a year ago.

In early March, the Risk Management Agency, the U.S. Department of Agriculture agency that administers the federal crop insurance program, released the prices at which crops raised in 2014 can be insured. The insurance prices were determined by February market prices.

Here are the per-bushel insurance prices in the Upper Midwest for the region’s three major crops.

• Wheat — $6.51 per bushel in 2014, down from $8.44 in 2013. The record price was $11.11 per bushel in 2008.

• Corn — $4.62 per bushel in 2014, down from $5.65 in 2013. The record price was $6.01 per bushel in 2011.

• Soybeans — $11.36 per bushel in 2014, down from $12.87 in 2013. The record price was $13.49 per bushel in 2011.

Continued rise

Some farmers who had a coverage level of 75 or 80 percent last year raised it to 80 or 85 percent this year, experts say.

Unlike crop prices, land rent and other expenses haven’t dropped. With profit margins tighter and less potential crop income, a higher coverage level gives farmers more insurance money to pay expenses if disaster strikes, says Steve Griffin, president of CVision in West Des Moines, Iowa, and a crop insurance consultant.

Federally subsidized crop insurance allows a farmer growing an insurable crop to select a level of coverage and corresponding premium. The farmer pays part of the premium; the federal government pays the rest, to help keep the coverage affordable.

In 2012, the government paid, on average, 62 percent of the premium, according to information from the Congressional Research Service.

That applies only to the first 80 percent of coverage, however. A farmer who raises his coverage from 80 to 85 percent, the maximum level available, receives only a 50 percent subsidy on that 5 percent increase, experts say.

Once, some area farmers, especially financially healthy ones, elected to go without insurance, utilizing so-called “self-insurance.” The practice allowed them to avoid paying insurance premiums, but also required them to absorb financial losses that occurred.

Today, only a handful of small farmers, or ones philosophically opposed to federal crop insurance, don’t have it, Swenson says.

“It’s kind of a no-brainer to have federal crop insurance,” given the subsidies and high production costs, he says.

Choices, choices

Farmers have several choices in federal crop insurance policies. One of the biggest decisions is to go with enterprise or optional units.

Enterprise units combine all insurable acres of the insured crop in a county.

Optional units allow farmers to insure crops in each township section.

Enterprise units typically carry lower premiums than optional units. On the other hand, the bigger enterprise units don’t always reflect hail or wind damage that can hurt yields on individual farms.

So farmers who select the enterprise unit should strongly consider supplemental coverage for localized damage, Griffin says.

The cost of the supplemental coverage usually is modest and more than offset by the savings on premiums with enterprise units, he says.

Another crop insurance trend this year is even greater use of the trend-adjusted actual production history yield endorsement.

Better seed varieties have allowed yields to rise sharply over time. The trend-adjusted yield endorsement takes that into account, allowing farmers to get insurance on more bushels per acre, at only slightly higher premiums.

“A lot of farmers have taken it in the past. But there are more taking it now,” Weber says.

The federal crop insurance program continues to have its critics.

But Weber, national director of Professional Insurance Agents of North Dakota, says crop insurance is a vital risk management tool that reduces farmers’ need to collect federal disaster payments in bad production years.

“I can’t remember the last time we had a disaster payment to farmers. And what I attribute that to is the crop insurance product is working,” he says.