Contact crop insurance agent before even starting the combine, specialist says
Farmers with potential or significant crop yield losses need to contact their crop insurance agent before harvest on how to comply with loss adjustment procedures, according to a Purdue University specialist.
Also, because of the decline in corn futures prices, producers using a revenue-based insurance plan may qualify for indemnities with relatively small yield losses, says George Patrick, a Purdue Extension farm tax specialist.
"Procedures may vary by company and/or by plan, so it is important to first check with the crop insurance agent the crop is insured through," Patrick says in a university report. "In order for growers to collect, they have to go through a loss adjustment procedure where certain areas or strips of the crop need to remain unharvested, which allows the insurance company to determine what the yield was."
Patrick estimates that nearly 70% of the cropland in Indiana is insured under some type of insurance policy.
Broken down, about half of the insured acres are insured by a revenue-based plan, about 30% of the acres are insured by a group risk plan and about 20% of the acres are insured by an Actual Production History (APH) plan, he says.
"With the high commodity prices, a lot of farmers were more interested in the revenue-based insurance than they had been in prior years," Patrick says.
The two major revenue-based insurance products are Crop Revenue Coverage (CRC) and Revenue Assurance (RA).
"This year during February, the price of corn on the futures market averaged about $4.06 a bushel," Patrick says. "That price was used to determine what the guarantee level would be.
"If the price went up the guarantee level would increase between spring and harvest. However, the price of corn has decreased by 10% already, which leaves the farmer, from a revenue standpoint, suffering a 10% loss under CRC, just because of the price decline."
A producer with RA with the harvest price option also gets a guarantee based on the higher of the future's price, at February or at harvest.
"CRC and RA are very similar in terms of how they operate, but there are some differences in the detail," Patrick says.
Group risk plans still remain popular because the premium rate tends to be lower, he adds.
Group plans include Group Risk Plan (GRP) and Group Risk Income Plan (GRIP), and indemnities are based on county average yields or county average revenue. If the county average yield or revenue drops below the trigger level selected by the producer, then an indemnity is paid with no loss adjustment procedure to determine the actual yields of a producer using GRP or GRIP.
"Farmers see themselves as getting a higher level of coverage at a lower price," Patrick says. "But one of the big disadvantages is, it doesn't necessarily mirror what happens on an individual farm. I could have a big loss and not collect anything because the county had a good year.
"In addition, group risk plans are based on the expected county yield, not the average of yield history like APH. Because of the trend of increasing yields in corn and soybeans each year, if I take my average yield for the last 10 years and corn yields are increasing a bushel and a half per year, my historical average is going to be significantly less than what my expected yield is. So I am not really insuring 75% of my expected yield with individual farm-based insurances, but I would be insuring less because of the drag in adjustment of the trend that's occurring."