It's about coverage
You've seen them, those three-dimensional computer graphs used by crop insurance agents and commodity brokers. They show your farm's revenue under differing yield and price projections. Plug in different levels of insurance and you'll see the peaks and valleys shift.
But there's always a valley that puts you into some red ink. It lies between a good yield with good prices and a disaster that gets you big indemnity payments from your insurer. That little valley is the dreaded shallow loss.
The new farm bill helps offset shallow losses. For farmers whose crops were in deep floodwaters this year, it's timely.
Help comes from the law's permanent disaster program. It's official name is Supplemental Revenue Assistance Payments, or SURE. If you bought crop insurance for 2008, you're automatically in the program.
SURE is based off the revenue guarantee that you buy through insurance. The higher your level of insurance coverage, the better revenue guarantee that you also get from SURE -- up to 90%.
Like all government programs, this one has a few catches.
First, you won't get payments as quickly as from crop insurance. Under the law, you'd have to wait until fall of 2009 if you were flooded out this summer. That's because your revenue level to collect from SURE is based on two things: Your own whole farm yields, and a national USDA average crop price for the marketing year that follows harvest.
This summer Senate Agriculture Committee Chairman Tom Harkin, who hails from flood-washed Iowa, was talking about a special bill for partial SURE payments in advance. We'll see how that goes.
The second catch is that SURE doesn't protect you from a loss that's below 90% of your expected revenue. You get a payment that's 60% of that difference between your revenue guarantee (capped at 90%) and your farm's revenue.
Third, to prevent double-dipping from other programs, USDA includes in your income any marketing loan gains and countercyclical payments (or payments from the new average crop revenue election or ACRE, if you sign up). It also adds in 15% of your direct payments, giving you a small amount of double-dipping by ignoring the other 85%.
Right now, SURE is a no-brainer. If you have crop insurance, you're in. If you don't, you'll get a chance to sign up for a low level of SURE protection when USDA writes the rules.
This winter, however, SURE will make crop insurance decisions a bit more complicated. As my story starting on page 61 points out, if you buy higher levels of coverage, your guarantee goes up and so do your potential SURE payments.
On the spreadsheet's wheat farm, at 70% coverage after a shallow loss of about 37%, SURE paid out about $11 an acre on top of crop insurance. At 75% coverage, SURE paid out about $12 an acre.
The decision to make, then, is whether a higher insurance premium is worth it for higher SURE protection. That's something you'll want to talk over with a crop insurance agent this winter. And you'll want to take in educational sessions on SURE held by university economists.