Insurance deadline looms
Monday, March 15 is the deadline for changing crop insurance coverage for farmers in most of the grain producing area of the country. Most farmers are probably up to speed on how crop insurance works and the various policies that are available. My opinion is that it is a great tool for reducing production risk and a good backstop for making forward pricing decisions.
Most farmers probably do not remember farming without crop insurance. My first exposure was in the drought of 1974. I remember what it was like forward contracting corn for fall delivery and then seeing the crop wilt in the field from lack of rain and temperatures over 100 for weeks in a row. There was one farmer in my community who was trying out a new concept called "Multi Peril" insurance which guaranteed a yield regardless of what disaster caused the risk.
Having committed bushels to the elevator and then not having it to deliver is a life changing experience that I will never forget. Those of us with that experience could not sign up fast enough for the "Multi Peril" insurance for 1975 and subsequent years. It proved its worth in 1977 when we had another nearly total crop failure.
It was many years later before the concept of harvest price coverage was introduced. That product went a long way toward correcting the shortfall in revenue if the MPCI coverage was at a low price level set before the drought, but then the price went up before harvest. Having the possibility of the coverage being the higher of the pre-plant or harvest time price opened the potential of using the insurance to cover the risk in pre-harvest sales.
Traveling through many farming areas doing marketing meetings, I have discovered that crop insurance varies considerably from community to community. Some of the difference depends on the production risk in the area. A lot of it depends on the premium schedule for the different policies.
I farm in an area with no irrigation but with consistent dryland yields. Further south in Nebraska the soil is heavier and more drougthy. Their yields are lower and more variable. Insurance premiums are higher. A hundred miles to the west most of the crops are irrigated. Yields are higher and crop insurance premiums are lower. A day's drive east into central Illinois, farmers can purchase CRC coverage at 180 bushels per acre for the same price my insurance costs for coverage at 140 bushels.
For this reason a farmer in Champaign County, Illinois might purchase 85% CRC and think the price is a bargain. A farmer in Pawnee County, Nebraska looks at the premium on 75% CRC and thinks he is being held up. A farmer in York County, Nebraska might judge that buying hail coverage instead of CRC is a wise choice because hail is by far the major risk. On my farm there has not been a hail storm since my father began farming here in 1926. You couldn't get the premium on a hail policy cheap enough to get me to buy it.