Insurance FAQ

Crop Insurance FAQ

Dan Looker and Steve Johnson answer several questions surrounding crop insurance coverage

-Hi. I'm Dan Looker, Business Editor with Successful Farming Magazine. And with me today is Steve Johnson, Extension Farm Management Specialist of Iowa State University. Welcome, Steve. -Thanks, Dan. -We're gonna be talking about everybody's favorite subject this summer, the drouth. We have a couple of examples here of corn that looks pretty good and corn that maybe fairly typical of this summer's crop. And obviously, when you have a bad year like this one, a lot of people are gonna be affected by crop insurance and that's what we're gonna be talking about today. Steve, what are some of the key issues you think people should be considering? -Well, I think most importantly if a farmer has a loss, they should notify their crop insurance agent as soon as possible, at least to start the paperwork for a potential claim. What happens after they realize they have a crop loss, there will be an adjuster assigned to that particular claim, and that starts that process of getting an adjuster out to take a look at the fields. Right now, I think the priority will be the cornfields and especially for those that are considering harvesting silage. We're starting to hear lots of interest of corn that's dying and the possibility of looking in an alternative use of that corn. So, you can't go out and start chopping corn. You notify your crop insurance agent always within 72 hours after noticing loss. -Uh-hmm. -And then you wait for the adjuster and that adjuster will make some of those decisions that I think will be critical as to whether that farm will be released to be harvested perhaps another crop, perhaps chopping silage. Okay, this is an issue that really affects people who want to cut silage, that's the most immediate concern, right, but if you're not going to be chopping silage, is it still a good idea to get a hold of your crop insurance agent? -I think so. -Yeah. -I think that's gonna be a bottle neck if you would of-- -Uh-hmm. -the crop insurance adjusters. There's likely not enough adjusters out there for the need to make sure-- -Yeah. -that all these fields are visited. So, I would encourage people to go ahead and notify your agent and start that process. Even if you think there might not be a loss until the combine rolls, put that agent unnoticed. That you think there's likely going to be a claim. There's going to be some sort of a physical loss in that field. -Okay. And you were talking about adjusters, those are independent contractors, right? If you don't have the crop insurance company coming out and looking at your field. This is an independent company they hire and-- -That's correct. And again, the crop insurance industry has a number of crop insurance adjusters that go out, make adjustments in these fields. And the ideas that they're gonna be independent, they're gonna be objective in how they assess that field. So, I think it's important to start the process, make sure that that adjuster has been there. The adjuster is likely going to have some specific requirements including leaving check strips in the field. You as an insured might wanna go ahead and say, hey, I want to chop silage but they're likely gonna have you leave some example plots in the field that they can come back to. So that you'll harvest those and you have to maintain good farming practices even with those check strips, so that the normal impact of weather, whether it'd be insects disease, is representative of those check strips that are left within that field. Even if the fields released, the likelihood is, there will be check strips that will be identified and must be left and then harvested using normal mechanical means. -Okay. Also, if it's released for cutting silage, there is a little bit of difference as to how this affects your indemnity, right. -Uh-hmm. -It depends on the country, whether it's approved or insurance for grain only or for silage-- -Correct. Yeah. There are some counties, especially when we think of counties perhaps in the Northern Corn Belt. There are primarily silage counties anyway. And they're gonna have different sorts of rules and regulations and would most of the Corn Belt that are primarily grain counties. So, make sure you work with your agent as to that qualification of county itself. And then again, a field could be released for harvest of corn silage for feed. But there are other issues specific to the livestock industry. The corn plant tends to concentrate nitrogen-- -Yup. -in that lower third of the stock. So, what we're going through at least here in the Corn Belt is that livestock producer wants to make sure that they're out in those cornfields, drawing some representative samples. -Uh-hmm. -Because if this whole issue of nitrogen and nitrates in that silage could actually be detrimental to the livestock that you're feeding. So, I think you're seeing a lot of veterinarians. I know in Iowa, our livestock specialist working on this issue of testing fields before it ever chop for silage because of the concentration of nitrogen in those stocks. -Right. And that's something that we may forget about since unfortunately we don't have to chop silage for-- -Yeah, this is usually a time that we chop silage. -[unk] for grain every year, right? And so, well, whether you're chopping silage or hoping to harvest corn for grain, the big issue of course is the indemnity payment that will help people whether at least part of the financial loss from this year. You mentioned that you're concerned about the adjusters being backed up. What about the timing and indemnity payments? Is that something people are gonna have to wait quite a while for sure? -I would guess so. I mean, the number of types of claims that we're gonna see across the Corn Belt. And again, if you are using farm level coverage like revenue protection or yield protection, until you know your actual yields from those fields that you've insured. Will there ever be an indemnity check that's paid? -Right. -So, I would encourage people to go ahead and make sure to be a really good record keeper. Keep-- separate each field, even if you're in enterprise units. You know, most farmers have combined their corn fields together -Right. -to reduce the amount of premium. But I would prove the yield on every single field, -Oh, really? -that even if you have coverage at the enterprise unit level, but the likelihood is until you harvest that crop unless the crop is completely zeroed out. You're gonna have to harvest the crop, improve your yields. You can use yield monitor data but it's gonna have to be backed up, you know, by some sort of scale tickets-- -Uh-hmm. -or grain bin measurements or a settlement sheet. So, when you deliver the grain, so I would want to make sure that I'm signing on and do a good job of record keeping and the fact that if you're using revenue protection, you get the higher of the projected price and that was 568 per bushel of corn and 1255 a bushel of soybeans, the average-- -Last February. -future's price last February. -Uh-huh. -But those that are using revenue protection get the October average price. -Right. -It's higher and so the likelihood is, is that, it'll be the last day of October before we'll ever know what price will be used for indemnity calculations. -Right, right. -I would wanna be talking to my lender. I'd be talking to my input suppliers, my landlords, because the likelihood is that if you have severe losses, you won't be getting indemnity check too soon. You're gonna have to be patient. -Uh-hmm. -And so work with your crop insurance agent and understand until you prove in your yields. Will you be able to collect that indemnity check? -Okay. Well, I guess one thing that producers are always worried about is the tax liability and there have been a number of questions on our website from people who are wondering whether or not they can defer those payments, -Uh-hmm. -and this is an issue obviously for each farmer's tax adviser or tax preparer as well but generally, what can people do if they would prefer to role the income over end of 2013. -Well, in all likelihood, it's not the decision of the crop insurance industry. -Right, right. -Insurance of that individual producer. -Right. -If it's your normal marketing pattern to sell at least half the crop in the calendar year following harvest, you'll simply file your 2012 income tax with a special deferment but even though your 1099 says it was '12 income, you're deferring that income to 2013. -Uh-hmm. -So, it has a lot to do with your normal marketing pattern but yes, we believe that the 2012 loss due to drought including the indemnity check that will be adjusted by the higher harvest price is a loss that can be deferred if it's your normal marketing pattern to sell at least half the crop -Uh-hmm. -in a subsequent calendar year. -And we've run some articles in our magazine about this subject by Gary Maydew who is a retired accounting professor from Iowa State University. And if I remember correctly, you really can't split your payment. If you want-- if you're able to defer, you have to defer the entire indemnity payment to the following year. -That's my understanding as well. The difference might be by crop. -Yeah. -And if it's not your normal pattern-- -Yeah. -to sell soybeans in a subsequent year, -Uh-huh. -corn might have to be treated different than soybeans. But again, we want the farmer to work with your tax preparer. -Tax adviser, right. Right. -And I would do that now. -Right. -You know, I think a lot of these tax strategies that have been so important in the summer and fall is think about when you want to claim that income and the other part of it, how are you gonna meet cash flow? If you've got machinery and equipment payments and property tax payments, cash rent payments, operating loans at your local bank or lender, I want to make sure that you've got plans to when you're gonna have access. I think a lot of producers are gonna wanna access that crop insurance indemnity check sooner. -Uh-hmm. -Then make that decision. Do I want to defer that income? So check with your income tax preparer but I would wanna be communicating right now with my input supplier, with my machinery and equipment dealer, with my cash rent landlord about that second half cash rent, -Uh-hmm. -But especially with my egg lender as to when will I be receiving that indemnity check that I can start to make payments from the 2012 crop. -Okay. One thing that people may also be wondering about is as we're talking today, congress is still working on a farm ville and if our-- the people watching this are reading the general press or watching television, they may have seen reports that the farm ville could include some kind of disaster payment but as I understand it, what's being considered in congress both in the farm villes that have been written in the house and the senate, and also in a new bill that we're just being an extension of the current law is only a livestock disaster protection. I don't think there's anything for grain producers. The SURE program, we talked a little bit about that. -I remember that SURE program was one that was for both crops and livestock. -Uh-hmm. -But expired on September 30 of last year. -Right. -So, there was no disaster program for crops or for livestock. -This year. -What we've seen in the last few weeks is USDA and the announcement of the release of CRP and WRP acres like excluding those that are on sensitive grounds. So, I think the likelihood is, is that USDA is making an attempt to free up a specialty hay that can be used whether that'd be for grazing or for harvest of the hay itself. But the likelihood is, the livestock industry in my opinion is gonna be more detrimentally effective-- -Uh-hmm. -than will the crop industry because well over 80% of our crops in the U.S. has some form of crop insurance. -Right. Right. -So, it's important to realize that the primary safety net in '12 for crops is crop insurance and I don't see that going away, moving forward either. -All right. I would agree with that. I guess another thing people might be concerned about is whether or not there will be enough money to make the indemnity payments and I guess we should explain that that's not entirely coming from the insurance company. Isn't that right? That this is a federal program, yeah. -My understanding is that, this is definitely a federal program and again, the subsidies are subsidized but the crop insurance industries are responsible for losses. -Uh-hmm. -And those crop insurance companies also have reinsures. -Right. -And my understanding is that at the present time, there's not a concern about the ability of that crop insurance industry as well as the reinsurance industry of being able to provide adequate indemnity payments in a timely fashion, but that is guaranteed by the Federal Government. -Right. -So, the likelihood is, is that, if there is a loss, -If they're not able to-- -they would have to. But at the present time in talking to the crop insurance industry, -Uh-hmm. -I do not hear that there are going to be failures in that system at all. -Uh-hmm. Well, they've had some fairly good years, even last year, in spite of the payments that remain to the southern plains and-- -Uh-hmm. -so, well, that's-- I guess if there's any good news this year, it is a fact that the indemnity payments will be there eventually. -Yeah and I wanna encourage people to be patient. You know, there's gonna be a lot of emotion that comes with that loss. So, I think being patient, making sure that you have the facts, just because your neighbor is chopping silage doesn't mean that you have permission. The release of the CRP and WRP, most of contracts are owned by the landowners and that landowner might not be the active producers. So, this is a good time for the livestock producer to be working with those landowners. -Uh-hmm. -And again, that release is likely going to be after August 1st and many parts of the Corn Belt because of the bird nesting issue. -Right, right. -So, I think, go ahead and find those landowners that have CRP contracts and work with them in the possibility of haying or grazing those acres but they need to make that initial contact. The landowner needs to make that contact with the farm service agency. -Sounds good, Steve. Well, thanks very much for sharing this information. That's going to be more important than most years and we're hoping that most people have corn in the list like this but for sure that would not be the case under the field. -That's right. -Thanks. -Thanks, Dan.