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Understanding, Managing Risks of On-Farm Crop Storage

On-farm storage of grain crops has been a prudent business strategy for growers when there have been fewer opportunities to sell. More capacity was added in 2017 as stockpiles grew and prices stayed low, and that was surely the case in 2018, too, as soybean farmers hung on to their crops because of the U.S.-China trade war.

For all the benefits of on-site storage bins, though, they carry some inherent risks that growers should keep in mind as they consider their insurance needs. Storage practices should be a topic of discussion with farmer's brokers, and not just to ensure they are getting the right coverage and whether special endorsements should be considered.

Ideally, brokers can also provide guidance on best practices in risk protection to offset claims and keep premiums more manageable over the long term.

The most obvious risks are in how the commodity is handled as it’s put into storage. If it’s not been harvested in ideal conditions, it’s not likely to be stored in ideal conditions either. That was a concern with Iowa corn farmers this past summer when a wetter than normal August and September and a fast maturing crop led to an early corn harvest. Addressing the moisture was critical to avoid mildew – and financial losses – once the corn was placed in the bins.

However, it’s not just spoilage that’s an issue. Take alfalfa hay, which is processed and stored before being shipped. It has a high risk of combusting if it’s baled before it’s completely dry, and its dust also can be combustible – making dust collection systems in storage facilities a prerequisite for insurance purposes.

How farmers choose to group their storage bins is another cause for concern. It’s not uncommon to see them placed together on unfarmed acreage. The issue is this puts a substantial amount of a farmer's valuable product in a concentrated area and insurance carriers are likely to be uncomfortable with that risk.

In addition, if the cooling or drying system on your storage bin fails, the damages could go way beyond the mechanical fix.

Understanding the risks associated with crop storage practices are the first step toward procuring the right insurance policies. Here are the key starting points:

  • Federal crop insurance is the standard for protecting crops against natural perils like hail and fire during the growing season and for a certain length of time afterward. Most policies provide coverage for up to 20 days after the crop is harvested for field-borne issues. An endorsement to the policy will cover the harvest for up to 60 days in storage for issues that might be manifested further out.

  • For crops that will be stored longer than 60 days, commodity insurance should be added to the general farm policy. This should be accompanied by an endorsement for mechanical breakdowns to the storage bins. For example, if the cooling system fails, that typically covers some $250,000 in damages.

  • For some types of commodities, such as apples and pears and other tree fruits, stock-throughput coverage is sometimes written. This is an open-risk, all-peril coverage that is applicable to perishable and non-perishable commodities, when they are being shipped or stored, then shipped again. When it fits the particular crop situation, combining stock throughput with equipment breakdown coverage ensures sufficient protection for the grower.

Growers today are a risk-averse group despite the fact that agriculture is an inherently risky business, subject to forces they can’t control – from nature’s ebbs and flows to marketplace fluctuations.

By putting the right insurance protections in place, farmers will be able to offset some of the issues they may encounter with on-site storage of their crops. Better yet is to embrace best practices in risk protection – starting with putting their crops into storage properly to begin with. For more on this topic, read 8 Tips For Long-Term Grain Storage.

By Tracy Hawker and Joshua Smart, Hub International’s agribusiness practice.

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