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Crop Insurance Decision Time

The biggest decision to be made this weekend is not when and how much to sell but what crop insurance coverage to sign up for and how much. I have always been conservative when making crop insurance decisions. After suffering a major production loss from drought in 1974 that resulted in a year with almost no income, I naturally choose to have some coverage in the event of another disaster. Crop insurance kept me solvent in 1997 when there was a repeat of the 1974 drought.

Still, I have always felt that I had sufficient net worth that I did not need to spend a lot of dollars for crop insurance premiums.  The advent of the multi-peril policies and the flexibility they offer has changed my attitude somewhat in that I no longer search for the cheapest premium,  but look for the coverage that is most likely to pay off in the long run.

One option that looked good for a couple of years was the GRIP coverage. With it, coverage was by county, not by farm.  What made it look attractive was that the county I farm in has a history of having very good yields in the Eastern half but not so good in the Western half. In fact that policy would have paid off very well in 2012 when there was a major drought that really did reduce yields more in part of the county but not in the other. Unfortunately the premium schedule had changed and made the premiums too expensive to be practical in 2012.

A second alternative that did turn out in my favor was the alternative of enterprise units. In this type of policy all of my farms in one county are combined for insurance purposes. Indemnities are paid based on the total yield for all of my production put together. This reduces the risk to the insurance company, therefore reducing the premium cost. The savings are dramatic. A portion of the premium is based on the number of farms in the policy. Because I had 10 units that qualified as farms, my premium reduction was substantial. I still use the enterprise coverage even though I now farm only two farms.

A third alternative I have considered is production hail and wind. It was a choice I overlooked for most of my farming career. Since my dad moved to this farm in 1926 there has not been a hail storm severe enough to cause yield damage. However, the farm does have a history of bad wind storms. In 1970 and again in 1981 wind over 100 miles per hour flattened the corn crop. My agent talked me into adding wind and hail coverage because the premium reflects the fact that wind and hail are rare occurrences.

I have taken the wind and hail coverage the last two years. In both 2012 and 2013 there have been wind storms late in the season severe enough to cause damage to the corn crop. In both of those years the pay back from the insurance coverage was more than enough to offset the premium. I do not normally buy insurance with the goal in mind to make money off of the premium. However, when the goal is to raise a crop and a bad storm reduces the yield to below a profitable level, I feel as if my decision to purchase a slightly higher level of coverage is justified. That is especially true if you intend to use the crop insurance coverage to back up marketing decisions. The deadline for signing up is Monday, March 17.

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