One may be tempted to opt for a lower coverage level in an effort to cut the premium cost in half.
NO. NO. NO, says Schnitkey. The higher coverage levels will come closer to covering your cost of production. A crop failure in the wake of lower coverage levels means burning more of your equity to pay production costs.
He suggests using the harvest price exclusion if you are tempted to cut costs. That will be a lower premium, your coverage stays high, but if there is a crop failure and prices rise substantially, the crop insurance policy will not pay a higher guarantee.
WHAT DO I NEED?
When you visit with your crop insurance agent, Schnitkey says your checklist of options should include:
- Revenue Protection, with coverage likely at 80% or 85%.
- Enterprise units, which have more of the premium subsidized.
- Trend-adjusted Yield Endorsement to update your yield coverage.
SACRIFICING THE HARVEST PRICE OPTION
Whether or not you cut the premium cost by foregoing the harvest price option may be determined by your marketing practices. Schnitkey says, the “harvest price increase provision …. provides useful protection to those farmers who hedge or price grain prior to harvest. However, one should not place a hedge for their fall harvest, without the harvest price option due to the additional financial risk.
WHERE CAN I GET MORE HELP WITH DECISION-MAKING?
Schnitkey recently presented a 30 minute program to farmers on these exact issues. Watch a video of his presentation for more help in understanding his recommendations.
The crop insurance decision season has arrived. February brings the determination of spring guarantees, which will be much lower than past years because of lower commodity prices. Costs can be reduced in crop insurance programs, but there are some places where it is more important not to cut costs. Better options may exist. New group plans are available for 2014, but are not much different than the GRP plans of the past. Consult your crop insurance agent as soon as possible to line out your 2014 coverage, and don’t wait until the March 15 deadline.
Source: FarmGate blog