I had the pleasure asking Noel Cole, whom you will recognize as ,@wheatat5000ft on Instagram, to talk all about of crop insurance. This is a BEAST of a complex topic and I greatly appreciate Noel’s insight as both a crop insurance agent and a farmer!
CE: Why do farmers take crop insurance?
NC: Farmers face immense risk, and they depend on the protection offered by crop insurance. Crop insurance allows farmers to market more effectively, borrow capital, and frankly…keep the lights on after suffering a catastrophic loss.
CE: Why do farmers opt not to take crop insurance?
NC: In my experience, those that choose not to take crop insurance feel that they can manage the risk on their own, self-insure.
CE: Are all crops insurable?
NC: Crop insurance is available for more than 100 commodities, including some animals and animal products. It covers more than just corn and beans. Clams, caneberries, raisins, tobacco, and apiculture just to list a few. However, coverage is not available for all commodities in all areas, and all types of insurance are not available for all commodities.
Crop insurance has expanded and improved over time. Growers of specialty crops, such as fruit and vegetables, now have more risk management options. Whole Farm Revenue Protection and the Micro Farm Program are designed to help diversified growers of all sizes manage risk.
Crop insurance really can be customized and tailored to meet each farmer’s needs.
CE: How does yield history play a part in crop insurance?
NC: Yield history plays a large role in crop insurance. It is one of the most important factors to look at when choosing a crop insurance policy.
A farmer’s Actual Production History, (APH), is the historical average of yields over a 4-10 year period. It compares performance to other farms within the county. Farmers with a higher APH get lower insurance premiums.
Farmers who exhibit more risk pay more than those who exhibit less. It is very similar to how car insurers reward safe drivers.
The APH structure provides farmers with an incentive to constantly improve.
CE: How much does crop insurance cost?
NC: The rates are calculated and published by the USDA, and unlike other insurance coverage, prices will not fluctuate between insurance providers. Crop insurers compete on customer service, not price.
CE: How is the government involved in insurance?
NC: Farmers, private insurance companies, taxpayers, and the government work together to protect the nation’s abundant food supply. In the past, farm policies were 100 percent backed by taxpayers—–think ad-hoc disaster assistance. Current policy requires farmers to take an active role in sharing the cost. Farmers pay a premium and in the event of a loss, they absorb a large deductible (on average, 25 percent of loss). Private-sector insurers deliver payments in less than 30 days, whereas ad-hoc can take a year or more. The whole program is actuarially sound, meaning the amount of money in the system can meet the costs of paying claims when disaster strikes and also establish a small reserve for possible extreme losses in the future. A lot goes into calculating and making sure the math works.
CE: What is a common misconception about crop insurance?
NC: One of the biggest misconceptions about crop insurance is that it is deigned to make farmers money. In all actuality, it is designed to keep farmers in business.
CE: Why purchase hail insurance if you’re covered with Multiple Peril Crop Insurance (MPCI)?
NC: Hail can be extremely dangerous and unpredictable. It can destroy a portion of a crop while leaving another area of the same field untouched. Crop-Hail policies can be purchased at any time during the growing season. It is usually purchased to protect high yielding crops. Farmers can pick and choose which fields they want to insure. It provides protection up to the actual value of your crop and pays out on an acre-by-acre basis.
CE: Is crop insurance a significant investment/risk management tool?
NC: In farming, outside forces beyond your control can cause devastation. The three main risks are low yields, poor quality, and low crop prices. Most of the time the factors that create these scenarios cannot be predicted or avoided. Crop insurance can be tailored to help manage these risks.
Thank you again Noel for taking the time to share your knowledge! You can find Noel on Instagram at @wheatat5000ft.
Crop Insurance Glossary of Terms
MPCI: Multi-Peril Crop Insurance, crop coverage administered through the Federal Crop Insurance Corporation (FCIC).
RMA: Risk Management Agency, a division of USDA.
APH: Actual Production History, found through a rolling average. If a personal rolling average is not available, county data can be used.
RP: Revenue Protection, covers earnings crop should produce and protects against price collapse, production failure or a combination of both.
Coverage Level: Sold as percentages. Multiply coverage level x APH to determine threshold for loss. For example, a 75% coverage level purchased on corn with an APH of 150 bushels would pay a loss with a crop yielding less than 112.5 bushels.
Optional Units: typically a section or quarter, or an area farmed under distinct practices, such as organic or irrigated.
Enterprise Units: combines all acres of a single crop within a county into a single unit.
PP: Prevent Plant; acres that cannot be planted, usually due to excessive moisture or now drought, by the final plant deadline can qualify, with stipulations, for a payment. We personally do the PP buyup with the risk we carry in our area.
Early and Final Plant Date: Each crop has an early plant date and a final plant date where full coverage is only issued when crops are planted between those two dates, that vary by crop and region.
