Crop insurance isn’t my fulltime job. While I work on staying up to speed on the rules because I run a company that includes a crop insurance division, I’m not the one ultimately responsible for educating our clients about crop insurance or making recommendations. I leave that to the experts on staff. It’s those experts who look over the crop insurance content that I write here. They live it every day. They network and learn about it year round. Farmers who don’t work with someone like that might change their minds about it after this year.
I’ve been traveling a lot lately and talking to farmers everywhere. Every conversation turns to the crops, which leads to a discussion about the weather, and then I have to ask about what kind of crop insurance they bought. Here’s something I notice; I can tell which farmers have a good agent by what they bought and ultimately how well they were protected this year.
One big indicator that I’m hearing is when I ask a farmer if he bought the Harvest Price Option this year. Sometimes what I hear in response is, “No, because it’s too expensive with the cap that’s on it.” There’s even a comment posted from a recent column here to that affect. There’s a misunderstanding about the cap in place with this option. Some farmers were told that there’s a $1.50 price move allowed from spring to fall for corn and $3.00 for soybeans. There is good reason why they think that – it was the rule two years ago. What it meant was that when the spring price for corn was $5.68, it could go $1.50 higher than that, or to $7.18, and that WAS the limit in the indemnity that a farmer could receive. This year’s cap is double the spring price. In other words, corn can take the fall price up to $11.36 before it hits the cap this year. The farmer, who bought the harvest option, has the choice of the spring or fall price for his indemnity payment. If an agent told you that your indemnity could only go as high as a $7.18 price versus an $11.36 price on corn, that’s a completely different return on investment decision, isn’t it? That’s a potential difference of $4.18 per bushel of corn insured. Wow! Now, we haven’t seen $11.36 corn yet, but we’re currently in the $8.00 range.
Soybeans. The spring price was $12.55 and the old rule stated that prices could only go to $15.55 before the cap. We’re currently above $16.00 with a real cap of $25.10.
This is serious business. It will mean a big difference in payout. This is YOUR business, so you need to choose your advisors carefully. Just because the product is the same price everywhere, because it’s a government program – doesn’t mean the service is the same everywhere.