Crop Quality a Tough Peril to Insure

www.dtnprogressivefarmer.com
Elizabeth Williams
2009-12-17

INDIANOLA, Iowa (DTN) -- Paul Schneider has always carried crop insurance on his farm near Flanagan, Ill., but this is the first year he will be paid for quality loss. The cool wet season and late harvest infected his seed beans with white mold.

Crop insurance covers losses on Paul Schneider's seed soybeans, but thresholds on quality damage can be hard to trigger. (DTN photo by Jim Patrico)"We got a decent yield, so it won't be a total loss," says Schneider. "But we have a high APH (actual production history) yield and this year we increased our Crop Revenue Coverage (CRC) to 85 percent, so we will get some payment."

Farmers with moldy grain and low test weights have been contacting their crop insurance agents to see if their crop qualifies for an insurance claim.

Corn's test weight has to be below 49 lbs. per bushel to qualify as a discount factor for crop insurance, explains Brian Anderson, crop insurance agent with Agrifinance Corporation in West Des Moines, Iowa. Unfortunately, elevators and ethanol plants start to discount when test weights drop below 54 lbs. per bushel.

"You may be docked anywhere from 3 to 6 cents per bushel for 50 lb. per bushel corn, without any compensation from crop insurance," says Anderson.

"In the numbers I've run, crop damage tends to pay out more than low test weights," Anderson says. "I have one farmer who had severe mold damage (estimated about 25 percent damage) on 280 of his 360 acres of corn. His APH was 174 bpa. With 135 bpa for his net average yield this year at the 85 percent coverage, he was looking at a claim of $95 per acre based on yield reduction alone. However, when the damage factors were plugged in, he is looking at closer to $223 per acre claim," Anderson explains.

In general, crop quality concerns in most areas were not as big a problem as some had feared. "We had a couple of extreme examples in north central Iowa where heavy damage (poor quality and low test weight) showed up, but what many anticipated early in the harvest to be a large problem was not that big of a threat to most farmers' crop," says Kurt Koester with AgriSource in West Des Moines, Iowa.

"A lot of people had mold on their corn, but it did not penetrate the kernel and after they ran it through the combine, it was not a problem," says Shannon Barnes, claims analyst with John Deere Risk Protection, Inc.

Schneider says many benefited from in 2009 was the pricing of "enterprise unit" crop insurance more than quality coverage. "By going to enterprise units, my premium was half of what I had been paying for crop insurance," says Schneider.

An "enterprise unit" combines all acres within a county of a single crop farmed by an operator into one insurable unit. It may make smaller-deductible policies more affordable in 2010. According to Rain and Hail Insurance, a Dallas County, an Iowa corn grower with a historic 139 bpa yield could shave premiums on an 85 percent CRC from $43.80 per acre to $20.67 per acre by switching from individual units to enterprise coverage in 2010. That's even cheaper than an 80 percent CRC policy with individual unit coverage, says Scott Arnold, Rain and Hail's national marketing manager and assistant vice president.

NOT SO LUCKY

Jeremy Jack in Belzoni, Miss. -- where the Delta suffered one of the nation's worst crop disasters -- can't report that his 2009 had a happy ending. "We started planting the first of March when it first turned hot and dry. Then, after the first week, the weather switched to cold and wet, with a 5-inch rain followed a couple days later with a 4-inch rain. We were pumping water out of fields," says Jack.

"Then, in June, it got to 110 degrees. On our replanted beans, our implements were getting stuck, but there was no moisture in the top couple inches. We started pumping water back into the fields. In July, it turned cool and wet again, which is extremely unusual in the Delta," says Jack. And then some parts of the state received 25 inches of rain in October.

"To sum it all up, we had the worst corn crop on record on our farm," Jack says.

"We had 80 percent CRC crop insurance coverage and our average '09 corn yield was 146 bpa, compared to a normal average of 170 bpa. For our 1,000 acres of corn, our crop insurance payment was $19,000, mainly because the price went lower. I'm glad to have the insurance check, but if we can barely get back our premium payment on a disastrous year like this year, we're going to do some serious re-evaluation on crop insurance for 2010," concludes Jack.

VERDICT STILL OUT ON FARM PROGRAMS

Farmers in states with disastrous yields are likely to qualify for Supplemental Revenue (SURE) disaster program due to the severity of their crop losses, but they likely won't see those checks until the crop year ends in October 2010 or later.

Also, the software administering this program is so complex that the Farm Service Agency has not completed the process for county offices to run it yet -- 18 months after passing the farm law. Farmers in most counties of Iowa and Illinois are eligible for SURE payments on 2008 losses -- worth upwards of $50 to $100 per acre in some cases, according to Kansas State University's Art Barnaby -- but until the software gets written, they can't collect either.

The new Average Crop Revenue Election (ACRE) program also was designed as an alternative risk management tool under the 2008 Farm Act. It has not been popular with many farmers, as only 13 percent of farm program base acres enrolled nationwide. As of mid-December, land grant economists forecast that states with average yields will likely trigger no payments in corn or soybeans, although prices remain very close. Payments are likely to run about $17 an acre for sorghum and $28 per acre for wheat, based on this year's steep price plunge.

In Mississippi, Jack did not enroll in ACRE because "this was the first year in 30 years we did not grow cotton on our farm, and I did not want to sign up for a 5-year program that would reduce my options to grow cotton in the future."

Schneider in Illinois signed up his corn-on-corn acres for ACRE, but not his corn/soybean rotation acres. "I just chose part of my acres to try the program and see how it worked out," Schneider explains. "I don't plan to change any of my risk management strategies for next year," says Schneider. "I just hope they continue to have the same enterprise unit crop insurance pricing."

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Editor's note: Join DTN Executive Editor Marcia Zarley Taylor and Tyler Silveus, vice president of Silveus Insurance Group, Warsaw, Ind., for a free webinar on "Lessons Learned Managing 2009 Revenue Risk," Friday, Dec. 17, at 8 a.m. CST. To register for the live event or rebroadcast, go to http://about.dtnpf.com/…


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