What to consider before finalizing 2022 crop insurance choices
The deadline to purchase crop insurance for corn and soybeans for the 2022 crop year is March 15.
The crop insurance decision in 2022 is a bit more complicated than in recent years. Due to much higher farm input costs for fertilizers, chemicals, seeds, repairs, labor, etc., as well as increased cash rental rates in many areas , the cost of producing corn and soybeans is significantly higher than in recent years. This means that agricultural producers may need to increase their crop insurance coverage to adequately cover rising production costs in 2022. Fortunately, spring 2022 prices for corn and soybeans will be near record highs. highest on record, which should provide plenty of opportunities for solid growth. risk management program through federal crop insurance. However, adequate insurance coverage in 2022 will likely require increased insurance premium costs compared to recent years.
Spring Base Crop Insurance prices for the 2022 Income Protection and Yield Protection Insurance policies for corn and soybeans will be finalized on March 1. Estimated base prices (as of February 1) were $5.85 per bushel for corn and $14.23 per bushel for soybeans. At current estimated levels, the base corn price in 2022 would be an increase of $1.27 per bushel from the 2021 base price of $4.58 per bushel and $1.97 per bushel above the spring price of $3.88 per bushel in 2020.
The estimated 2022 base soybean price is a steep increase of $2.36 per bushel from the spring 2021 price of $11.87 per bushel and is 55% higher than the spring 2020 price of $9.17 the bushel.
The 2022 spring price for corn would be at the highest level since the highest spring price of $6.01 per bushel in 2011. If the current soybean base price holds, this would be the highest spring price. high never before recorded in modern times, exceeding $13.49 a bushel. in 2011.
Choosing crop insurance coverage is one of the most important risk management decisions producers make each year. Here are some key things to consider when making crop insurance decisions for 2022:
There is a wide variety of crop insurance policies and levels of coverage available
Be sure to compare apples to apples when comparing crop insurance premium costs for various options or types of crop insurance policies, as well as recognize the limitations and differences of various insurance products. . Crop insurance premiums this year for most corn and soybean coverage levels in the Midwest will be higher than comparable 2021 premium levels due to higher crop insurance coverage available for 2022 and lower levels. higher volatility.
View crop insurance decisions from a risk management perspective
Given the potentially higher profit margins for agricultural production in 2022, there could be a tendency to reduce their crop insurance coverage. However, a grower must first decide what potential profit margin I want to risk if crop yields are sharply reduced due to potential weather issues in 2022 and/or lower than forecast crop prices?
Look carefully at 80% or 85% coverage levels, especially when using “enterprise units”
In many cases, the 85% coverage level provides significantly higher protection, with a modest increase in premium costs. Based on current spring base price estimates, many growers will be able to secure $800 to over $1,000 per acre for corn, and $550 to over $750 per acre for soybeans, at the hedge level. 85% for 2022, based on actual production. the yield history of individual farm units.
Exercise caution when considering income protection with crop price insurance, often referred to as RPE, option policies to reduce premium costs
If the “harvest price” (average Chicago Board of Trade price in October) for corn or soybeans is lower than the “base price” (average Board of Trade price in February), income protection calculations and RPE payment work similarly, and RPE premium costs are slightly lower than standard income protection, or RP, premiums. However, using an EPR policy carries considerable additional risk when the final ‘harvest price’ exceeds the ‘base price’, which has happened in recent years.
Supplemental Culture Option, or SCO. insurance is a possibility with the choice of price loss coverage program
Producers who choose Price Loss Coverage, or PLC), the agricultural program option for 2022 have the option to purchase additional SCO crop insurance coverage at the county level up to a maximum of 86 % cover. SCO coverage bridges the gap up to the 86% coverage level from the coverage level chosen by the producer (75%, 80%, 85%, etc.) for yield protection or insurance coverage income protection. For example, a producer purchasing an 80% revenue protection policy could purchase an additional 6% SCO coverage at fairly low premium costs. SCO calculations use the same base and crop prices as traditional crop insurance policies; however, SCO uses average county yields rather than farm-level yields.
The Enhanced Coverage Option, or ECO, is another insurance option to increase coverage levels
ECO offers area-based insurance coverage ranging from 86% to 95% coverage, allowing growers to choose 90% or 95% coverage. Similar to SCO coverage, ECO uses county-level yields; however, unlike SCO, the purchase of ECO coverage is available with the selection of either PLC or ARC-CO farm program choice. Producers can use both ECO and SCO, in addition to their underlying Revenue Protection or Yield Protection insurance policy. For example, a producer might have an 80% revenue protection policy, 80% to 86% SCO coverage, and 86% to 90% or 95% ECO coverage. About half of the cost of the premium is subsidized. It is possible for a producer to collect on an individual income protection policy, but not to collect on an SCO or ECO policy or vice versa. Interested growers should check with their crop insurance agent for details of SCO and ECO coverage.
Evaluate other “buy-out” crop insurance options
In addition to county-based government-subsidized SCO and ECO insurance products that allow insurance coverage of up to 95%, there are also private “buy-out” policies using farm-level returns. up to 95% coverage.
Private companies also offer separate endorsements for wind and hail insurance. Of course, any “buy-out” or “top-up” insurance options add to the total cost of the premium. Growers need to ask themselves, which combination of crop insurance products gives me the best risk protection for the amount of premium I’m willing to spend to protect my investment in the 2022 crop?
Analyze option value versus corporate crop insurance units
Often growers automatically opt for enterprise units because of the lower premium cost per acre for similar coverage. They may not fully understand the difference in coverage between enterprise units and optional units.
It is important to analyze the yield risk on each individual farm unit, to determine if the additional premium for insurance coverage with optional units makes sense. If a grower has farm units that are more geographically dispersed, with more variation in soil and drainage types, and has more concerns with yield variability, they can consider optional units for 2022.
Where to get more information on 2022 crop insurance alternatives
A reputable crop insurance agent is the best resource for more details on different coverage plans and for more information on 2022 crop insurance decisions.
I have also written a fact sheet titled “2022 Crop Insurance Decisions”. To receive a free copy of the Fact Sheet, please email: [email protected]
For more information, contact Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal, Minnesota at 507-381-7960 or [email protected]