2022 Crop Insurance & Beyond

2022 Crop Insurance

AND BEYOND

Written by: Rob Fronning, VP Insurance and Commodity Marketing Education

After a year of widespread drought in our territory, I know the majority of our producers are asking themselves, “Did I buy the right crop insurance coverage last year?” It’s in years of poor production along with many insurance claims that we tend to look a little closer at what we did. Hindsight is always 20/20. A year of claims leads us to think we should have bought more while a year of good production has us asking, “Why did we buy insurance?”

While every year we have new items to consider, we need to remember why insurance is one of the most important parts to a risk mitigation plan. When raising a commodity there is production risk, market risk, input risk, and demand risk. With all the new policies and options available, many of these risks can be mitigated to some extent.

Crop insurance is offering more choices than ever before, and some of your farm program decisions interlock with your crop insurance decisions. Understanding interactions and running calculations to identify the best set of farm programs and crop insurance products can be overwhelming.

At AgCountry, we have invested in training for our crop insurance specialists and new tools that will allow our team to work through your options to identify the best fit for your operation. The tools will help our insurance specialists to better explain all of these products so you can make an informed decision.

When looking at one specific crop, we found over 130 ways to use different options, strategies, and policies to insure that crop. Using a new tool called Optimum, we can sort the choices by your priorities, such as the highest number of guaranteed bushels to help with the forward contracting decision, or the highest revenue guarantee to cover the 2022 crop and protect your balance sheet. From there, we can narrow our focus and compare the top three or five choices available to you.

Optimum also brings into the discussion Supplemental Coverage Option (SCO) and Enhanced Coverage Option (ECO). Optimum helps you to determine if these products are a fit for your operation. All plans are county-based, which allows Optimum to compare county yields to your yields. This will provide you with a correlation, which is the measure of the relationship between county and individual yields. Producers with stronger correlation may find the coverage offered by area plans to be a more effective proxy of their own farm’s revenue than producers with weaker relationships.

We can also determine your potential profit outcomes based on various yields and prices, given a specific crop insurance coverage. With this tool, we can easily compare one coverage level to another to provide a view of how we can eliminate additional risk. We can even look at how the area plans of coverage could eliminate risk.

The numbers within the chart below account for profit or loss, and are calculated by the following equation: Crop Value + Indemnity – Premium = Net Margin – Cost of Production = Profit.

The green areas in the chart above indicate profit for that yield and price level. The red areas indicate losses per acre. The darker the color, the more likely that outcome is. When we have your cost of production, this tool allows you to quickly see the impact of different choices on your farm’s profitability.

There is also a private product called RPowerD that allows you to take advantage of our current future price and use it for your established project price for your Revenue Protection plan of coverage. We don’t know where the futures price will be in February, but RPowerD secures this decision ahead of the normal trading period.

The cost of production in 2022 will be high. Between the crop insurance tools we have and our current commodity prices, there is opportunity out there to cover your cost of production, which would eliminate one unknown and concern going into the 2022 year.

As you prepare for your 2022 crop insurance decision and discussion, please have your 2021 production reported so we can see if there was any effect to the approved yield. Be sure to also bring in your thoughts on your 2022 cost of production. If you need help with putting these numbers together, our loan officers have a break even worksheet to help you work through your crop costs.

If you haven’t already done so, please make an appointment with your local AgCountry crop insurance specialist today to explore your options using our new Optimum tool.