Getting the Most Out of Every Acre

Insurance Planning For The Year Ahead

Written by: Beth Erickson, VP Insurance

It is never too early to think about your 2024 multiperil crop insurance (MPCI) renewal. Now is the time to reflect on how your insurance policy worked for you this year when reviewing your numbers with your AgCountry team. There are many factors to consider when determining the right insurance policy. Keep in mind the perils that hit our territory in 2023, including spring flooding, drought, hail, and wind damage. Do not forget the last peril—declining commodity prices.

At your insurance renewal meeting, you will discuss various options available to you for the upcoming year. Popular coverage options are MPCI, hail, and wind. However, the options do not end there. Lesser-known policies are becoming popular. Enhanced Coverage Option (ECO) and Supplemental Coverage Option (SCO) were extremely hot topics last spring and should be explored again when determining what is best for your operation.

Here are a few examples using AgCountry’s exclusive Optimum Analyzer tool to demonstrate how ECO works. The numbers used are for corn in Stevens County, Minnesota.

Assume your farm has an actual production history (APH) of 200 bushels per acre, while carrying 75% MPCI coverage and ECO 95% county-based coverage this year. How does that look now?

For the ECO policy, the average county yield in Stevens County this year was 193. Due to the price change alone, dropping from $5.91 down to $4.88, producers who carried ECO received all their liability back on the ECO policy. Here, you would have spent $31.48 per acre for the policy and you would have a gross indemnity of $106.38 per acre, or a $74.90 per acre net.

Now compare the previous scenario to your standard MPCI coverage with no additional insurance coverages such as ECO. If you harvested an APH yield of 200 bushels per acre and the price drops 17.4% like this year, at a 75% coverage level that does not trigger a payment. However, if you only harvested 180 bushels per acre with the same price drop, you would start breaking even on a standalone MPCI policy.

This year is the picture-perfect example of how ECO works. Had corn prices stayed near $6.00, or if we had not experienced a drought and had a fantastic crop, we would have paid the premium and received no indemnity in return.

There is no right or wrong answer to managing your farm; it comes down to your goals and main concerns. Have you recently gone through an expansion or are focusing on growth? If so, consider additional products to ensure you have the right policy to cover those added commitments. If you are focusing on maintaining what you have, you may not need the additional insurance, but be sure your cost of production is covered should disaster strike. In each of these scenarios, the goals of the operation are different. This leads each farmer to look at insurance in a different way.

As you prepare for your 2024 renewal meeting, the following items should be considered to facilitate a meaningful and in-depth discussion about mitigating risk based on your operation’s needs:

1. Planting intentions

We need to analyze what makes sense based on the crops you expect to plant. Do we need to alter unit structure or coverage levels based on the soil types, weather patterns, etc? If you farm in multiple counties, do we need to make different coverage decisions based on the county and how those acres fit with the rest of the farm?

2. Cost of production

Being in tune with your cost of production allows us to make sure we have minimum coverage in place. Next, we look for any additional opportunity we could insure.

3. Reflect on 2023

Did your policy work last year? Did you have enough coverage? Did your hail and wind policy work as planned? If not, should those dollars be spent differently?

4. Historical concerns

Do you have a year you wouldn’t want to live through again in your farming career? If so, let us develop a plan to avoid a similar outcome.

Bad farming years serve as a learning opportunity. Are there years you would like to forget? When we ask that question, we get answers like, “Well, 2013 coming off of 2012.” Optimum allows us to look at historical data to drive decision making, although you may remember 2013, based on the data available in Optimum there is a larger timeframe to look at (Figure 3). If we experienced the 2008, 2013, or 2014 crop years again, how would different policies perform based on current conditions?

For example, if we experienced the 2014 crop year again in 2023, you would receive roughly $250 per acre net if you bought 75% MPCI plus ECO/SCO. Compared to buying 85% enterprise unit, which would pay you $111 per acre net. Figure 3, a chart available within Optimimum, gives us a historical view to reflect on. However, we can look forward to protecting those years that caused us significant loss that we cannot afford to sustain again.

To see a large number of possible outcomes for the year all in one spot, the matrix view in Optimum will help. Your cost of production can be used to determine possible profit scenarios depending on what happens during that crop year. The formula used in this calculation is:

Crop Value + Indemnity – Premium = Net Margin – Cost of Production = Profit

At your renewal meeting, you’ll review your projections for the year and you know your cost of production on corn will be around $945 per acre. How well are you covered if you carry 75% MPCI but add ECO to your policy?

To see Optimum analyze your farm data, contact your local AgCountry insurance specialist. We will explore all angles of risk mitigation and help you achieve your operational goals.