Farm Programs

The deadline for farm operators to purchase crop insurance for the 2022 growing season is March 15. The 2022 Spring prices for corn and soybean are likely to be near or above the highest base price levels in the past decade. This will enhance the available crop insurance guarantees for 2022 compared to recent years. However, due to the higher insurance guarantees, premium costs are also likely to be higher than a year ago for similar crop insurance products.

Producers have several crop insurance policy options to choose from, including yield protection policies and revenue protection policies, supplemental crop option, enhanced coverage option, and other private insurance policy options.

In recent years, most farm operators have chosen revenue protection insurance policy options which provide a guaranteed minimum dollars of gross revenue per acre (yield multiplied by Spring price). This minimum guarantee is based on yield history on a farm unit times the Spring (base) price. Spring price is the average of the Chicago Board of Trade prices during the month of February for December corn futures, and November soybean futures. As of Feb. 11, the 2022 estimated crop insurance Spring prices in the upper Midwest for yield protection and revenue protection policies were estimated at $5.79 per bushel for corn and $14.07 per bushel for soybeans. The 2021 crop insurance Spring prices will be finalized on March 1.

The current 2022 base price estimates compare to 2021 base prices of $4.58 per bushel for corn and $11.87 per bushel for soybeans. The final crop revenue for 2022 will be the actual yield on a farm unit times the final crop insurance harvest price, which is the average CBOT prices in the month of October for December corn futures and November soybean futures.

Another insurance option which carries a lower premium than a typical revenue protection policy with harvest price protection is a harvest price exclusion policy. This functions similar to a standard revenue protection policy except the guarantees on harvest price exclusion policies are fixed at the base price level and are not affected by harvest prices that exceed the base price. The revenue guarantee for standard revenue protection policies is increased for final insurance calculations if average CBOT prices during the month of October are higher than the February CBOT prices. This has occurred for corn and soybeans in both 2020 and 2021.

Many producers in the upper Midwest have been able to significantly enhance their insurance protection in recent years by utilizing the trend-adjusted yield endorsement, with only slightly higher premium costs. The actual production history yield exclusion option allows specific years with low production to be dropped from crop insurance actual production history yield guarantee calculations. For information on which counties, crops, and years are eligible for yield exclusion, go the U.S. Department of Agriculture’s Risk Management Agency web site: https:// www.rma.usda.gov/

An analysis for the past 15 years (20072021) shows the final crop insurance har-

FARM PROGRAMS vest price for corn has been lower than By Kent Thiesse the Spring base price in 10 of the 15 years — including from 2013-2019. That MARKETING trend was reversed in 2020 when the harvest price for corn was $3.99 per bushel, which was 11 cents above the Spring price. This occurred again in 2021 when the Spring price was $4.58 per bushel, compared to a harvest price of $5.37 per bushel (an increase of 79 cents per bushel). The only other years which saw an increase in the harvest price were 2010, 2011 and 2012. The range has been from an increase of $1.82 per bushel in the harvest price in 2012 to a decline of $1.27 per bushel in 2008 and a decline of $1.26 per bushel in 2013. For soybeans, the harvest price has increased in seven years (2007, 2009, 2010, 2012, 2016, 2020 and 2021), decreased in seven years (2008, 2011, and 2014-2019) and stayed the same in 2013. The range has been from an increase of $2.84 per bushel in 2012 to a decline of $3.00 per bushel in 2008. In 2021, the final harvest price was $12.30 per bushel, which was an increase of 43 cents per bushel from the Spring price of $11.87 per bushel.

Enterprise units combine all acres of a crop in a given county into one crop insurance unit, while optional units allow producers to insure crops separately in each individual township section. Enterprise units usually have considerably lower premium costs (approximately $8-$12 per acre) compared to optional units for comparable revenue protection policies. Producers should be aware that enterprise units are based on larger coverage areas, and do not necessarily cover losses from isolated storms or crop damage that affect individual farm units — such as damage from hail, wind or heavy rains. So additional insurance, such as hail or wind insurance, may be required to insure against these types of losses. It is also important for producers to run “what if” scenarios when analyzing the comparison between enterprise units and optional units. Many times, producers automatically opt for enterprise units every year, due to the lower premium cost per acre for similar coverage. It is important to understand the differences in coverage between enterprise units and optional units. It is important to analyze the yield risk on each individual farm unit when determining if paying the extra premium for insurance coverage with optional units makes sense. If a producer has uniform soil types and drainage, in a close geographical area, and is primarily concerned with a price decline, a revenue protection policy with enterprise units is probably a good option. However, if a producer has farm units which are more spread out geographically, with more variation in soil types and drainage, and has greater concerns with yield variability, they may want to consider a revenue protection policy with optional units.

The Supplemental Coverage Option coverage is only available to producers that choose the Price Loss Coverage farm program option for the 2022 crop year. The deadline for 2022 farm program signup is March 15 (which is the same as the enrollment deadline for 2022 crop insurance). As a result, farm operators will need to consider Supplemental Coverage Option insurance coverage at the same time they are finalizing their 2022 farm program choice. The federal government subsidizes 65 percent of the premium for Supplemental Coverage Option coverage, so farm-level premiums are quite reasonable, which may make Supplemental Coverage Option a viable option for producers that choose the price loss coverage farm program option.

Supplemental Coverage Option allows producers to purchase additional county-level crop insurance coverage up to a maximum of 86 percent coverage. For example, a producer who purchases an 80 percent revenue protection policy could purchase an additional 6 percent Supplemental Coverage Option coverage.

Supplemental Coverage Option is a county revenuebased insurance product which is somewhat similar to some of the area risk protection crop insurance products available. The calculations for Supplemental Coverage Option function very similarly to revenue protection insurance policies, since they utilize the same crop insurance base price and harvest price. The biggest difference is that Supplemental Coverage Option uses county level average yields, rather than the farm-level average production history yields typically used for most revenue protection and yield protection policies. As a result, the Supplemental Coverage Option and revenue protection insurance policies may achieve different results.

The Enhanced Coverage Option was a new crop insurance option in 2021 and will again be available for 2022. Enhanced Coverage Option provides areabased insurance coverage from 86 percent up to 95

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percent coverage, utilizing county yields similar to Supplemental Coverage Option coverage. Producers can choose between 90 or 95 percent Enhanced Coverage Option coverage. Unlike Supplemental Coverage Option coverage, the purchase of Enhanced Coverage Option coverage is available with selection of either the price loss coverage or agriculture risk coverage farm program choice for 2022. Producers can utilize both Enhanced Coverage Option and Supplemental Coverage Option together, in addition to their underlying revenue protection or yield protection insurance policy.

It is possible for a producer to collect on an individual revenue protection policy, but not collect on a Supplemental Coverage Option or Enhanced Coverage Option policy, or vice versa. For example, a producer with an 80 percent revenue protection policy may have a loss which qualifies for an insurance indemnity payment on a farm unit, while the county as a whole may not meet the threshold to qualify for a Supplemental Coverage Option or Enhanced Coverage Option payment. It could also be possible to collect a Supplemental Coverage Option or Enhanced Coverage Option payment for a county-level revenue loss, while not qualifying for a revenue protection insurance indemnity payment at the farm-level. Interested producers should check with their crop insurance agent for details on Supplemental Coverage Option and Enhanced Coverage Option insurance coverage and premiums for 2022.

There are a wide variety of crop insurance policies and coverage levels available. Make sure you are comparing “apples to apples” when comparing crop insurance premium costs for various options or types of crop insurance policies,

Prepare for Power Outages as well as recognizing the limitations and the differences of the various insurance products. 2022 crop insurance premiums for most coverage levels & Save Money of corn and soybeans in the Midwest will be higher than comparable 2021 premium levels, due to the higher crop insurance guarantees available for 2022 REQUEST A FREE QUOTE! and the higher volatility levels. ACT NOW TO RECEIVE A $300 SPECIAL OFFER!* TO RECEIVE View crop insurance decisions from a risk management perspective. Given the significantly higher (877) 381-3059 crop input costs in 2022 and the high degree of crop price volatility, it may be more important than ever *O er value when purchased at retail. Solar panels sold separately. to have adequate crop insurance coverage. A pro-

Table A — Comparison of Revenue Protection and Yield Protection Insurance Coverage for Corn (Figures use an average production history of 200 bushels per acre; an 85 percent yield protection guarantee of 170 bushels per acre; a yield protection market price of $5.50 per bushel (CBOT December futures estimate); a revenue protection spring base price of $5.50 per bushel (CBOT December futures estimate); and an 85 percent revenue protection minimum guarantee of $935 per acre.) ducer must decide how much potential profit margin to risk if there are greatly reduced crop yields due to potential weather problems in 2022, and/or lower-than-expected crop prices by harvest time. Estimated Actual 2022 Production (bushels per acre) Take a good look at the 80 percent 210 200 190 180 170 160 or 85 percent coverage levels — espeInsurance Type Estimated Insurance Indemnity Payment Per Acre cially when using enterprise units. In (before premium deductions) many cases, the 85 percent coverage

Yield Protection (85 percent) Revenue Protection (85 percent) (CBOT harvest price per bushel) $6.50 0 0 0 0 0 0 0 0 0 0 $55.00 $65.00 level offers considerably more protection, with a modest increase in premium costs. Many producers will be able to guarantee near $700 to over $900 per acre for corn, and near $500 $6.00 0 0 0 0 0 $60.00 to over $700 per acre for soybeans at $5.50 0 0 0 0 0 $55.00 the 85 percent coverage level for $5.00 0 0 0 $35.00 $85.00 $135.00 2022. Refer to Tables A and B for $4.50 0 $35.00 $80.00 $125.00 $170.00 $215.00 2022 corn and soybean examples with revenue protection and yield $4.00 $95.00 $135.00 $175.00 $215.00 $255.00 $295.00 protection insurance coverage. Evaluate Supplemental Coverage

Table B — Comparison of Revenue Protection and Yield Protection Insurance Option, Enhanced Coverage Option Coverage for Soybeans and other “buy-up” insurance options. (Figures use an average production history of 60 bushels per acre; an 85 percent yield protection guarantee of In addition to the government subsi51 bushels per acre; a yield protection market price of $13.50 per bushel (CBOT November futures estimate); dized Supplemental Coverage Option a revenue protection spring base price of $13.50 per bushel (CBOT November futures estimate); and Enhanced Coverage Option and an 85 percent revenue protection minimum guarantee of $688.50 per acre.) county-based insurance products Estimated Actual 2022 Production (bushels per acre) which allow insurance coverage up to 60 55 50 45 40 35 95 percent coverage, there are also Insurance Type Estimated Insurance Indemnity Payment Per Acre “buy-up” private policies using farm (before premium deductions) level yields up to 95 percent cover-

Yield Protection (85 percent) 0 0 $13.50 $81.00 $148.50 $216.00 age. Private companies also offer

Revenue Protection (85 percent) (CBOT harvest price per bushel) separate wind and hail insurance endorsements. Of course, any of the $14.50 0 0 $14.50 $87.00 $159.50 $216.00 “buy-up” or “add-on” insurance $14.00 0 0 $14.00 $84.00 $154.00 $224.00 options add to the premium cost. Producers need to ask what mix of $13.50 0 0 $13.50 $81.00 $148.50 $216.00 crop insurance products gives the $13.00 0 0 $38.50 $103.50 $168.50 $233.50 best risk protection for the premium $12.50 0 $1.00 $63.50 $126.00 $188.50 $251.00 amount I am willing to spend for $12.00 0 $28.50 $88.50 $148.50 $208.50 $268.50 protecting my 2022 crop investment? A reputable crop insurance agent is Note: The crop insurance Tables are for example only. Actual crop insurance calculations will vary, the best resource to find out more depending on the insured crop, farm location, actual production history yield, endorsements, etc. details of the various crop insurance Crop Insurance Tables were developed by Farm Management Analyst Kent Thiesse coverage plans and premium quotes, as well as to receive assistance with putting a sound risk management program in place for the 2022 crop year. To receive a free copy of an information sheet, “2022 Crop Insurance Decisions” written by Kent Thiesse, e-mail kent.thiesse@ minnstarbank.com. There are also some very good web sites with crop insurance information: USDA Risk Management Agency (http://www.rma.usda.gov/); and University of Illinois FarmDoc (http://www.farmdoc.illinois.edu/ cropins/index.asp) Kent Thiesse is a government farm programs analyst and a vice president at MinnStar Bank in Lake Crystal, Minn. He may be reached at (507) 726-2137 or kent.thiesse@minnstarbank.com. v