Tag Archives: risk managment agency

IF YOU GROW CORN OR TOMATOES…..!!

If you grow CORN or TOMATOES and have crop insurance ! one final REMINDER! JUNE 10TH is the final planting date for corn and tomato crop insurance policies. If you have corn or tomato crop insurance policies be sure to get your crops in the ground before the June 10th deadline or you may be subjected to late planting production guarantee reductions!

 

June 10th Crop Insurance Final Planting Deadline!

JUNE 10TH is the final planting date for corn and tomato crop insurance policies. If you have corn or tomato crop insurance policies be sure to get your crops in the ground before the June 10th deadline or you may be subjected to late planting production guarantee reductions!

Maximizing the Benefits of Your Crop Insurance Policy

Your “Summary of Protection” or “Schedule of Insurance” should have arrive with in a few weeks of you filed your acreage report. It reflected the information on which your 2012 protection is based.  Compare it to your acreage report to make sure that it is correct.  If there are discrepancies, contact your insurance agent immediately to get it corrected, otherwise it could adversely affect your premium bill and/or claim payment.

Reminder and Guidance on Reporting Damage or Loss:  Crop damage or loss reporting for the insurance policy for most crops requires that written notice be given to your crop insurance agent (by crop by unit (farm)):

  • Within 72 hours of discovery of damage or loss,
  • 15 days before harvest begins **, and
  • Within 15 days after harvesting is completed but not later than 10/20 for corn harvested as silage; 12/10 for grain corn and soybeans.
  • A pre-harvest appraisal is required for most direct marketed crops
  • Don’t destroy evidence of damage until a loss adjuster evaluates it!

 

**Prior Authorization is Required to Leave Sample Rows for Yield Determination:  If loss adjusting workload does not permit appraising damaged crop acreage before you are ready to start cutting silage, prior authorization must be obtained from your insurance company, through your crop insurance agent, before sample row areas can be left for later yield determination.   For this reason, it’s important that notice of damage be filed with your crop insurance agent as early as you determine that damage occurred so that harvesting is not delayed.

 

Cutting Damaged Corn for Silage:  If you plan to cut damaged grain type corn for silage, it’s important that the grain content be determined before harvesting regardless of whether you insure on a tonnage or grain yield basis.  If you insured on a grain basis, a loss is determined by comparing the revenue or yield guarantee to the appraised yield (times the October CBOT average price for the December contract for revenue protection).  If you insured and harvest on a tonnage basis and your grain content is significantly below normal (less than 4.5 bushels per ton), the grain content appraisal becomes the basis for quality adjustment which may reduce the amount of silage tonnage that counts against your guarantee.

Additional details are available from a crop insurance agent.

WEANING FARMERS OFF THEIR CROP INSURANCE HABIT

Not all that many years ago, crop insurance was only for the faint-hearted, or farmers whose farmland flooded or burned up without fail every year.

Few farmers signed up, in part, because it was expensive and there was rarely any return on their investment. Then Crop Revenue Coverage came along, with an attractive price and the improved opportunity to recoup one’s investment. Then USDA’s Risk Management Agency created new and improved crop insurance policies that ended up being guaranteed income and the majority of farmers were signing up. But now, with crop insurance being part of the family, and a routine decision that is widely endorsed by lenders, the Congress is considering imposing restrictions on its use to limit the type of farmers which have access to it. And there could be some unintended circumstances.

With the demise of direct payments as a part of the agricultural safety net, Congress is moving that responsibility to crop insurance. That is the only safety net in the proposal the House Ag Committee will be presenting. And in the Senate, crop insurance will be joined with a program call “ARC” that will ease the deductible by 6-8%. But crop insurance will be the workhorse in the 2012 Farm Bill as far as commodity programs are concerned.

But Congress has overhauled the administration of the program over the past few years, reducing its partnership with insurance carriers, while increasing the subsidy of premiums paid by farmers, as a means of attracting more to the program.

With a majority of farmers using the program to help manage their risk, and the program becoming more sustainable because of the larger pool of farmers paying premiums, the Congress is considering some major restrictions to limit farmer access and use of the program. Kansas State University ag economist Art Barnaby has outlined several of those restrictions.

One is a $40,000 maximum subsidy that farmers could receive on crop insurance.  As outlined in the May 28th edition of Farmgateblog, once a farmer received $40,000 in benefits from subsidized premiums, he would have to pay the full premium, which could be the other 50-60% of the cost of the premium. That might be hit at the 50 acre mark for an operation with high value fruit or vegetable crops, or it might be the 1,700 acre mark for a dry land wheat farmer. Barnaby says it is a significant restriction with many unintended consequences for Congress.

Barnaby uses the same comment for another amendment being proposed in Congress for the 2012 Farm Bill, which would prohibit the ability to purchase crop insurance if your adjusted gross income (AGI) exceeded $750,000.

In his analysis, Barnaby says the $750,000 threshold will affect only a few farmers, but there was an effort in the House during the 2008 Farm Bill debate that would reduce it to $250,000.  How close is your AGI to $250,000, and how would you manage risk without crop insurance if your AGI exceeded that threshold? Farm lobbyists know that no idea ever dies in Congress, although it may just be tabled temporarily, and ready to see the light at anytime.

Means tests used to be kept out of the Farm Bill, but the flood gates have been opening a bit wider each time the Farm Bill is re-written. This would be the first time restrictions were placed on crop insurance purchases or benefits. Barnaby says the $250,000 AGI limit will impact about the same number of farmers as the $40,000 premium subsidy limit. But the former will impact more corn farmers and the latter will impact more wheat farmers.

What is the acreage threshold if the limit is $750,000?

  1. Michigan corn farmers would need about 4,564 acres or 6,968 acres of soybeans to hit the $750,000 AGI limit.
  2. It would require about 13,437 acres of Kansas wheat and 16,499 acres of Oklahoma wheat to hit the $750,000 AGI limit.
  3. It would require about 13,437 acres of Kansas wheat and 16,499 acres of Oklahoma wheat to hit the $750,000 AGI limit.
  4. Nebraska corn, 3,994 acres; soybeans 5,683 acres; wheat 12,742 acres:
  5. Minnesota corn, 4,129 acres; soybeans 7,324 acres; wheat 7,928 acres:
  6. Iowa corn, 3,708 acres; soybeans 5,684 acres: would be required to hit a $750,000 AGI limit.

What is the acreage threshold if the limit is $250,000?

  1. Michigan corn 1,521 acres, soybeans 2,323 acres:
  2. Kansas wheat 4,479 acres:
  3. Oklahoma wheat 5,500 acres:
  4. Nebraska corn, 1,331 (combined irrigated and non-irrigated) acres; soybeans 1,894 acres; wheat 4,247 acres:
  5. Minnesota corn, 1,331 acres; soybeans 1,894 acres; wheat 4,247 acres:
  6. Iowa corn, 1,236 acres; soybeans 1,895 acres: would be required to hit a $250,000 AGI limit.

How do you get around this restriction, if it becomes law?
The most immediate concern is the $750,000 AGI limit

  1. The Farm Service Agency applies the AGI to tax returns of individuals and corporations, so the corporation and individual stockholders must be under the threshold, or receive pro-rated benefits.
  2. FSA now allows a husband and wife to act as separate owners, which would allow a couple to have a $1.5 million threshold, if a tax advisor would certify both would qualify if filing separately. If not, Barnaby says it might pay to divorce, but live together, so each has a $750,000 limit.
  3. By shifting expenses and sales many farmers could keep under the limit
  4. Chartering a C corporation that would receive farm payments, maintain crop insurance eligibility, and stay below the $750,000 threshold, but paying out rents and other payments to the farmer stockholders.
  5. Increase the number of farms by adding family partners, but it may take legal help to achieve.

Barnaby says there are many unintended consequences of the Congressional proposals.  Among them is the potential for the crop insurance program to fail for lack of sufficient premiums paid into the program. That would require a federal bail-out of a program it has been cutting. Secondly, many farmers may be unable to participate although required to do so by lenders.

Summary:
Proposals are being made in the Farm Bill debate on ways to limit participation or limit benefits to certain farmers based on financial thresholds. One would have farmers pay the full cost of the premium for crop insurance after a $40,000 subsidy on premiums. Another would prohibit crop insurance eligibility to farmers with adjusted gross income over $750,000, and possibly as low as $250,000.

Crop insurance companies already have paid $9.1 billion in indemnity payments to U.S. farmers for 2011

Crop insurance companies already have paid $9.1 billion in indemnity payments to U.S. farmers for 2011. That’s a new record and actually the largest loss claims in the history of the program according to USDA’s Risk Management Agency. And only 81% of claims have been finalized.

Former USDA Chief Economist Keith Collins says during the past four years more than $27 billion in private-backed crop insurance has been paid to farmers affected by market drops or natural disasters. At the same time, however, Collins says Congress has reduced the federal investment in crop insurance by more than $12 billion.

“With those large loss claims, with the funding cuts in the program, we now have a program that’s being delivered probably more efficiently and effectively than ever,” Collins said. “I think we have to be very careful in the 2012 Farm Bill to not do damage to the heart of this program and that is the delivery and the infrastructure. Farmers say this is their most important program, they want this program and without a sound crop insurance program with a capable and effective delivery structure there could be big problems in agriculture if we don’t have this effective protection in place.”

Collins says producers are doing anything and everything they can to meet domestic and global needs for food, feed and fuel. This year Collins says there are 264 million acres covered by crop insurance. The growing demand has caused commodity prices and land values to continually spike and he says increased planting means a higher demand for crop insurance.

“So the large acreage and high prices combined to increase the liability insured value of the crops by quite a bit,” Collins said. “As that value goes up that increases risk exposure of both farmers and the companies that deliver the program. And then when you have bad yields like we had in 2011 the result of that then is very large loss claims; billions of dollars in damages and that really shows the value of crop insurance to American agriculture.”

That’s because without payouts Collins says producers wouldn’t have the means to pay their bills and their bankers, lenders, input suppliers and others associated with their operations would all share in the losses without crop insurance to fill that gap.

Corn, cotton and wheat, just three of more than 128 crops covered by crop insurance last year, account for 70% of the indemnities paid so far. Informa projects the 2012 U.S. corn crop will increase to 94 million acres planted from 92.3 million acres planted in 2011. From previous statistics at least 80% of eligible acres should be protected by private-backed crop insurance policies.