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Finalizing 2021 crop insurance decisions


The deadline to purchase crop insurance for corn and soybeans for the 2021 crop year is Mar. 15.

The crop insurance spring base prices for 2021 revenue protection (RP) and yield protection (YP) insurance policies have been established at $4.58 per bushel for corn and $11.87 per bushel for soybeans. The 2021 base price for corn is an increase of $0.70 per bushel above the $3.88 per bushel spring price in 2020. The 2021 soybean base price is a large increase of $2.70 per bushel above the 2020 spring price of $9.17 per bushel. The 2021 spring price for corn is the highest since 2014 and the soybean base price is at its highest level since 2013.

Choosing crop insurance coverage is one of the more important risk management decisions that producers make each year. Following are some key items to consider when making 2021 crop insurance decisions:

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, as well as recognizing the limitations and the differences of the various insurance products. 2021 crop insurance premiums for most coverage levels of corn and soybeans in the Midwest will be significantly higher than comparable 2020 premium levels, due to the higher crop insurance guarantees available for 2021 and the higher volatility levels.

View crop insurance decisions from a risk management perspective

Given the potentially higher profit margins for crop production in 2021, there may be a tendency to reduce crop insurance coverage. However, a producer must first decide: “How much potential profit margin do I want to risk if there are greatly reduced crop yields due to potential weather problems in 2021, and/or lower than expected crop prices?”

Take a good look at the 80% or 85% coverage levels, especially when using “enterprise units”

In many cases, the 85% coverage level offers considerably more protection, with a modest increase in premium costs. Many producers will be able to guarantee from $650 to over $800 per acre for corn, and from $450 to over $600 per acre for soybeans at the 85% coverage level for 2021, depending on their APH yields.

“Supplemental Crop Option” (SCO) insurance is a possibility with the PLC farm program choice

Producers that choose the “price loss coverage” (PLC) farm program option for 2021 have the option to purchase additional county-level SCO crop insurance coverage up to a maximum of 86% coverage. The SCO coverage fills the gap up to the 86% coverage level from the coverage level chosen by the producer (75%, 80%, 85%, etc.) for Yield Protection (YP) or Revenue Protection (RP) insurance coverage. For example, a producer that purchases an 80% RP policy could purchase an additional 6% SCO coverage at fairly low premium costs. SCO calculations utilize the same base and harvest prices as traditional crop insurance policies; however, SCO utilizes county average yields rather than farm-level yields.

The “Enhanced Coverage Option” (ECO) is a new insurance option available for 2021

ECO provides area-based insurance coverage from 86% up to 95% coverage, allowing producers to choose either 90 or 95% coverage.

Similar to SCO coverage, ECO utilizes county-level yields; however, unlike SCO, the purchase of ECO coverage is available with selection of either the PLC or ARC-CO farm program choice. Producers can utilize both ECO and SCO together, in addition to their underlying RP or YP insurance policy. For example, a producer could have an 80% RP policy, carry SCO coverage from 80% to 86%, and carry ECO coverage from 86% to either 90 or 95%. Approximately half of the premium cost is subsidized.

It is possible for a producer to collect on an individual RP policy, but not collect on a SCO or ECO policy, or vice versa. For example, a producer with an 80% RP policy may have a loss that qualifies for an insurance indemnity payment, while the county as a whole may not meet the threshold to qualify for either an SCO or ECO payment. It could also be possible to collect a SCO or ECO payment for a county-level revenue loss, while not qualifying for a RP insurance indemnity payment at the farm-level. Interested producers should check with their crop insurance agent for details on SCO and ECO coverage.

Evaluate other “buy-up” crop insurance options

In addition to the government subsidized SCO and ECO county-based insurance products that allow insurance coverage up to 95% coverage, there are also “buy-up” private policies using farm-level yields up to 95% coverage. Private companies also offer separate wind and hail insurance endorsements. Of course, any of the “buy-up” or “add-on” insurance options add to the premium cost. Producers need to ask: “What mix of crop insurance products gives me the best risk protection for the premium amount that I am willing to spend for protecting my 2021 crop investment?”

Analyze the value of “optional” versus “enterprise” crop insurance units

Many times, producers automatically opt for “enterprise units” every year, due to the lower premium cost per acre for similar coverage, and probably not totally understanding 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 farm units that 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 “optional units” for 2021.

Use caution when considering RPE insurance policies to reduce premium costs

If the “harvest price,” or average CBOT price in October, for corn or soybeans is lower than the “base price,” or average CBOT price in February, the RP and RPE payment calculations function similarly, and RPE premium costs will be slightly less than RP premiums at similar coverage levels.

However, there is considerable added risk in utilizing an RPE policy when the final “harvest price” exceeds the “base price,” and your farm unit(s) have a yield loss that exceeds the insurance coverage level. This situation occurred in both corn and soybeans in 2020, and is especially likely to occur in a year with a national drought, such as 2012.

In most instances, utilize the Trend Adjusted (TA)-APH endorsement for 2021

Many producers in the Upper Midwest have been able to significantly enhance their insurance protection in recent years by utilizing the TA-APH option, with only slightly higher premium costs. Using the TA-APH endorsement is a very good crop insurance strategy for most eligible corn and soybean producers.

Where to get more information on 2021 crop insurance alternatives

A reputable crop insurance agent is the best resource to find out more details of the various coverage plans and to get more information regarding 2021 crop insurance decisions. To receive a free copy of an information sheet titled: “2021 Crop Insurance Decisions”, written by Kent Thiesse, Farm Management Analyst, please send an e-mail to: kent.thiesse@minnstarbank.com.

Following are some very good web sites with crop insurance information:

USDA Risk Management Agency (RMA): http://www.rma.usda.gov

University of Illinois FarmDoc: http://www.farmdoc.illinois.edu/cropins

Kent Thiesse is the Farm Management analyst and senior vice president of MinnStar Bank