DON’T CALL ME AN EXPERT - This is just the way I do things

Managing Crop Insurance: Perspective as a grower and an agent

By Randy Schaley

My farm is located in eastern Nelson County near Niagara, N.D., about 40 miles west of Grand Forks. My wife Jeanne, our four children and I are now the third generation on this family farm.  Our primary crops are wheat, edible beans, soybeans, and sunflowers. 

I have been farming since 1973 and upon graduating from NDSU in 1979, have been employed as a crop insurance agent at Lakota Farm Service Insurance. My duties over that time span for the most part have remained the same, although that certainly cannot be said about the crop insurance programs over that same timeframe.

My responsibilities include updating our farming clients on each year’s crop insurance programs and clarifying how those programs might affect their farming operations.  With a farmer first-agent second approach, my hope has been to offer a hands-on approach to our crop insurance clients. I think the perspective as both a farmer and an agent has been beneficial to managing and looking at things from both sides of the desk.

As a “farmer-first” type of agent, I recommend purchasing crop insurance from an agent or agency that specializes in crop insurance.  Many times over the years I have met farmers insured with an agent who may be well-versed in crop insurance matters but is also busy selling life, auto, and health insurance. Or the agent is a loan officer with a financial institution and spread so thin that some of the many details of the crop insurance policies were overlooked at the expense of the farmer. 

Our agency also sells other lines of insurance, but we are departmentalized. The crop insurance department only sells and services crop insurance.  The other area of a specialized agency that needs to be considered is the staff that supports the sale of the policy.  From acreage reports in June to production history in April, there are so many components of the policy that need to be handled by the agency after the sales closing date. Your agent or agency needs to have qualified people who not only have the knowledge of the programs but also the computer savvy to input your data correctly and timely in order to minimize the chance of errors.

If you have an agent at a bank or who also works with other types of insurance, and you are comfortable with them and they stay on top of things, great. But if not, don’t feel shy about making a change. As a farmer, it’s in your best interest as a business to work with the best specialist possible, whether it be a grain broker, agronomist, or crop insurance agent. Of course, the agent is one part of the equation, but the buck stops with you, the grower.  You need to make sure you understand your policy, and that you work with your agent to meet timelines and to be as accurate as possible. 

Look at the particular company the agency represents as well.  I would ask these questions: what is the financial stability of the company? How fast and accurate is the turnaround time on paying losses?  How many adjusters are available in case of a widespread loss in the area?  Who are the adjusters and do they have farm backgrounds or a good understanding of farming? 

As a farmer-agent I always tell our customers that no matter how good a job we do in the office, it’s equally as important that the adjusters do a good job in the field.  All adjusters follow the same procedures in handling a claim, but implementing common sense along with the knowledge of crop insurance can go a long way in maintaining a satisfied customer.

Coverage recommendations
From a coverage perspective, if it pencils out, I usually recommend considering a revenue-based plan such as Crop Revenue Coverage or Revenue Assurance as an alternative to the standard Actual Production History plan.

The CRC and RA plans with all of the endorsements are virtually the same policy.  Depending on the markets’ volatility factor, the RA plan premiums can and have been lower. Another plus with the RA plan is that there is no limit of the price movement from spring price to fall price as compared to CRC, which has a set maximum movement limit per crop.

An example of this would be a CRC wheat policy with a spring price of $3.00 and a fall price of $6.00. The maximum movement is $2.00, so a $5.00 price would be the limit he could receive. The same $3.00 wheat under the RA plan could go $6.00 or higher because there is no set price limit.

At this time in early February, it looks like the APH price election may be a little higher than the revenue-based spring price elections. I would still recommend revenue type plans, however, unless there is a substantial difference in premium. To give up the potential increase in your coverage may not be worth the savings.  I would, however, look at the APH wheat plan with the Added Price Option (APO).

The APO increases the price election of that particular commodity above its established price, and in the event of a production loss it would generate a larger indemnity.  There is a separate premium for this option, and when in combination with the APH premium, may be too costly per acre.  That additional money may be better spent on hail insurance.  This can also be said of spending additional money on higher levels of coverage.  Depending upon the amount of subsidies involved, which are usually lower at higher levels, the premium difference between 75% and 85% may also go a long way in purchasing hail coverage. You just need to look at the different angles to see what might be best for your own farm.

The most utilized plan in our agency in 2004 was RA at the 75% coverage level. Last year may have been a bit more unique than other years in that there were several commodities that had a higher than “normal” spring price. This led most insureds to use their MPCI policy as a hedge in helping them to forward contract up to their guarantee. In the commodity markets, you never know which direction the price will move but at those higher price levels, the odds seemed good that prices would decrease. Insureds were able to get a lot closer to their cost of production with the higher prices compared to several years where there was a gap between their guarantee and their costs.

In looking ahead for my farm, I plan to go with CRC or RA, depending on the volatility factor. I will use the 75% coverage level. This seems to be the best balance between cost and coverage for most crops in our area. Consult with your local agent about what might be the best option this year for your farm.

If you’re a producer (or if you know of a producer) with a good Northern Plains perspective on a particular crop production topic to address in this column, contact Tracy Sayler, tsayler@prairieagcomm .com or or ph 701-347-5930.