2005 Crop Insurance: Pay Close Attention to Acreage Reporting

Basic policy rules and penalties have stiffened to assure accuracy

Make sure you keep good records for crop insurance acreage reporting – basic policy rules and penalties have stiffened to assure that acreage is reported timely and accurately.

The new language concerning acreage reporting is likely one of the more significant changes this year in basic crop insurance policy.  In particular:

Section 3(f) – Added provisions regarding misreporting of information used to determine an approved yield.

Section 6(d) – Clarified provisions pertaining to acreage report revisions for planted acreage and an added provision that limits the ability to change reported prevented planting acreage. Added provisions allowing producers to revise the number of acres reported on the acreage report when acreage measurement occurs after the acreage reporting date. Added provisions regarding conflicts between the number of acres determined by different measurement services.

Section 6(g) – Added provisions that provide for a reduced indemnity when information used to establish the amount of insurance liability is misreported.

Section 17(a)(1)-  Added language to the prevented planting section of the policy indicating a failure to plant when other producers in the area were planting will result in the denial of the prevented planting claim.

The language stipulates that “if you misreport any information that results in liability greater than 110% or lower than 90% of the actual liability determined for the unit –  any indemnity, prevented planting payment, or replanting payment … will be reduced in an amount proportionate with the amount of liability that is misreported in excess of the tolerances stated in this section.”

For example, if the actual liability is determined to be $100, but you reported liability of $120, any indemnity, prevented planting payment or replanting payment will be reduced by 10%.

Another new provision under Section 3(g) was added to eliminate the use of an exceptionally high yield from a small amount of crop acreage and applying it to a large amount of acreage in an attempt to inflate crop yield (greater than 115%) in the APH database. 

Also, qualification of a “limited resource farmer” has been revised to reflect a maximum household income – a farmer with direct and indirect annual gross farm sales that do not exceed $100,000. The crop insurance administrative processing fee ($30 per crop per county for all coverage levels above CAT) is waived for those who qualify as a limited resource farmer.

For acreage reporting, the basic policy does allow certain leeway for a measurement service beyond the acreage reporting date (usually June 30). You will need to request an acreage measurement prior to the acreage reporting date and submit documentation of the request and an acreage report with estimated acreage by the acreage reporting date.

National Crop Insurance Services advises that while growers rely on agents to process crop insurance paperwork, it’s the grower’s signature at the bottom of the acreage reporting form that makes it legally your responsibility. Thus, double check it yourself, and make sure as well that your crop insurance and FSA reports are reconcilable (provide written explanation of any differences). The law requires that they be compared. 

Other NCIS tips on acreage reporting:

• Again, be sure it’s accurate and on time.  Fail to report on time, and you may not be protected. Report too much acreage, and you may pay too much premium. Report too little acreage, and you may recover less if/when you file a claim.

• Make sure you receive and retain a signed copy of the reports that you file, as this is critical to correct any errors that may show up later.

• When reporting acreage, remember to report the planted acres of your insured crops, prevented planting acreage (if you have acres you wish to have considered for payment), and uninsurable acreage (such as wildlife habitat acres not intended to be harvested). If you have any land that is being or has been added, you will need to report it as well.

• It’s your responsibility to report crop damage to your agent within 72 hours of discovery.

• Never put damaged acreage to another use without prior written consent of the insurance adjuster; you don’t want to destroy any evidence of a possible claim.

• Make sure the Summary of Protection or Schedule of Insurance you receive about 8 to 10 weeks after you submit your acreage report is correct and matches the copy of your signed acreage report that you initially provided to your agent.  Discrepancies between the summary and your signed acreage report can usually be corrected if you contact your agent and give notice of an error immediately upon receipt of the Summary.

See basic policy details online at www.rma.usda.gov/policies/2005policy.html. The web site includes details by crop and by policy.  A summary of basic policy changes for 2005 can be found under the link “05-BR.” 
 

Bush cuts would not affect ’05crop insurance
The Bush Administration has proposed a number of cuts to the federal ag budget, including changes in crop insurance fees, premium rates and delivery expenses. However, it’s important to note that the proposals are exactly that – proposals. The changes would still need to be debated and approved by both the House and Senate of Congress.  If approved as proposed by the President, minimum coverage levels would rise and direct payments would require producers to buy crop insurance. Any changes wouldn’t occur until 2006 at the earliest; more likely 2007.  Crop insurance policy provisions and premiums for the 2005 crop year will not be affected. 

Crop insurance addresses Asian soybean rust concerns
Crop losses due to Asian soybean rust should be covered by federal crop insurance, assuming proper control measures and good farming practices (i.e. using the proper fungicide and rate, as well as properly applying it) are followed and were taken in an attempt to protect the crop.

While disease is an insured peril under the federal crop insurance program, damage due to the insufficient or improper application of disease control measures is not.

“Insured producers are expected to use good farming practices and follow the recommendations of agriculture experts to control this fungus,” says Risk Management Agency (RMA) administrator Ross J. Davidson, Jr. He advises insured producers concerned about the impact of Asian soybean rust on their crop insurance indemnities to consult with their crop insurance agents about good farming practices that are recommended.

Under the terms of the Common Crop Insurance Policy, a practice is generally considered a good farming practice if agricultural experts agree that the production method used will allow the crop to make normal progress toward maturity and produce at least the yield used to determine the production guarantee.

Insured producers should follow developments as to the identification and spread of Asian soybean rust disease, and continue to stay informed and updated concerning appropriate treatments that may apply to their situation.

For an insured producer to receive an indemnity, insurance providers must verify that losses are unavoidable due to naturally occurring events and that producers followed good farming practices. This is true for all insured producers regardless of their plan of insurance: individual or group, production or revenue.

Revenue-based plans in MN increased in 2004
Soybeans, corn, and wheat, respectively, were the crops with the highest participation in terms of policies sold and acres insured last year in Minnesota. These crops also accounted for the bulk of indemnities, according to a summary of crop insurance in 2004, prepared by David Bullock, risk management specialist with the Minnesota Department of Agriculture.

Actual Production History (APH) was the top plan in policies sold while Revenue Assurance (RA) was the top policy in acres insured.  Bullock notes that it appears the recent trend of producers switching from yield-based plans of insurance such as APH to revenue-based plans, such as RA and Crop Revenue Coverage, is continuing in Minnesota.

Federal crop insurance participation in Minnesota increased slightly in 2004 with an increase of 0.3% in policies sold and an increase of 0.6% in acres insured from 2003.

Areas of highest participation were the Red River Valley and central counties of Minnesota.

Soybeans had the largest amount of indemnities at $174.4 million – an increase of 67% over 2003. This is followed by corn ($59.9 million), wheat ($9.6 million), sugarbeets ($8.3 million), and sunflowers ($3.7 million). This compares with the 2003 ranking of soybeans ($104.3 million), corn ($27.3 million), forage production ($3.7 million), sugarbeets ($3.2 million), and wheat ($1.6 million). In terms of major crops, sunflowers had the largest percentage increase (over 2003) at 520% and forage production had the largest percentage decline at 74%. All major Minnesota crops, with the exception of forage production, had increases in total indemnities paid, because of the poor weather and growing conditions.

The indemnity paid per policy sold equaled $2,155.63 in 2004, an 84% increase over 2003. The indemnity paid per acre insured equaled $16.57 in 2004, an 83.5% increase over 2003.

Bullock points out that in spite of a major increase in indemnities paid out last year because of the weather, Minnesota still produced an acceptable loss ratio of $0.81 indemnities paid for every $1.00 in premium collected. This is well below the federal mandate of $1.075 per dollar collected. 

The full report including results by county can be found online at www.mda.state.mn.us/riskmgmt

Revenue plans can offer higher farm profits
Pre-harvest grain marketing coupled with a revenue-based crop insurance product can increase net farm income 33-50%, according to Gary Hachfeld, ag business management educator with the University of Minnesota Extension Service Regional Center, Mankato.

This is based on 25 years of historical grain price data that points to an increase of $.20 per bushel of corn sold, $.29 per bushel of soybeans sold and $.11 per bushel of wheat sold using this strategy. Key to the success of this strategy is using revenue-based crop insurance, specifically Crop Revenue Coverage (CRC) or Revenue Assurance, including the Harvest Price Option (RA-HPO).

A new information piece outlines the process for utilizing revenue-based federal crop insurance coverage and pre-harvest marketing. The title is “Utilizing Federal Crop Insurance: Coverage Alternatives and Marketing Strategies For Managing Grain Yield and Price Risk.” It is available on the Internet at www.cffm.umn.edu or www.agrisk.umn.edu.

Included in the information piece is general information and provisions with regard to federal crop insurance. Several examples are included related to yield and coverage data. Changes for the 2005 crop year are also outlined in the document. Coverage and indemnity payment examples for CRC and RA-HPO are included.  Several pages are dedicated to a pre-harvest market example using crop insurance with two crop yield scenarios. 

Minnesota, Total Policies Sold by Insurance Plan, 2004

Rank	Insurance Plan	Policies Sold	Percent of State Total	2003	Percent Change
1	Actual Production History	62,594	50.01%	76,924	-18.63%
2	Revenue Assurance	49,020	39.16%	37,520	30.65%
3	Crop Revenue Coverage	9,499	7.59%	6,509	45.94%
4	Dollar Amount of Insurance	2,644	2.11%	2,452	7.83%
5	Income Protection	704	0.56%	678	3.83%
6	Group Risk Plan	580	0.46%	573	1.22%
7	Yield Based Dollar Amount of Insurance	127	0.10%	147	-13.61%

Minnesota, Acres Insured By Insurance Plan, 2004

Rank	Insurance Plan	Acres Insured	Percent of State Total	2003	Percent Change
1	Revenue Assurance	9,554,813	58.67%	7,730,114	23.61%
2	Actual Production History	4,602,866	28.26%	7,214,564	-36.20%
3	Crop Revenue Coverage	1,901,675	11.68%	1,015,127	87.33%
4	Group Risk Plan	149,299	0.92%	141,298	5.66%
5	Dollar Amount of Insurance	30,062	0.22%	46,661	-22.71%
6	Income Protection	34,313	0.21%	29,640	15.77%
7	Yield Based Dollar Amount of Insurance	5,840	0.04%	6,014	-2.89%

Minnesota, Total Indemnities By Insurance Plan, 2004

Rank	Insurance Plan	Total Indemnity	Percent of State Total	2003	Percent Change
1	Revenue Assurance	$195,904,524	72.61%	$80,449,288	143.51%
2	Actual Production History	$37,481,092	13.89%	$55,636,321	-32.63%
3	Crop Revenue Coverage	$35,757,865	13.25%	$9,965,582	258.81%
4	Income Protection	$607,863	0.23%	$59,280	925.41%
5	Yield Based Dollar Amount of Ins.	$42,108	0.02%	$ -	100.00%
6	Dollar Amount of Insurance	$22,031	0.01%	$80,687	-72.70%
7	Group Risk Plan	NA

2005 Crop Insurance  Calculators Online -- The University of Illinois has a calculator online at www.farmdoc.uiuc.edu/cropins/index.html that provides estimates of insurance premiums and average payouts for crop insurance products in 12 Midwest states, including the Dakotas and Minnesota. Insurance and Marketing Simulator Online -- Developed by Matthew Diersen, South Dakota State University Extension Service and Andy Swenson, NDSU Extension Service, this Excel spreadsheet online at www.ag.ndsu.nodak .edu/aginfo/farmmgmt/software/riskmgt.xls can help crop producers evaluate coverage under Multi-Peril Crop Insurance, Crop Revenue Coverage, and Revenue Assurance.

The first step in using the model is to decide how the simulation results should be viewed (select tabs at the bottom of the worksheet: base, multiple, or grid). Base results show total revenue and its sources for one specified yield and price at harvest. Multiple results show total revenue and its sources for nine yields and futures prices at harvest. Grid results show revenue for 70 price and yield scenarios.

The desired view determines which of three spreadsheets to use. There is one spreadsheet for base results, one for multiple and one for grid. Select the spreadsheet and specify the information needed for insurance products and marketing tools. The multiple spreadsheet is suggested as a starting point.

NAWG Part of Broad Coalition Opposing Farm Bill Cuts
The National Association of Wheat Growers is part of a broad coalition across the U.S. that is objecting to a Bush Administration proposal to whittle the federal agriculture budget.  The NAWG and others are pointing out that there has already been reductions in funding for many discretionary agriculture programs, and reductions of $4 billion in mandatory agriculture spending.  Further, that farm bill costs through the past three years were more than $15 billion less than initially projected when Congress passed the 2002 farm bill.

In a letter to Agriculture Secretary Mike Johanns and Members of the House and Senate Budget Committees coinciding with Bush’s budget proposal for FY06 which begins October 1, the NAWG and 118 other agriculture, nutrition and conservation groups voiced concerns about agriculture spending reductions.   “A budget that requires further cuts or structural weakening in these important programs will put at risk the promising environmental benefits of the (current farm bill), and the nutritional health of some of the poorest populations in our country,” the coalition stated.  “With prices for many major commodities falling sharply from last year, reductions to farm programs would come at precisely the time that these supports are most needed in rural America.”

The proposed ag cuts figure to be a major issue when leaders and representatives of state wheat associations, including the Minnesota Association of Wheat Growers and the North Dakota Grain Growers Association, travel to Washington, D.C. in March to visit with federal lawmakers and ag officials. 

Leveraging Crop Insurance for Marketing -- Earl Roed, Lindfors Agency, Inc, Fosston, Minn., details how strategic marketing combined with revenue-based crop insurance added up to thousands in additional income, in the presentation “Leveraging Crop Insurance for Marketing” which can be downloaded online at www.ag.ndsu.nodak .edu/aginfo/cropmkt/cic/cic.htm. See other interesting topics related to crop insurance here as well (all Powerpoint), under “Twelfth Annual Crop Insurance Conference Presentations,” given at a meeting in Fargo this winter.