Taming the Bulls and Bears

Get Over the Sticker Shock of ’07 Crop Insurance

It is going to be more expensive, but you are also getting more value from your premium dollars – view it as increased dollars per acre coverage instead of an increased expense. 

by Betsy Jensen, Ag Commodity Instructor, Northland Community
& Technical College, betsy.jensen@northlandcollege.edu

I have seen your tool boxes, and there are some questionable tools.  Why do you keep that tape measure that doesn’t retract?  Or how about the stripped-down Phillips screwdriver?  The lock wrench that no longer locks? Or the wrench with a broken jaw (but the closed end works great)? Even though the tools might not work perfectly, you keep those tools around just in case you need them.  Add a roll of duct tape, bailer twine, WD -40 and barbed wire and you can fix almost anything.  It’s better than no tools at all.

The same thing applies to crop insurance.  It never seems to come close to insuring cost of production, but like the broken tools in your toolbox, it’s better than nothing. Insuring your wheat crop for $125 an acre is better than no insurance at all.

In 2007, however, we finally have crop insurance that is going to almost cover your costs of production.  Put away the duct tape and wire, because we have ourselves a useful tool for the upcoming growing season.

As with all good things, crop insurance is going to come with a large price tag this year. The increased price elections, plus the volatile markets, equal higher premiums. Get over the sticker shock.  It is going to be more expensive, but you are also getting more value from your premium dollars.  It might be a tough pill to swallow, but try to focus on the increased dollars per acre coverage instead of increased expense. 

I have heard a few ideas from farmers regarding lowering their coverage percentage, or maybe going with multi-peril coverage instead of the more expensive revenue coverage.  However, as a crop marketer, I do believe that revenue products such as Crop Revenue Coverage or Revenue Assurance with the Harvest Price Option are the premier products.  When you combine a revenue insurance product with a marketing plan, you create a good risk management plan.

The best insurance plan can vary by crop, farm, and year to year.  In the past I have laughed at agents who pushed RA-HPO instead of CRC because RA-HPO does not contain price election limits. If wheat rallies $3, RA-HPO coverage will increase by $3. CRC is limited to a $2 move in wheat. Suddenly the CRC limits seem a little restrictive, and I am starting to agree with agents that RA-HPO may be the better product in 2007.

If there was ever a year for wheat to rally, or drop, more than $2 between spring and harvest, it is 2007.  Just remember my warning from before: As with all good things comes a large price tag.  Since RA-HPO does not have price limits, it will be more expensive than CRC.

As for lowering your coverage percentage, my best advice is to think long and hard before doing that.  I won’t say absolutely not, but just make sure you’re not sacrificing coverage to save a buck or two.

I write the checks for our farm, and I’m usually complaining about the high repair bill, or if we really needed to add the insecticide to the fungicide application. Every penny that gets spent on operating expenses means less money for me, and I like money.  I am cheap, but I also do not consider crop insurance to be an expense. It can provide a temporary bandage to your farm on a bad year. A farm cannot survive on crop insurance, but it can sure sink without it.  Bottom line: You have a useful tool in 2007, so make the most of it.

Jensen puts her marketing strategies to work farming with husband Brian near Stephen, Minn.  Her market education activities including this column are supported in part by the Minnesota wheat checkoff, directed by the Minnesota Wheat Research and Promotion Council.