Crop insurance issues taking center stage

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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association

Crop Revenue Coverage

Crop Revenue Coverage, or CRC, is a new crop insurance plan developed by the private sector, which protects against lost revenue caused by low prices, low yields, or any combinations of the two.

CRC is similar to multi-peril crop insurance (MPCI) in that it is based on your actual production history, or APH. However, CRC has been proven to return lower loss ratios than MPCI. Further, despite a premium cost that is higher than MPCI, the product has proven popular with farmers (it has been already tested in Iowa and Nebraska in a corn/soybean pilot program) because they see it as an insurance product that has better risk management coverage, and a better revenue guarantee.

Some counties in Minnesota and North Dakota have been involved in a similar pilot program called Income Protection (IP). There are key differences among CRC and IP coverage, however: IP is based on single-unit coverage, versus optional multi-unit or sectional coverage offered through CRC. Plus, although both IP and CRC establish a minimum revenue floor, CRC provides upward price protection, based upon market-determined prices.

The National Association of Wheat Growers and affiliated state wheat associations launched a major campaign this past summer, to get as many wheat producing states as possible to qualify for the new CRC pilot program.

Seven states—Texas, Kansas, Nebraska, Michigan, Washington, South Dakota, and parts of Montana—were selected by the Federal Crop Insurance Corporation (FCIC) board last July for inclusion in CRC for wheat in the 1997 crop year. The NAWG would have preferred that the program be offered in all wheat-producing states in 1997, but wheat growers understood the FCIC’s need to test the concept before making it available nationwide, said NAWG President Chuck Merja.

For states included in the CRC pilot program, the 1997 minimum price guarantee is $3.97 per bushel.

The MAWG and the NDGGA have been lobbying intensely to get Minnesota and North Dakota included in the CRC pilot program in 1997. The outlook is promising that at least parts of the two states will be included in the CRC pilot next year. An announcement is expected by the FCIC board by December.

South Dakota growers interested in learning more about CRC should consult a private agent. As well, more CRC details will be included in Prairie Grains once the status of the program next year is known.

Nonstandard Classification Change

The MAWG teamed up with private crop insurance agents in Minnesota to bring relief to farmers who fell into a high risk category of federal crop insurance coverage, called "nonstandard classification," because of heavy crop losses in the 1990s.

Nonstandard classification is used by the FCIC to designate farmers as high-risk policy holders. The nonstandard classification system (NCS) allows farmers to qualify for federal crop insurance, but at a much higher premium rate. A farmer may fall into the category for one crop, but have other crops qualify for normal coverage rates.

In the past, it was usually mismanagement which landed some farmers in the NCS. However, crop losses due to multiple years of adverse weather in the 1990s (with Northern Plains wheat plagued by scab, and the orange wheat blossom midge) is now being factored into the crop insurance production history for some farmers.

"Good farmers—who are sound managers—are being classified as high risk, simply because of multiple weather-related crop disasters out of their control," says Jerry Nordick, MAWG president. For example, one farmer in Pennington County, Minn., was notified that his crop insurance premium for wheat would rise from $7.12 per acre in 1996 to $19.26 per acre in 1997—an increase of over $10 an acre—because of his new NCS status.

The MAWG and members of the Minnesota Independent Insurance Agents (MIIA) brought the matter to the attention of officials in Washington, D.C., including senior FCIC officials and U.S. Representatives David Minge (D-MN) and Peterson (D-MN). Several recommendations were made so that the nonstandard classification takes disaster years and weather-related crop losses into account.

Rep. Peterson was successful in fixing the problem in 11 northwest Minnesota counties, removing more than half of the new producers from the NCS listing, as well as some producers who have been previously listed in the NCS, because of adverse weather.

Technical corrections are still needed to prevent nonstandard classification problems for growers down the road, says Nordick.

1997 MPCI Price Election

The Risk Management Agency (RMA) of USDA has determined that the 1997 wheat price election for multi-peril crop insurance will be $3.85 per bushel for wheat and durum wheat. This level represents a 30-cent per bushel increase over the 1996 price election, which is available to producers who elect additional coverage for their 1997 crop.

Producers who elect the catastrophic (CAT) level of coverage will be insured at 60 percent of the established price level, or $2.31 per bushel for wheat and durum.

The RMA reviewed market and price conditions throughout August in making the final price election determination. For comparison, 1997 September wheat futures in the three major markets traded in the $3.90 to $4.15 range.

Note that USDA Farm Service Agency (FSA) offices will no longer sell basic CAT coverage, which began with crops having a Sept. 30, 1996 closing date. Growers who had been purchasing CAT policies from their local FSA offices will be notified of this change, if they haven’t been already, and have the opportunity to select a private agent to continue servicing their insurance needs.

December 1995