New option to crop insurance farmers need to consider

Crop Insurance

As grain prices hit new levels, farmers are considering potential profit in preparing for the 2021 growing season. However, protection is always going to be important.

Crop insurance decisions will be critical this year. Gary Schnitkey, University of Illinois agricultural economics professor, said 93% of Illinois farmers took some form of Revenue Protection (RP) insurance last year.

With the higher prices in most grain markets, premiums will be higher.

Schnitkey said projected prices, set in February, are expected to be in the $4.50 range for corn, compared to last year’s $3.88 mark, helping add to the premium. Soybeans are seeing a possible projected price of $11.50, more than $2 higher than last year.

He also said volatility is at its highest point for corn (0.23) and soybeans (0.20) since 2011, adding to the premiums being set by agencies. Based on his estimates, that would make an 85% coverage increase by nearly $10.31 per acre on corn and $6.37 for soybeans.

“That is simply a function of the projected price and higher volatility,” Schnitkey said. “Roughly you can think of most of it is due to volatility. All policies will go up in costs, but guarantees will go up as well.”

A new option available to farmers with revenue or yield protection insurance is an Enhanced Coverage Option (ECO) add-on, which adds revenue or yield guarantees based on county yield numbers and does not have to be stacked with SCO (Supplemental Coverage Option).

“ECO rides on top of the SCO coverage, which rides on top of the RP coverage,” Schnitkey said. “With the combination of the two, you can get county-level coverage from whatever you select (90 or 95%) down to the coverage level of RP.”

He said historically; ECO coverage would pay out 50% of the time with 90% coverage for corn and 67% of the time for 95% coverage. In soybeans, a 90% coverage would pay out 27% of the time, while 95% coverage pays out 50% of the time.

Bruce Sherrick, director of the TIAA Center for Farmland Research, said these policies are not “game changers” but may be worth considering depending on the cost.

“I would think about adding ECO before SCO,” Schnitkey said, noting that ECO will pay out its highest level before SCO payments would kick in, and it is more likely to kick in.

Sherrick reminded farmers that insurance isn’t necessarily going to be the best option for prices but rather makes for a baseline of what to expect.

“It’s more likely the harvest price is going to be higher,” he said. “If that happens, the price portion of revenue guarantee is less valuable and less likely to pay.”