The most common crop insurance policy for managing risk in recent years will not cover farmers’ break evens in 2025. Fortunately, producers have options to better align their risk management strategy to today’s lower commodity prices.
Since 2014, the start of the last agricultural downturn, the Risk Management Agency has added more than 300 options, including margin protection, enhanced coverage option and supplemental coverage option, said Tony Jesina, senior vice president of crop insurance at Frontier Farm Credit.
Now is the time to review of your risk management strategy, Jesina said.
At Frontier Farm Credit, your review is handled by a full-time crop insurance officer. The Association continually provides training to crop insurance officers to make sure customers are getting the most current information. Customers also benefit from our proprietary tool, Optimum, which sorts through the thousands of options available to producers to identify those that best support a particular farmer’s needs and goals.
“Optimum gives us insights into the ways our existing customers are maximizing their opportunities and minimizing their risks,” Jesina said. “We look at what’s working for our customers and use that knowledge when doing policy reviews for non-customers.”
It costs nothing to sit down with a Frontier Farm Credit agent and review their current policy. The result, Jesina said, can put you in the best position for managing your risks in 2025.
What does an APH review entail at Frontier Farm Credit?
We look at producers’ policies to make sure they are optimized. Are there opportunities to maximize their guarantee, minimize risk or take advantage of certain options or endorsements? For our existing customers, Optimum does that behind the scenes when we run quotes.
If we’re working with someone who isn’t a current customer, it is a more intensive process. We aren’t looking at just the past year. We review the whole database, which sometimes goes back 20 years if you are on rotation, to determine if you are taking advantage of all the options and opportunities available and the financial impact of that.
As an example, we looked at the policy for a larger operation in Iowa. Based on the structure of the policy they had with another crop insurance agency, we determined that they left $50,000 of opportunity on the table.
Where does that lost opportunity come from?
Most often you see that show up in producers’ policy guarantee. Do they have the highest possible guarantee available?
Or do they take advantage of options, such as yield exclusion, that allow them to enhance their APH? If you are looking at a simple average of your APH and you use yield exclusion to exclude a bad yield, that raises your average. These options aren’t free, and you have to weigh costs against the potential benefit.
We also look at unit structures – basic, optional or enterprise units – and the impact of each. When you go to an enterprise level, all the acres in the county for a particular crop, including yours, are in one bucket. You could have one farm do well and another that doesn’t, and they can cancel each other out. With optional units, you could still collect on the poor performing farm.
The cost difference between optional and enterprise units is significant. Our review process helps determine if the additional premium is worth maximizing your opportunity.
You are looking back with an APH review. How does that help you going forward?
Anybody can Monday-morning quarterback: Everyone should have sold their corn at $6 instead of $5, or $5 instead of $4. That’s easy to criticize now. But in the moment, you made the best decision based on available information.
We’re looking at the past in terms of how your policy is structured and whether you had the best opportunity to win this year. If you do the analysis to get you to a better guarantee, you’ve got a better chance for next year.
Say you come to us for a second opinion, and your policy guarantee is based on a per-acre yield of 181 bushels. There could be scenarios you didn’t consider that put your yield at 185. Now you start with a higher protection level, and possibly get closer to covering your cost of production.
A review could also address how best to spend your premium dollars. Say you have 75% coverage on optional units. If you switched to enterprise units and 80% coverage, you could get a higher coverage level and maybe not spend a lot more.
We’re going into a tight margin environment. Taking time to talk to your crop insurance agent and reviewing your options to get the right coverage gives you a better opportunity to realize profit in a challenging year and protect your working capital.
