WEST LAFAYETTE, Ind. — Farmers looking to cut costs should not reduce their crop insurance coverage, say ag economists from Purdue University.
"This is not the year to drop coverage levels to save money," said Michael Langemeier, associate director of the Center for Commercial Agriculture at Purdue in a webcast for farmers last week. The deadline for making crop insurance decisions is March 16.
Since 2015 corn and soybean prices are projected to be lower than in 2013 and 2014, he said farmers want to protect themselves from further losses. "‘How does that affect my crop insurance choice?’ We want to think about keeping our coverage high," Langemeier added. "This is the most important year since 2007 in terms of choosing coverage level protection."
Jim Mintert, director of the Center for Commercial Ag, agreed. "Based on our projected prices, a lot of Corn Belt farmers will find themselves in a loss situation in 2015," he said.
There are important tradeoffs in choosing coverage options, according to the panel. For example, farmers can choose between basic and enterprise units, area yield protection and farm yield protection, area revenue protection and area revenue protection with harvest price exclusion.
Some basic observations from the panel include:
•Enterprise units cost less but provide less protection. Each producer has to determine if this is worth the risk.
•Area yield protection (AYP) insures against countywide production loss. Lower coverage levels for AYP will not be sufficient in most cases. With this option, use 75-85 percent coverage.
•Yield protection, by contrast, insures against production loss on the individual farmer’s field.
Farmers can also choose to insure their crops based on revenue, rather than yield alone. The panel found in general, revenue policies in 2012 gave a better return than yield-based policies.
Within this option are variations: area revenue protection with harvest price exclusion, area revenue protection (ARP) and revenue protection (RP). ARP is based on the countywide yield, while RP is based only on the individual buyer’s results.
ARP with harvest price exclusion costs less but gives little protection. The panel does not recommend this option. If choosing ARP, the experts advise a higher coverage level, such as 90 percent, to protect a farmer’s risk since coverage will be based on the county’s results.
"Area products should be considered on a county-by-county basis. It’s hard to make generalizations on counties. We do want to carry the highest level of coverage on a countywide policy," Mintert said.
