Crop Revenue Coverage for 2016
With the 2016 growing season just around the corner, farmers are not only busying themselves with planting preparation, but also with insurance coverage decisions. The deadline to sign up for crop insurance coverage is March 15.
With the latest Farm Bill rollout, Revenue Protection crop insurance has taken the spotlight as not only simply another type of insurance coverage, but also an important financial management tool that many producers should not ignore. Revenue Protection insurance protects a farmer from the combined effects of yield and price risk, rather than only just production. As it protects farmers from declines in both crop yields and prices, this type of coverage is a valuable tool for reducing year-to-year income variability. A number of coverage levels and options are available, which allow producers to tailor the coverage for their own specific operation needs.
Many producers enrolled last year, and if so, that coverage continues unless one decides to change policies. At any rate, now is the time when farmers need to determine how much coverage to purchase.
The USDA’s Risk Management Agency (RMA) recently announced its projected prices for the major crops following the February price discovery, giving farmers a better idea of which coverage will shape up the best for their operations this year. The RMA’s decision uses the price discovery period, based on futures prices for Dec. corn, Nov. soybeans, and Sep. red spring wheat, to determine the final prices and volatility factors for federally sponsored corn and soybean crop insurance protections.
The verdict for 2016? As expected, the crop insurance guarantees are lower than last year’s, and they also may fall below the cost of production.
As farmers look ahead with these challenges in mind, it is tempting to decrease crop Revenue Protection crop insurance in the quest to pare down input costs, and rely more on the Agricultural Risk Coverage at the County Level (ARC-CO). However, University of Illinois Ag Economist Gary Schnitkey cautions against it, based on a recent analysis he conducted using a McLean County (IL) example to evaluate the various levels of protection offered by ARC-CO. He determined that lowering coverage levels may be imprudent, and that Revenue Protection at high coverage levels is still a good choice for crop insurance decisions. He concluded that ARC-CO only provides a limited amount of protection.
Whatever decision is made, profitability is expected to be tough for many growers this year.
“Expectations are for costs to exceed revenue even with the inclusion of ARC-CO and crop insurance payments,” Schnitkey said. “This is not a year in which crop insurance can be used to assure a profit. Rather, crop insurance this year will limit losses to hopefully more manageable levels.”
Do you need guidance with your crop insurance decisions for the 2016 growing season? Please don’t hesitate to contact an experienced UFARM land manager—we are glad to help you choose which options work the best for you and your farming operation.
UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!
Sources consulted: Rice, Alison. “Crop Insurance Prices Set for Spring Crops.” AgWeb. Farm Journal. 29 Feb. 2016. Web. 01 Mar. 2016., Rice, Alison. “Crop Insurance and ARC-County: Do You Really Need Both?” AgWeb. Farm Journal. 27 Jan. 2016. Web. 01 Mar. 2016., Schnitkey, Gary. “Should Prospective ARC-CO Payments Impact 2016 Crop Insurance Decisions?” FarmDocDaily. University of Illinois at Urbana-Champaign. 26 Jan. 2016. Web. 01 Mar. 2016.
