Crop Insurance and Risk Management: Where do I start?

For decades, Federal Crop Insurance has helped growers protect their businesses through subsidized policies that keep poor weather and unpredictable markets from putting them out of business.  While many farmers are acquainted with Crop Insurance, not everyone understands all the ways it can support their business and may have no idea where to even begin.

This article and FAQ will help to demystify the ins and outs of crop insurance and give you pointers on choosing the best product for your operation.

• Where do I start?

  Step one is to call a licensed and reputable crop insurance agent in your area.  RMA’s Agent Locator Tool can provide you with a list of agents near you, but it’s also wise to talk to your friends and neighbors to see who they use and what their experience has been.  An agent that primarily deals with specialty crops may not be as equipped to handle a row crop policy and vice versa.  Likewise, agencies that mostly service home owners or car insurance policies may only have a small number of crop insurance policies and can lack the deep knowledge of the federal crop program that you’ll find with an agency that only sells crop insurance.

  We here at Foothills Crop Insurance Agency only sell Federal Crop Insurance, have more than a century of combined experience, and specialize in row crops, specialty crops, pasture and hayland, beef cattle, and nursery insurance.

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• Is there a minimum amount of acreage or livestock I need to buy crop insurance?

  There is no minimum acreage or headcount you need to enroll.  Each policy has an accompanying $30 administrative fee, so it may not be economical to insure a quarter acre of wheat for grain, but we can protect any grower, no matter how large or small.

• How can crop insurance protect and help me?

  A rarely discussed but increasingly important function of crop insurance is to provide collateral for farm related loans.  As input costs rise, the ability to leverage the value of your crops that are still growing is another tool to help farmers thrive.  

  Of course, the main role of crop insurance is to help make you whole and keep you in business if weather events or market forces damage or reduce the value of your crops or livestock.

  Most grain and specialty crop policies provide coverage based on your historical average and national commodity price averages.  You choose a level of coverage that indemnifies you if you produce less than your selected percent coverage level during the coming season.  Area level coverages like ECO and SCO trigger similarly, but are based on what the county as a whole averages rather than your operation.

  Pasture, hayland, and livestock policies work more like investment tools and ARE NOT based on production.  Pasture and hayland products pay if you get less than an expected amount of rainfall over your selected two month intervals, and livestock products pay if the nation commodity prices are under the futures price you chose in your endorsement.

• Is there a lot of bookkeeping and paperwork involved in Federal Crop Insurance?

  Unfortunately, yes, there is quite a bit of paperwork involved in Crop Insurance.  However, we here at Foothills Crop Insurance make the process as simple as we can.  As long as you can tell us where you plant and how much you harvest, we will fill out all of your documentation and send it to you to review and sign.

  Likewise, many crop insurance documents must be submitted by specific dates..  Our agency makes sure that our clients do not miss any of these important deadlines.  We send multiple reminders through mail and will call you directly if an important date is approaching and we still do not have your required paperwork.

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• What’s the difference between the Enhanced Coverage Option (ECO), the Supplemental Coverage Option, and a regular Multi-Peril Crop Insurance (MPCI) Policy?

  ECO and SCO are Area Level Options while MPCI Policies apply specifically to your operation's production and/or revenue.  While an MPCI policy pays when your crop makes less production/revenue than your coverage level percentage, Area Level Options pay if the county averages less than a certain threshold of production and revenue than expected and do not require a claim on your crop.  

  ECO starts to pay if the county makes less than 95% of its expected production/revenue and maxes out if the county makes under 86%.  SCO starts paying if the county makes less than 86% and maxes out when it makes less than your selected MPCI coverage level percentage.  

  An MPCI policy is always the first place to start and your primary risk management tool.  ECO and SCO are advantageous supplements to your MPCI policy that can diversify your risk and may provide indemnities in years where your personal operation does not have a loss and for crops that consistently give you great yield and income.

• Are there a lot of people who farm just to collect insurance?

  Unfortunately, there is some small amount of fraud and abuse in any industry.  However, we rarely come across farmers that are abusing the system.  As crop insurance is based off of your yearly production averages, having constant losses quickly reduces your possible payments and makes abuse less profitable.  And unless the adjuster is complicit, it is very difficult to hide production or falsify a loss.

  Additionally, high profile cases of crop insurance fraud have made it known how seriously the government takes such abuse.  It's very unlikely that the money a grower could generate for a fake claim would ever make up for a lengthy court battle and prison.

• What sort of policy should I consider for my 2027 wheat crop?

  If we had to make one recommendation without knowing anything about an operation, it is to look at a 70-80% Level Enterprise Unit with Revenue Protection.  For most growers, these levels are fairly inexpensive costing between $4-$9/acre and will cover a large portion of input costs.  If you still have room in your budget after purchasing an underlying policy, consider adding a HIP/WI Policy, Enhanced Coverage Option, and/or Supplemental Coverage Option to benefit from county level coverage.

  For a comprehensive explanation on choosing coverage, check out our How to Choose blog post.

• Do you recommend Optional Units or Enterprise Units?

  In our experience, most growers are significantly better off with an Enterprise Unit (EU), covering all of the crop in the county under one guarantee, rather than an Optional Unit (OU) that guarantees each farm individually.

  While you are more likely to collect at least a small claim in any given year with OU, the higher premium cost often cancels out any indemnity.  We looked at all of our growers over a ten year period and compared whether EU or OU would have netted more (indemnities-premiums) over that same period of time, and found that more than three quarters of the growers benefitted more from EU than OU.  

  Optional Units can be right for growers who consistently have a significant amount of low yielding land regardless of having above average overall yields.  However, by and large Enterprise Units are the better option.

  Take a look at our Optional Unit vs. Enterprise Unit case study blog for more information.

• Is crop insurance expensive?

  Like most types of insurance, the more coverage you elect for your policy, the more expensive the premium will be.  However, most growers are able to cover themselves for a large portion of their input costs for between $5-$10/acre in premium.  Additionally, as crop insurance is a federally subsidized program, the premium you pay is only around one third of the actual cost.  

  Federal Crop is an incredible buy. dollar for dollar, and provides protection and collateral for both large and small farming operations.

• When do I need to sign up?

  The sales closing date varies by state, crop, and county, but generally spring crops need to have policies set up by the end of February and fall crops must be enrolled by the end of September.  Call an agent to find out the exact dates for your crops and livestock enrollment.

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• What is covered?

  Basic MPCI policies cover any natural cause of loss.  It will compensate you for damage from too much or too little rain, wildlife damage, pests or plant disease, etc…  If you add revenue protection, it also covers decreasing commodity prices between enrollment and harvest time.

  Some types of policies only cover natural causes of loss that affect production while others only cover declines in price.  Talk to an agent to find out what product will work best for your operation.

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• Do I need a separate Hurricane and Wind Policy?

  While your basic MPCI policy will cover any damage to your crop due to a hurricane or tropical storm, Federal Crop Insurance also allows you to add the Hurricane Insurance Protection - Wind Index (HIP-WI) policy for additional coverage.

  HIP-WI pays out in addition to your underlying policy and is triggered if a named hurricane or tropical storm comes through your county or a county that touches your county.  If the storm is a hurricane when the policy triggers, it pays 100%; Tropical storms pay 50%.  Payments trigger automatically if your county meets the criteria. Your crop does not have to sustain damage and may even be harvested and still receive a HIP-WI payment.

  HIP-WI covers a percentage of the expected value of your crop based on the difference of 95% of value and your chosen coverage level (at the 75% level HIP-WI covers 20% of crop value; at the 50% level it covers 45% of crop value).  Premiums vary depending on how likely a hurricane or tropical storm is to affect your region.  Coastal counties tend to have high HIP-WI costs while inland counties may only cost $1-$2/acre to add. 

Foothills Crop Insurance is a family owned insurance agency with over 85 years of combined experience. We’re experts in tailoring policies to fit grower's operation and budget. Contact us today, and let our family take care of you like you’re one of us!  800-660-8674