It is time to change the way we think about crop insurance

By Michael Sweeney, Vice President of Bickle Farm Solutions

I am very privileged to sit across the table from some of the best farmers in Ohio multiple times every year and talk with them about crop insurance, farm insurance, or just farming in general. One thing that I have learned in my years in agriculture is that everyone has an opinion and very few are the same. This could not be truer about crop insurance. 

Generally there are two sets of views on crop insurance. One side says, “I buy it because the bank says I have to” or “I buy it to make sure I can farm again next year.” The other says the purpose of crop insurance for their operation is to guarantee margin, or at least to make them whole again. Both sides will have reasons for the stance they take. At the end of the day, it’s all about mental and financial risk tolerance. But those two factors don’t always come into play with crop insurance decision making like they should. 

For example, let’s say you built a brand-new house this year. When you insure that house, do you decide how much coverage to put on it based on what the premium for coverage is? Or do you insure it for what it is worth with no regard to how much it costs? Likely, most are shaking their head to the second scenario. So why do we think any differently about how we insure our crops? Is a huge market flop, or drought, or an extreme wet spring more or less likely than a house fire? What is more at risk?

As most of you reading this know, the price of crop insurance fluctuates yearly with the price of corn and soybeans. Higher prices equal higher premium. But higher prices also equal higher liability. And liability, or risk, is what we are trying to take off the table with crop insurance. There seems to be a stigma around our industry with some that if you must use your crop insurance, you did something wrong. What about the years that the farmer and Mother Nature both do everything right, but the market has a mind of its own and puts us in a bind? 

Average farm revenues across the Corn Belt are forecasted to be at near record lows this year. That is assuming that we raise a normal crop and sell in a steady market. If you are purchasing your crop insurance this year and have not done a true cost per acre budget, you are likely doing yourself quite the disservice. Look at that cost per acre and look at your revenue guarantee per acre. You should at least buy enough insurance to cover your cost of production. 

Now, I am not saying that everyone needs to run out and buy up as much crop insurance as they can this year, or to completely step outside their comfort zone with some high-priced private product that may or may not actually do any good. There are countless options available to producers for risk management. Some come in the form of crop insurance and others in the form of market options. Navigating either of those can be very tricky, so make sure you have a trusted advisor in either your agent or your marketer to help you. It may be a good idea to bring both to the same conversation. Afterall, marketing and crop insurance do go hand in hand. However you choose to do it, make a plan and execute it.

The bottom line is that crop insurance is an expensive piece of the farm budget. But why buy it if you aren’t at least covering production costs? Crop insurance decision making is very subject to a complacent mindset. That same old 70% RP policy that you have bought for years may not be enough anymore. On the flip side, it may be more than you need next year. Although that situation is possible, it is not probable. This crop may likely be the most expensive one planted in history and the market is as volatile as it has been in recent years. Do yourself a favor and come up with a real cost per acre and work with your risk management partners to make a plan and execute it.