Focus on Ag: 2023 crop insurance deadline looms
The deadline to purchase crop insurance for corn and soybeans for the 2023 crop year is March 15. The cost of production for corn and soybeans in 2023 is significantly higher than in recent years, due to much higher crop input costs for fertilizer, chemicals, seed, repairs, labor, etc., as well as increased cash rental rates in many areas. This means that crop producers may need to increase their crop insurance coverage in 2023 in order to adequately cover the increased investment in the crop. Fortunately, the 2023 Spring prices for corn and soybeans will be near the highest levels ever, which should allow opportunities for a solid risk management program, that utilizes the various crop insurance products that are available, most of which are at reasonable premium amounts.
The crop insurance Spring base prices for 2023 revenue protection (RP) and yield protection (YP) insurance policies for corn and soybeans are determined during the month of February and are finalized on March 1. The estimated 2023 Spring base prices (as of 2-17-23) were $5.96 per bushel for corn and $13.72 per bushel for soybeans. The current 2023 base price estimate for corn compares to recent Spring base price levels of $5.90 per bushel in 2022, $4.58 per bushel in 2021, and $3.88 per bushel in 2020. The estimated 2023 Spring price for soybeans compares to recent base prices of $14.33 per bushel in 2022, $11.87 per bushel in 2021, and $9.17 per bushel in 2020. The current estimated 2023 Spring price for corn would be at the highest level since the highest-ever Spring price of $6.01 per bushel in 2011. If the current soybean base price holds, it would be the second highest Spring price ever, being only surpassed by last year’s Spring price of $14.33 per bushel.
Choosing crop insurance coverage is one of the more important risk management decisions that producers make each year. Following are some key items to consider when making 2023 crop insurance decisions:
There are a wide variety of crop insurance policies and coverage levels available.
Make sure you are comparing “apples to apples” when comparing crop insurance premium costs for various options or types of crop insurance policies, as well as recognizing the limitations and the differences of the various insurance products. There are many combinations of crop insurance products that are available in the Midwest that offer favorable insurance guarantees for 2023, most of which are at premium levels that are quite comparable to 2022 premium levels.
View crop insurance decisions from a risk management perspective.
Given the potentially tighter profit margins for crop production in 2023, there may be a tendency to reduce their crop insurance coverage. However, a producer must first decide: “How much added financial risk do I want to incur if there are greatly reduced crop yields due to drought or other weather problems in 2023, and/or if there are lower than expected crop prices in the coming year ?”
Take a good look at the 80% or 85% coverage levels, especially when using “enterprise units."
In many cases, the 85% coverage level offers considerably more protection, with a modest increase in premium costs. At the current Spring base price estimates, many producers will be able to guarantee from $800 to over $1,000 per acre for corn, and from $550 to over $750 per acre for soybeans, at the 85% coverage level for 2023, depending on the APH yields on the individual farm units.
Use caution when considering RPE insurance policies to reduce premium costs.
If the “harvest price” (average CBOT price in Oct.) for corn or soybeans is lower than the “base price” (average CBOT price in Feb.), the RP and RPE payment calculations function similarly, and RPE premium costs are slightly less than RP premiums. However, if the final “harvest price” exceeds the “base price”, which has occurred several times in recent years, there is considerable added risk in utilizing a RPE policy.
Analyze the importance of “Optional” versus “Enterprise” crop insurance units.
Many times, producers automatically opt for “enterprise units” due to the lower premium cost per acre for similar coverage. They may not totally understand the difference in coverage between “enterprise units” and “optional units”. It is important to analyze the yield risk on each individual farm unit, when determining if the extra premium for insurance coverage with “optional units” makes sense. If a producer has farm units that are more spread out geographically and with more variation in soil types and drainage, along with greater risk of yield variability, they may want to consider “optional units” for 2023.
"Supplemental Crop Option” (SCO) insurance is available with the PLC farm program choice.
Producers that choose the “Price Loss Coverage” (PLC) farm program option for 2023 have the option to purchase additional county-level SCO crop insurance coverage up to a maximum of 86 percent coverage. The SCO coverage fills the gap up to the 86% coverage level from the coverage level chosen by the producer (75%, 80%, 85%, etc.) for Yield Protection (YP) or Revenue Protection (RP) insurance coverage. For example, a producer that purchases an 80% RP policy could purchase an additional 6% SCO coverage. SCO calculations utilize the same base and harvest prices as traditional crop insurance policies; however, SCO utilizes county average yields rather than farm-level yields. The SCO premium costs are quite reasonable, as the premiums are 65 percent subsidized by the Federal government.
The “Enhanced Coverage Option” (ECO) is another insurance option to increase coverage levels.
ECO provides area-based insurance allowing producers to increase their coverage from 86 percent up to either 90 or 95 percent coverage. Similar to SCO insurance, ECO utilizes county-level yields and typical crop insurance prices; however, unlike SCO coverage, ECO is available with either the PLC or ARC-CO farm program choice. Producers can utilize both ECO and SCO together, in addition to their underlying RP or YP insurance policy. For example, a producer could have an 80 percent RP policy, carry SCO coverage from 80 to 86%, and carry ECO coverage from 86% to either 90 or 95 percent. It is possible for a producer to collect on an individual RP policy, but not collect on a SCO or ECO policy, or vice versa. Interested producers should check with their crop insurance agent for details on SCO and ECO coverage.
Evaluate other “buy-up” crop insurance options.
In addition to the government subsidized SCO and ECO county-based insurance products that allow insurance coverage up to 95 percent coverage, there are also “buy-up” private policies using farm-level yields up to 90 or 95 percent coverage. Private companies also offer separate wind and hail insurance endorsements. Of course, any of the “buy-up” or “add-on” insurance options add to the total premium cost. Producers need to ask: “What mix of crop insurance products provides me with the desired risk protection for my 2023 crop investment at a premium amount that I am willing to spend?”
For additional information contact Kent Thiesse, farm management analyst and senior vice president, MinnStar Bank, Lake Crystal, Minn., at 507-381-7960 firstname.lastname@example.org.