How to Weigh Your 2021 Crop Insurance Options

The main risks that Nebraska farmers face are price, hail, wind and drought. We are lucky here in that we have one of the best aquifers in the world under our feet to help us control the drought risk with irrigation. The primary tool we have available to mitigate the financial repercussions of the other risks is crop insurance. We are fortunate in that we have a crop insurance industry that is government supported.  Government support and farmer involvement makes these bottom-line protections possible.

This year, we end February with the highest spring price since 2013 and 2014. The spring price for corn is $4.58 and for soybeans is $11.87. Depending on your price structure, at these prices it is possible to lock in either a break-even price or with the right combination of insurance products to regain some of the losses of the past few years.

As we mentioned above, two of the biggest risks we face are wind and hail. Only a few years ago due to price wars, wind and hail rates were cheap enough that it was a no brainer to buy the most wind and hail insurance that you possibly could. In addition to covering risk, farmers were making money by buying coverage. Even last year, most insurance companies were paying out several times the amount in indemnities than they were collecting in premiums. A high percentage of these indemnities were paid on hail and windstorms that caused less than a 10% loss.

In response to these large financial losses, we have seen a continual increase in the cost of these policies over the past few years. In addition, the RMA and the Nebraska Department of Insurance have stepped up the regulation of these policies and the prices that insurance companies can charge. With the higher prices, farmers must carefully analyze which policy they buy to cover the risk.

Lately we have been looking at the ECO and SCO policies that RMA offers. In the past, when choosing between ARC and PLC, most farmers choose ARC. SCO insurance is unavailable with ARC. This year, many farmers are choosing PLC instead, which allows SCO insurance. The first thing to remember about both ECO and SCO is that they are area-based plans, which for irrigated farmers covers price only. The second thing is that they seem relatively expensive. However, when we look at how these policies would have paid over the past 20 years, the choice looks more appealing. If a farmer had purchased either ECO or SCO (especially SCO) over a 20-year period, they would have received much more in indemnities than they would have paid in premiums. ECO and SCO policies could be viewed as an investment which will give you a high percentage of return on investment over time.

As farmers, we understand the struggle that comes when trying to balance the cost of buying insurance and the penalty that comes from not having enough insurance to cover your risk. We have suffered that penalty when making the wrong choice, which is why we are committed to helping you understand your choices.

There are a wide variety of insurance products that can be combined in many ways. We will work with you to choose a policy that covers your risks at a cost you can afford. 

March 15th is only a few days away. Give us a call to set up an appointment to discuss your choices. Our office number is 402-843-5342. Check out our website to learn more about us and sign up for a consultation.

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