Big changes in 2012 crop insurance options

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, February 1, 2012 -This year is expected to be one full of changes for agriculture with the deadline for rewriting or reauthorizing the Farm Bill arriving this fall, while factors including weather, price volatility, biofuels and population growth impact the industry. Michael Boehlje, Purdue University professor of agricultural economics, said these influences make crop insurance increasingly important as a safety net.

“More and more of the factors shaping agriculture are coming from outside the industry,” he said. “Crop insurance is becoming not so much about protecting your revenue as it is about protecting your marketing strategy.”

Farmers face several changes this year in crop insurance policies before the March 15 decision deadline. The newly approved Trend-Adjusted Actual Production History (APH) is designed to account for advances in crop genetics and other influences of agricultural technology to more accurately depict current yield potentials.

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Ruth Gerdes, Auburn Agency Crop LLC agent, spoke to a group of farmers and ranchers in Auburn, Nebraska this week to preview these changes. She described how she will help each farmer evaluate options for 2012 crop insurance through extensive use of new quoting software. She called the Trend-Adjusted APH a “game changer.”

In remarks to her Nebraska audience, Gerdes lauded the Illinois Corn Marketing Board for developing the plan, along with financial consulting company integrated Financial Analytics and Research (iFAR). She said the Illinois corn group played a significant role in securing “approval of this significant improvement in the crop insurance program.”

The Federal Crop Insurance Corporation (FCIC) Board approved the Trend-Adjusted APH for both corn and soybeans in most of the Midwest. Under the new method, a trend adjustment factor is estimated for corn and soybeans in each county approved.

This factor is equal to the estimated annual increase in yield and is applied to the yearly county average yields determined by the National Agricultural Statistics Service (NASS). The trend adjustment factor is then applied to each farmer's yield reported in the individual insurance unit's APH history, multiplied by the number of years that have passed since the yield was recorded.

Gerdes noted that the option is particularly beneficial for crop losses in the 2011 floods. In addition, it is also helpful to those farmers who rotate crops, and must use yields that are up to 20 years old, due to the four-year-building-to-ten requirements in the APH regulations.

“For all of you in the flood last year, this is the best thing crop insurance could have done for you,” she said.

In one example, several of a farm's units had zero production for 2011, but the trend-adjusted yield offered higher APH coverage than the standard APH did back in 2011, even with a zero in the database for 2011.

Growers must elect this new yield option by March 15, 2012. While the new option addresses farmers' concerns for a more accurate reflection of current yield potential, Gerdes noted that she would prefer to see it based on national historic yields instead of county historic yields.

“Regional weather influences are measured when you get down to a county basis,” she said. “Trend Adjustment should reflect improvements in technology, not weather in a region. This is a superb start, and with minor tweaking could be a great program enhancement for all insurable crops covered under the APH procedure.”

The Trend-Adjusted APH is approved as a three-year pilot, and will likely be elected by a majority of growers in the Midwest region. While the option is a significant change, it is not the only factor influencing farmers' insurance costs this season.

USDA's Risk Management Agency adjusted corn and soybean premiums, as well as made adjustments relating to enterprise units, one option for measuring a farm's acreage.

“On average, these new rates should reduce corn farmers' rates by 7% and the rates of soybean farmers by 9%,” said RMA Administrator William J. Murphy in the Agency's announcement. “We welcome the opportunity to match premium rates more accurately with current risks.”

Gerdes says she is able to use her agency's resources to depict these adjustments and compare each available insurance option for her farmers.

And Tom Gowdy, executive vice president of ARMTech Insurance Services, which makes the quoting software Gerdes uses, said that it's “important for farmers to be able to have the resource of an independent, private agent, who they know is looking out for their best interests.”

Due to insurers' inquiries, RMA made adjustments to the Trend-Adjusted APH method last month to ensure that a farmer with limited years of actual yields is not inappropriately limited by the Trend-Adjusted procedure. USDA issued the clarification last Friday, stating that an approved yield cannot be less than what that yield would have been without the Trend-Adjusted procedure.

For example, if an APH database has three transitional years of 100 bushels, one actual yield of 10 bushels and the trend adjustment factor is two, the approved APH yield would be 90 bushels rather than 12 bushels.



Original story printed in February 1, 2012 Agri-Pulse Newsletter.

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