Surging commodity prices have pushed crop insurance guarantees to record or near-record highs for farmers in the Midwest and Plains states this spring, which will help them protect their revenue against the soaring input costs.

Growers in some southern states are getting lower guarantees solely because of the earlier period that USDA uses to determine the prices.

The higher insurance guarantees also come with a cost: The higher commodity prices mean that farmers also will pay commensurately larger premiums since premiums vary according to the insurance prices.

Every January and February for spring-planted crops USDA’s Risk Management Agency tracks market prices for each commodity and then determines the price that will be used to calculate the crop's value. The same price also is used to calculate the federally subsidized insurance premiums. For crops grown in the Midwest and Plains, RMA's "price discovery" period is typically Feb. 1-28, a month that saw a sharp run-up in prices for several commodities. 

The insurance price released Tuesday for corn grown in Midwest and Plains states will be $5.90 a bushel this year, up from $4.58 a year ago and $3.88 in 2020. This year’s spring price is the highest since 2011 when the insurance guarantee hit $6.01 a bushel. Farmers in southern states will see a somewhat lower insurance price, $5.75, because RMA's price discovery period was earlier, Jan. 15-Feb. 14. 

The insurance price for Midwest-grown soybeans is $14.33 a bushel, well above the high of $13.49 in 2011. The soybean price was $11.87 just a year ago and $9.17 for 2020. 

The high insurance prices assure farmers that they will “get a good crop grown this year or they're going to get a good payment from crop insurance if the crop fails,” said Chad Hart, an extension economist with Iowa State University.

Growers also may be less likely to cut back on fertilizer applications, knowing that their insurance guarantee is high enough to cover the cost, said Hart.

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“A lot of folks have been thinking about cutting back on nitrogen because of the high price,” he said.

South Dakota Farm Bureau President Scott VanderWal told Agri-Pulse his corn revenue coverage will be up 35% this year, both because of the higher insurance price and recent increases in his yields. His premium will be 29% to 30% higher, he said.

Crop insurance "is an incredibly important part of the farm bill, as it allows producers to buy various types of insurance to cover crop costs in case of a crop failure.  While it is subsidized to make it affordable, producers do have personal responsibility in that we do pay a premium for that coverage," he said. 

The insurance price also is used by lenders to determine how much credit to extend to farmer borrowers, said Shelby Myers, an economist for the American Farm Bureau Federation.

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“It helps (bankers) assess the risk associated with a particular farm,” said Myers. Banks typically lend up to 70% to 80% of the insurance guarantee.

Other commodities are seeing similar spikes, reflecting the strong markets that a broad array of commodities are benefiting from this year.

The insurance price for spring wheat will be $9.19, up from $6.53 a year ago and $5.56 in 2020.

The price for grain sorghum in the Midwest and Plains states reached $5.88 a bushel, up from $4.40 last year.

The price guarantee for spring-planted canola has topped 30 cents per pound, nearly double the 2020 price of just over 16.4 cents.

Cotton prices are calculated at several different times, depending on how early in the year the crop is planted in a region. But with the exception of some growers whose insurance price is determined in late December and early January, the insurance prices for cotton will be $1.02 or $1.03 a pound, about 20 cents higher than last year. In south Texas, growers will have a lower guarantee of 93 cents a pound because of how early the price was determined. 

USDA recalculates the price in the fall for producers who buy the “harvest price option” on their policies that will pay off in case market prices are higher at harvest time than they were in the spring.

HPO turned out to be a substantial benefit to many growers who bought it in 2021 because of the price improvement that has continued into recent months.

The 2021 harvest price for corn was $5.37, some 79 cents over the original insurance price. For soybeans, the price rose 43 cents. For wheat, it was up $1.31.

Jimmy Dodson, who grows cotton in south Texas near Corpus Christi, purchased HPO this year and stands to benefit from it if cotton prices remain above the lower, 93-cent insurance price in that region. "Farmers here won’t benefit from the recent upward price volatility for any of our crops unless prices are high at harvest and they’ve purchased the harvest price option," he told Agri-Pulse

"We have the HPO in place, so we will be watching the weather closely and the unusual price activity as well. High prices are most welcome if we have crops to sell," he said. 

AFBF's Myers says that the relative crop insurance prices for corn versus soybeans have sometimes influenced farmers’ planting decisions. This year, she said, farmers are weighing the impact of input costs on potential crop revenue. Nitrogen fertilizer, for example, is a major cost consideration for growing corn.

“The majority of the growers right now … are running financial analyses to understand what their return on investment would be for planting corn versus planting soybeans because of that input price situation,” she said.

“And so a lot of it comes down to, ‘Am I going to get a higher return for soybeans, given the price that it is now, compared to corn with the … input prices that I have to pay?’”

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