If USDA’s Prospective Plantings report holds true, producers are on track to plant 92 million acres of corn, more than 87 million acres of soybeans and almost 50 million acres of wheat this year. But Mother Nature often interferes, and a portion of those acres never get planted.
Looking at historical data, the range of prevent plant possibilities looms large: from 1.2 million acres in 2012 to a record high of 19.6 million acres in 2019. Prevent plant has averaged 5.7 million acres per year since 2007, the first time electronic data was available from USDA’s Farm Service Agency, including almost 6.4 million acres in 2022.
Producers with an insured crop who can’t get fields planted by approved planting dates may be eligible for prevented planting payments, which cover a portion of the pre-planting costs and may be a more profitable option than planting late. But what about the agribusinesses who planned to sell seed, fertilizer and other inputs to those producers? Or the custom planters and harvesters who no longer have fields to work?
“There has always been this gap for different types of agribusinesses that were at risk of losing revenue when their farmer customers weren't buying their product or service because they couldn't plant a crop,” said Don Preusser, president of Vane, an ag insurance company based in New Prague, Minnesota. “Everyone from small ag retailers to large custom crop care and harvesting operators can be negatively impacted.”
To address that gap, Preusser launched Vane in 2020 and started selling basis risk policies that are tailored to specific customers using precision data and other sources of information. The firm is not an approved insurance provider under the Federal Crop Insurance Corp., but instead offers excess and surplus lines coverage, an insurance industry term for a specialty market that insures high or complex risks that many traditional insurance providers won’t cover. Some of the largest insurance companies that do provide E&S insurance, like Nationwide and Zurich, don’t specialize in those types of product for agriculture.
For now, Vane's focus is on helping agribusinesses who carry balance sheet risk when there is a need for prevented planting or replanting and custom harvesters who have lost acreage due to weather disruptions. The primary crops are corn and soybeans, but the custom harvesting solution covers almost any type of row crop. Vane also provides other insurance coverage for contracted grain, excessive equipment usage, grain quality and specialty crop coverage.
Preusser previously served as president of John Deere Insurance Co. and has 30 years of insurance and legal experience, which led him to identify these gaps, devise solutions and personally launch Vane. But building a different type of risk management company that’s outside the traditional realm of federal crop insurance has been challenging.
He said the most capital and time-consuming part of the process was building the tech platform that would allow him to utilize federal government data about every single crop insurance claim over the last 30 years, a variety of FSA data and other industry information. That precision data, combined with satellite imagery and other insights, can be used to underwrite, rate and customize coverage.
“There's a tremendous opportunity coming in this marketplace to leverage precision technology, satellite imagery, sensors and soon (artificial intelligence) to enable a new risk management ecosystem and drive more accurately priced and customized insurance solutions,” Preusser says.
Many of the advancements that will develop in agricultural risk management have already begun in personal and commercial insurance, he adds.
“Until digitized data in agriculture is more widely adopted and integrated, bridge solutions can now be used to simplify key crop insurance processes.”
Preusser notes that online tools like Google Maps allow a user to tell the latitude and longitude of a specific field location.
“We use satellite imagery then to create the field boundary of where the customer dropped that pin,” Preusser said. Then, Vane does a complete evaluation to determine whether or not a crop was planted, emerged and whether there was damage from a peril that caused a loss to the insured crop.
Preusser says every situation is unique, but believes these types of insurance options will gain in popularity because agribusinesses need to protect their balance sheets as much as their farmer customers. In addition, he says lenders will be incentivized to provide competitive rates on operating loans when agribusinesses have insurance coverage that protects revenues and reduces the risk of loan repayment.
For example, for a custom harvester who expected to harvest 100,000 acres this year and purchased a 10% deductible revenue protection plan, if the harvested acreage falls below the coverage threshold of 90,000 acres, the insurance policy would pay $30 an acre for each acre below the coverage level, according to a sample scenario provided to Agri-Pulse.
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Vane will soon launch an online application where agribusinesses can enter their state, county and crop to get an immediate assessment of their risk exposure to preventive or replant loss.
“They'll get this very quick indication of whether they're in a low-, medium- or high-risk category, which can be turned into a quote for insurance coverage,” Preusser says.
For example, an agribusiness that might be selling inputs to corn, soybean and wheat farmers in four states can purchase prevent plant coverage for 30 cents to 40 cents per acre, Preusser said.
“While some large agribusiness operations may be seeking only catastrophic coverage, a year like 2019 can create deep revenue losses. Our coverage would protect millions of dollars' worth of revenue exposure from your balance sheet. If you're of a certain size, that could be important when seeking a cost-effective operating loan, knowing there is security there to protect you if that event occurs,” he said.
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