Crop insurance is not something that the average person would see as being a complicated business. After all, there aren’t a lot of variables that change year to year…or are there?
There are a fair number of factors that can change each and every year that can affect ones crop insurance policy and coverage level. Production history, added land, changes in irrigation practices, lease agreements, and input costs are all factors that can affect your policy. Above all of those, there is one major factor that is often overlooked, but the most important when reviewing a crop insurance policy, commodity price.
The price of the commodity being covered is probably the most important factor when it comes to analyzing a crop insurance policy. This price determines how much coverage you have on your crop for the year. Insuring $3.50 corn is much different than insuring $5.90 corn. When we take an average farm in south central Nebraska and calculate coverage for the upcoming year, the one thing we look at the most is, “How many DOLLARS of coverage per acre do we have?”. If the farm has an average APH of 250 and is on a 70% MPCI policy, that means they are covering 175 bushels per acre. On a year with $3.50 corn, that comes to $612.50 of coverage. However, on a year with $5.90 corn, that same policy would provide coverage of $1032.50 per acre. Why is this important? This is important because of the way an MPCI policy works.
A multi-peril crop insurance policy is a federally subsidized insurance policy, and in basic terms, it guarantees you a set dollar amount per acre for your crop. What this allows you to do is market grain before ever harvesting the grain, as most producers do. The important thing to consider is that if you know how much coverage your MPCI policy has, you can safely market grain up to your total insured DOLLAR amount. The amount of insurance is also used to cover the cost of farming those acres for one year, should a crop not be produced.
There are many more factors that tie into setting up the ideal crop insurance plan, but the best way to start is with the basics, a Multi-Peril crop insurance policy. Once you have established your base with an MPCI policy, we then begin to explore private products such as hail, wind, added price coverage, and so many more to really customize your crop insurance portfolio to fit your operation.