By Kevin Hursh
It’s the time of year for key risk management decisions. No two farms are alike, so there’s no cookie-cutter approach that will work for everyone, but here are some considerations.
First of all, while crop insurance is a great program, it’s important to remember that it’s production insurance and not revenue insurance. The collapse in red lentil prices provides a prime example.
Let’s say your crop insurance 80 percent yield guarantee for red lentils is 1,200 pounds an acre. In 2017, the Saskatchewan Crop Insurance price was 27 cents a lb. providing coverage of $324 an acre. It was a mistake to look at that number as a guarantee.
If your 2017 yield was 1,400 lb. an acre, it was well above crop insurance. But if you still have those lentils in storage, they’re worth only 18 cents a lb., for revenue of only $252 an acre.
It’s perverse, but you’d have been money ahead with a complete crop failure and a crop insurance payout.
To protect the price side of the equation, it can be useful to forward contract, locking in a price on some of your expected production. To its credit, the Saskatchewan Crop Insurance program has a contract price option that this year has been expanded to include more crops.
An organic grower I talked with has specialty lentils contracted for well over 90 cents a lb. for the upcoming growing season. It’s a flat price contract. Whatever amount he can grow will be sold at the contracted price.
However, the crop insurance price for organic lentils in the “other lentils” category is only 57 cents a lb. By using the contract price option, the grower can increase his crop insurance price to the contract price. Now he will have the price side and the production side of the equation both covered.
In many instances, producers will have only a portion of their expected production under contract, but that price can still be blended with the crop insurance price to improve coverage.
In addition to the contract price option, Saskatchewan also has a diversification option that can be useful if you’re growing a crop that doesn’t have regular crop insurance coverage. This year, for the first time, intercropping will be insurable under the diversification option.
The average premium from all your other crops is applied to a crop (or intercrop) grown under the diversification option. And if you end up in a claim position, the average payout per acre from your other crops is applied.
A growing number of producers are assessing coverage and premium costs under Global Ag Risk Solutions. GARS is private insurance that covers seed, fertilizer and chemical costs plus a chosen margin. Every insurance quote is tailored to a farm’s past financial records.
Since there’s no government subsidy, the premium is typically higher than crop insurance, but this is revenue insurance and not just production insurance. It’s worth getting a quote so you can compare the two programs.
Since GARS covers whatever you spend on the three input costs, it can promote a more aggressive production mentality and the people with GARS cite that as one of its key benefits.