County Crop Insurance: Farm-to-Bank Translation

Posted on: November 21st, 2023 by

If you’re an Iowa corn farmer who carries crop insurance, chances are fair you’ll be submitting a claim for at least revenue losses for this year’s production under one or more policies.

Red combine in soybean field with blue sky and white puffy clouds.

Even if your crop came through the late-summer extreme drought that enveloped northeastern-eastern Iowa from late August through October with little to no yield or field loss, the average per-bushel corn cash price is the lowest it’s been since December 2020 — down by roughly $1.75 from a year ago, as of this writing. This is just a snapshot of sale conditions, not the metric on which insured crop price losses are based, of course, but it does show the trend.

According to an October 25 DTN analysis, spring projected prices of $5.91 for corn and $13.76 for soybeans are higher than fall price calculations, which means they will be used to compute revenue guarantees this season. At that time, harvest price calculations averaged $4.91 for corn and $12.84 for soybeans. DTN Lead Analyst Todd Hultman noted there will likely be more corn claims because the bean prices “just held up better.”

If you purchased what I call “traditional crop insurance”—a yield protection, revenue protection, or revenue protection with harvest price exclusion policy—you can likely identify that anticipated insurance payout on this year’s crop by about the middle of December, since you’ll know your harvest, yield, and insurance pricing mechanism. If you also bought Supplemental (SCO) or Enhanced (ECO) Coverage Options supplemental policies, that’s trickier.

New Insurance, New Considerations

A quick history: SCO and ECO are relatively new county-level policies that require a grower to buy an underlying traditional crop insurance policy, since they do not cover full loss amounts, only the difference between what the traditional insurance covers and a set “trigger” point. SCO has been around since the 2015 crop year, and ECO just since 2021. Acres enrolled in Agricultural Risk Coverage insurance are ineligible for SCO enrollment.

For SCO and ECO policies, Actual County Yields won’t be published until June 2024, so any insurance claim income off this year’s losses won’t be known for months. This makes it difficult for growers to do their end-of-year balance sheet, and to go to their bank to restructure paying back this year’s operating loan or applying for new loans.

Projected yields this year so far look to be fairly close to 2022 levels, but within individual counties they could be spotty. There are bands of the Midwest that received little to no rain during their core growing season, and this could mean losses, especially on ground with light soils. This is in addition to a massive 600-mile derecho windstorm that flattened corn in late June through Iowa, Illinois, Indiana, and other Midwest states. Fortunately, unlike crops in the path of the August 2020 derecho, the corn was still relatively short this time. Time will tell how yields have fared, but as of mid-October the U.S. Department of Agriculture reported the bulk of corn condition as “good” or “fair.”

Here at Ag & Business Legal Strategies, we assist many farmers with their end-of-year balance sheets and work with them in real time throughout the year. Part of what we do is act as the grower’s advocate with their bank, since they need to be able to talk effectively with their banker about continuing to extend a line of credit even if the farmer’s income numbers aren’t all solid as a result of delayed crop data for insurance.

We can put uncertain information—such as presumed insurance payout—into terms a non-farming community banker better understands, and educate them about why their risk on the farmer is actually less than they may think. After all, farmers want to pay back their loans and stay in good graces with their bank; and it’s in a bank’s best interest to continue to finance loans to growers who will come back regularly.

Our experts also advise growers on their options and help them better understand crop insurance products. Forty years ago, crop insurance was much simpler; now there are a multitude of products with differentiated pricing and payout formulas. Farmers need to take the time to ask “what if?” and fully understand policies and their advantages and limitations.

If you are working on your end-of-year balance sheet or struggling with a bank that does not adequately understand farm income and crop insurance proceeds, contact us for a consultation. We are happy to review your situation and help plan a strategy for approaching the bank with better estimates, as well as speaking with your loan officer in their fiscal language.

Don’t wait until the end of the year—reach out to ABLS now.

At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy.

Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow.

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