Incorrect harvesting of drought-stricken crops can impact farmers’ crop insurance claims, caution Badgerland Financial crop insurance specialists. UW experts also have advice on crop insurance and forward contracts.
“There are a lot of misconceptions out there right now, and the wrong process can affect your crop insurance claims,” says Michelle Austin, Director of Insurance for Badgerland Financial (www.badgerlandfinancial.com). “It’s important to follow the correct procedure and to let your crop insurance specialist know before you take any action on your crops.”
If you currently have crop insurance, you must have an adjuster appraise your crops if you plan to:
• Use your crop for silage, high moisture corn or anything other than harvesting it for dry grain.
• Sell corn acres to someone else to make silage, snaplage or high moisture corn.
• Destroy the crop and plant something else.
• Chop your crop.
“There’s no date when it’s too early to destroy or harvest your crop. However, an adjuster must give you approval to destroy it,” says Austin. “Before you chop, you need to leave check strips that are approved by an adjuster so that a yield can be established at normal harvest time.” Adjusters are hired by the insurance companies, and demand on their time can be quite heavy at times – especially this year.
Paul Mitchell, UW-Madison economist, echoes Austin in recommending that insured farmers should communicate with their crop insurance agent as soon as possible. “Agents will likely start an official notice of loss, which means that eventually an adjustor will come to the farm, but at this time, most growers will likely receive instructions by telephone on how to proceed,” says Mitchell, reiterating that farmers must “work closely” with their agents “to ensure that coverage is not lost due to a technical issue.” They’ll likely be required to leave a sample of the crop in the field of a specific size for the loss adjustor to inspect later.
Mitchell, too, reminds growers they can’t graze an insured crop or chop it for forage or silage without first receiving permission, or they’ll forfeit indemnities. The same applies to terminating the insured crop and planting a new forage crop – permission is needed and expect to leave representative samples. Note that you do not have to use the forage yourself, but can sell it, Mitchell adds.
Aflatoxin can be a problem for drought-stressed grain. Aflatoxin and other grain quality problems are insurable causes of loss, so growers can receive indemnities for problems. If you suspect aflatoxin, mycotoxin or other grain quality problems, contact your crop insurance agent before you harvest the grain, place it in storage or deliver it for sale. Loss adjusters will need representative samples from the standing crop to determine indemnities.
“Farmers who insured their corn for silage can receive an indemnity not only if their silage yield is low, but also if their silage is grain deficient. If you believe your silage is grain deficient, contact your crop insurance before you harvest, as a loss adjuster will likely need a representative sample from the standing crop to determine indemnities,” Mitchell repeats.
Mitchell, along with Brenda Boetel, ag economist at UW-River Falls, also has a word of advice about forward contracts and crop insurance. Many Wisconsin farmers have forward contracts with a local elevator or ethanol plant or have sold futures contracts on the Chicago Mercantile Exchange. Many are concerned they may not have the grain to meet those contracts. Farmers who think they’ll have shortfalls and will not be able to meet delivery requirements for forward contracts may want to communicate now to see how they will be asked to meet requirements. Will they have to buy grain on the open market, pay transportation and make delivery themselves or is there some other way to proceed? This information can help farmers make better plans for the future.
In the meantime, some farmers may want to make marketing adjustments in response to current high prices, say Mitchell and Boetel. A key issue is to know the specifics of your policy: Do you have Revenue Protection, Revenue Protection with the Harvest Price Exclusion or Yield Protection? In particular, be sure to know if you have Revenue Protection or Revenue Protection with the Harvest Price Exclusion, as these will likely have different price guarantees this fall.
Revenue Protection (RP) is the most popular policy for corn and soybeans in Wisconsin. The guaranteed revenue increases with the market price. The RP revenue guarantee for corn was calculated using a price of $5.68 this spring, but the final guarantee will be calculated using the average during November of the December corn futures contract on the Chicago Mercantile Exchange (CME). For soybeans, guarantees were determined using a price of $12.55 in spring, but the final guarantee will be determined using the October average of the November soybean contract on the CME. The main point is that, with RP, a farmer will either have the grain at harvest time (if yield losses are not too large) or the money to buy grain at harvest time prices (if yield losses trigger insurance indemnities) to fulfill contracts with delivery requirements at harvest. Insured farmers who have contacts with later delivery dates and have yield losses can use RP indemnities to buy grain in December and store it until delivery.
Farmers with RP can use indemnities paid in December, calculated at existing market prices, to buy grain and store it for their livestock needs, they note.
Yield Protection (YP) is another popular policy in Wisconsin. YP only pays indemnities if harvested yield is less than the chosen yield guarantee, regardless of the price at harvest. For farmers with YP, corn yield losses will be paid using a price of $5.68 and soybean losses a price of $12.55, no matter what the price is at harvest. If current market prices continue, farmers with YP who have forward contracts and expect a yield shortfall will likely have to buy grain at higher prices than will be paid by their insurance. These economists suggest they may want to buy futures contracts to offset their price risk, if they think the price at harvest will be higher. This price risk is the same each year for farmers with forward contracts who buy YP; every year, they bear the risk of having yield losses and having to buy grain at market prices higher than will be paid by their insurance. Farmers concerned about this risk should either buy RP in the spring instead of YP or use existing futures markets to offset their price risk, advise Mitchell and Boetel.
Revenue Protection with the Harvest Price Exclusion (RP-HPE) is not a common crop insurance policy in Wisconsin. RP-HPE is the same as RP, except that the revenue guarantee doesn’t increase with the harvest price in the fall. Thus, RP-HPE only protects from price decreases, not price increases. Much like YP, if current market prices continue, farmers who have forward contracts and expect a yield shortfall will likely have to buy grain at higher prices than they will be paid by their RP-HPE policy. They may want to buy futures contracts to offset price risk, if they think they’ll have a yield shortage for delivery contracts and they think the price at harvest will be higher.
Iowa State University economist Bill Edwards reminds growers that any indemnity payments will be settled based on actual harvested production over the entire insurance unit. Fields declared a complete loss will be combined with any harvested acres in the same insurance unit to calculate the final yield. Yield losses are equal to the farm’s historical yield times the level of guarantee purchased, minus the actual yield.