Mintert cautions on crop insurance ‘sticker shock’

When buying crop insurance this season, corn and soybean farmers are likely to face "sticker shock" at how much premiums will rise, according to Jim Mintert, director of Purdue University’s Center for Commercial Agriculture. In the 2020 season, net returns to land equaled or exceeded returns from cash rents for the first time since 2013, Mintert said. This changes the risk picture and raises premiums.

Mintert and the center’s vice director, Michael Langemeier, spoke in a March 1 webinar. Both are also professors at Purdue University. Mintert and Langemeier spoke the day after February prices became available. Farmers have about two weeks to make crop insurance decisions.

Both men strongly recommended farmers to buy coverage according to enterprise units. An “enterprise unit” according to the U.S. Department of Agriculture, is “an insurance unit structure that consists of all insurable acreage of the same insured crop in the county in which you have a share on the date coverage begins for the crop year.” Mintert said most corn and soybean farmers buy revenue protection coverage for EUs because the premiums are substantially lower for the amount of protection offered.

It’s possible to buy insurance products that cover farm acreage and county acreage separately, but there could be a potential issue there, said Langemeier, if there are yield or price divergences between the two. Mintert and Langemeier presented a number of scenarios to help get a sense of the different insurance products. All of their assumptions and scenarios are based on information from central Indiana.

This year, there is a new kid on the block, said Mintert: the “enhanced coverage option,” or ECO, designed to provide an extra 90 to 95% coverage level, extending down to the 86% provided by revenue protection plans. Mintert cautioned that ECOs are a “complicated product” that, in effect, have put options embedded within them.

The supplemental coverage option is available only for farmers who sign up for some kind of yield protection program, according to Langemeier.

Depending on yield and price scenarios, payments could be triggered by a supplemental coverage option, an ECO or both. However, “we don’t expect either one of these programs to generate Farm Program payments in 2021,” Mintert said.

The video is available at Purdue University’s Center for Commercial Agriculture.

David Murray can be reached at [email protected].