If the U.S. Department of Agriculture’s Prospective Plantings report holds true, producers are on track to plant 92 million acres of corn, over 87 million acres of soybeans and almost 50 million acres of wheat this year. But like most years, Mother Nature interferes and a portion of those acres never get planted.
Looking at historical data, the range of prevented plant possibilities looms large—from 1.2 million acres in 2012 to a record high of 19.6 million acres in 2019. Prevented plant has averaged 5.7 million acres per year from 2007 to 2022.
After massive snowstorms whipped across the Dakotas and Minnesota through much of the winter and spring, there is a high expectation that growers in that region may be severely delayed with planting. But Frayne Olson, crop economist and marketing specialist at North Dakota State University, says even though the snow often “looked horrendous” it didn’t contain as much water content as in previous years.
Plus, “we didn’t have a wet fall” and the extra moisture is “actually going to help” going into what otherwise might have been a very dry planting season.
“The verdict is still out, but my personal guess is that we will have some prevent plant but not as much as last year, when North Dakota had 2.4 million acres reported,” he said.
Producers with an insured crop who can’t get fields planted by approved planting dates may be eligible for prevented planting payments, which cover a portion of the pre-planting costs and may be a more profitable option than planting late. But what about the agribusinesses that planned to sell seed, fertilizer and other inputs to those producers? Or the custom planters and harvesters who no longer have fields to work?
“There has always been this gap for different types of agribusinesses that were at risk of losing revenue when their farmer customers weren’t buying their product or service because they couldn’t plant a crop,” said Don Preusser, president of Vane. “Everyone from small ag retailers to large custom crop care and harvesting operators can be negatively impacted.”
To address that gap, Preusser launched Vane in 2020 and started selling basis risk policies that are tailored to specific customers using precision data and other sources of information. The firm is not an approved insurance provider under the Federal Crop Insurance Corporation but a business providing excess and surplus lines coverage. Excess and surplus lines is a specialty market that insures high or complex risks that many traditional insurance providers won’t cover.
Some of the largest insurance companies that do provide E&S insurance, like Nationwide and Zurich, don’t specialize in that type of product for agriculture.
For now, Vane’s focus is on helping agribusinesses that carry balance sheet risk when there is a need for prevented planting or replanting and custom harvesters who have lost acreage due to weather disruptions. The primary crops are corn and soybeans, but the custom harvesting solution covers almost any type of row crop. Vane also provides other insurance coverage for contracted grain, excessive equipment usage, grain quality and specialty crop coverage.
Preusser previously served as president of John Deere Insurance Company and has 30 years of insurance and legal experience, which led him to identify these gaps, devise solutions and personally launch Vane. But building a different type of risk management company that’s outside the traditional realm of federal crop insurance has been challenging.
He said the most capital and time-consuming part of the process was building the tech platform that would allow him to utilize federal government data about every single crop insurance claim over the last 30 years, a variety of Farm Service Agency data and other industry information. Now that precision data, combined with satellite imagery and other insights, can be used to underwrite, rate and customize coverage.
“There’s a tremendous opportunity coming in this marketplace to leverage precision technology, satellite imagery, sensors and soon AI (artificial intelligence) to enable a new risk management ecosystem and drive more accurately priced and customized insurance solutions,” Preusser says.
Many of the advancements that will develop in agricultural risk management have already begun in personal and commercial insurance, he adds.
“Until digitized data in agriculture is more widely adopted and integrated, bridge solutions can now be used to simplify key crop insurance processes.”
Preusser says that, if you are familiar with Google maps, you can drop a pin where it’ll tell you the latitude and longitude of a specific field location.
“We use satellite imagery then to create the field boundary of where the customer dropped that pin,” Preusser explained. Then Vane does a complete evaluation to determine whether or not a crop was planted, emerged and whether there was damage from a peril that caused a loss to the insured crop.
Preusser says every situation is unique but believes these types of insurance options will gain in popularity because agribusinesses need to protect their balance sheets as much as their farmer customers. In addition, he says lenders will be incentivized to provide competitive rates on operating loans when agribusinesses have insurance coverage that protects revenues and reduces the risk of loan repayment.
For example, let’s say a custom harvester planned to harvest 100,000 acres this year and purchased a 10% deductible revenue protection plan. If the harvested acreage falls below the coverage threshold of 90,000 acres, the insurance policy would pay $30 per acre for each acre below the coverage level, according to a sample scenario provided to Agri-Pulse.
Vane will soon launch an online application where agribusinesses can enter their state, their county and the crop, in order to get an immediate assessment of their risk exposure to preventative or replant loss.
“They’ll get this very quick indication of whether they’re in a low, medium or high-risk category which can be turned into a quote for insurance coverage,” Preusser says.
For example, an agribusiness that might be selling inputs to corn, soybean and wheat farmers in four states can purchase preventative plant coverage for between 30 to 40 cents per acre, Preusser explained.
“While some large agribusiness operations may be seeking only catastrophic coverage, a year like 2019 can create deep revenue losses. Our coverage would protect millions of dollars’ worth of revenue exposure from your balance sheet. If you’re of a certain size, that could be important when seeking a cost-effective operating loan, knowing there is security there to protect you if that event occurs.”
Editor’s note: Sara Wyant is publisher of Agri-Pulse Communications, Inc., www.Agri-Pulse.
