Basic crop insurance policies have their role. Most basic of all is the CAT policy, which would only kick in case of catastrophic losses. Assuming you realize you want more insurance than that, does a basic policy meet your needs? Or is either a CRC (crop revenue coverage) or RA (revenue assurance) crop insurance policy your best bet?
"With the volatility we have in both crop prices and input costs today, you're insuring dollars, not just bushels," says Jan Eliassen, a crop insurance consultant who works with several state risk management agencies. "It would same that what makes most sense right now is to lock in your best price possible to cover your rapidly increasing costs of production."
If you subscribe to the theory that insurance is to protect you against situations that would be hard to withstand on your own, his logic made sense. No matter how likely it is, the odds of corn returning to $2 per bushel sometime this year are more than zero. If that happened and you were without revenue protection, both you and your banker could be rather nervous.
Jim Rink, director of farm and crop insurance products for Farm Bureau Insurance in Indiana, says the choice between basic and higher-priced crop insurance products is up to you as the client. "It really depends upon what you need," he says. "There's nothing wrong with basic coverage. GRIP is very popular in some areas. What you're gambling on there is what the average yield in the county will be.
"The bottom line for us is that we never suggest buying a policy that you won't be comfortable with. If you're in great financial position and don't need high-level, revenue-guaranteed type coverage, there's nothing wrong with that."
Fluctuation big key
Jack Wagster, director of Top Land Risk Management Insurance, Seymour, like Eliassen, is concerned about the possibility for fluctuation in price this year. He wants to make sure his clients understand how various scenarios would play out based upon the type of coverage that they select.
"With crop prices moving up and down and being so volatile, I think it's more important to consider having price protection," he says. CRC and RA policies are the better choices if you're concerned about potential price changes, he notes.
These two are similar in many respects. Base price to be locked in per bushel for both for corn are determined based on February futures price. This becomes the guaranteed price. For '07, it was $4.06 per bushel, based upon what happened in February '07.
Then there's also a harvest price set, Wagster notes. The CRC harvest price is determined by the December corn futures price set in October. RA harvest price is based upon the December futures price set in November. This past year, corn price was lower in October, then rose significantly in November. So the CRC harvest price ended up being lower than the November RA harvest price, benefiting those with CRC vs. RA policies who were looking to pick up payments based upon difference between the guaranteed price set last February and the actual harvest price.
The irony is that for two of the three years previous to '07, just the opposite was true, Wagster notes. Over time, though, CRC tends to post the lower price in the fall, as it did in '07.