Feb. 25, 2010 - Albert Sulak, a Central Texas wheat farmer, never thought much of crop insurance, until he needed it. Fortunately, he had it.
"I bought insurance, but I never thought I needed it," he said. "The late freeze that hit us in April made me think again. Having insurance is probably what kept us in business."
According to Jason Johnson, an economist with Texas AgriLife Extension, there are plenty of insurance options for growers like Sulak. Johnson outlined some of the options available to producers, but suggested growers make their own decisions based on their biggest worries.
"What keeps you up at night?" he asked. "Is it price? Weather? Crop failure? Figure out what worries you the most and make your decisions based on that."
Johnson said that a 15-year study of crop insurance history shows that crop insurance pays off for the producer more times than not. Producers paid more in crop insurance than what they received from that insurance in four of the 15 years. They came out ahead the rest of the time.
"If that makes you wonder how insurance can pay out more than it takes in, the answer is simple -- federal subsidies," Johnson said. "Why would they set it up that way? Because it's easier to know in advance how much the government is going to spend on crop losses. It's better than making an emergency declaration every time a farmer goes three weeks without rain and then writing the checks."
There are different levels of coverage, Johnson said. The more insurance bought, the less the government subsidizes. Options include a policy based on a producer's Actual Production History (APH) which protects against production losses based on a portion of the farm's production history.
A group risk plan insures against a reduction of County Average Yields due to a number of insurable factors. The policy pays the producer when production falls below a trigger level based on average yields in a given county.
"You might get a payment whether you had a loss or not," Johnson said. "It's based on what happens in the county, rather than just on your farm. You could be one of the few farmers in an area who gets timely rains during a drought and produce a good crop and you will still get paid if the rest of the county's production falls below that trigger level. It works the other way too. You might have a terrible year but if the rest of the county produced above the county average you don't get paid."
Crop Revenue Coverage (CRC) insures against loss of production and a decrease in prices. Farmers still get paid the higher price if prices go up but if prices drop below a certain level, the farmer gets a payment.
"It gives you a right to higher prices if they occur but if the price goes down you get a payment," he said.
Grain sorghum farmers, primarily on the South Plains, can sign up for an Income Protection (IP) plan that insures against a loss in revenue. The IP plan has components of the other plans in it, Johnson said.
Though the choices can be confusing, Johnson said he advises farmers to concentrate on insuring against the possibilities they are most concernd with and to make a decision based on their own marketing abilities.
"If they're comfortable doing their own pre-harvest marketing, I tell them they might want to look at the APH program," he said. "If they don't have a lot of expertise in marketing, they might want to look at CRC because the CRC program does some of the marketing work for you. It sets a price flow for you."
Another factor to consider is what kind of insurance a lender might prefer.
"The lender isn't worried about county losses," Johnson said. "The lender is interested in that individual farm that he's going to make a loan for. The banker wants to know that you're going to get a payment even if the crop fails or prices drop."
Johnson said that having crop insurance is the same as buying any other kind of insurance, whether times are good or not.
"You buy house insurance and hope your house doesn't burn down," he said. "In 2007, we had a good year and there was really no need for crop insurance. But look what happened after that. Last year the insurance programs paid more than was paid in.
"Having the insurance is going to pay off more often than not."
