Crop Insurance

[malleefarmer]

Could someone explain your crop insurance.Seems to me if you have any production problems you can claim some sort of insurance but presume premiums paid for this is huge.
Here in Aust we get fire and hail , we insure crop for yield and price and costs about 1.5% and is usually not used ive claimed 2 times in 21 years

In the case of total crop failure what happens you get average crop yeild with average price and get paid out less premium or who does it work?

[TOM4CWB]

Mallee,

On our farm, the premiums are between 8 and 5% for 70% of normal production - for a farm average of 24.5bu/ac ($195.65); if higher coverage (80%)requested... then add another 2% or $15.56/ac for $223 or 28.1bu/ac coverage.

Spot coverage on Hail for Canola costs about average of 6% for a field by field coverage, on top.

These are simple examples to try to help you see what can happen on some of our farms in Alberta.

As you can see... it doesn't take much insurance to pay premiums out of 10% of gross with a 30% dedutable.

[malleefarmer]

Is the premium the same for farmers in high yield areas as lower yielding areas? If it is are the higher yielding farmers sort of subsidizing those who claim more often?
And is there for want of a better word a no claim discount if you dont claim for say 7 years?
Often wonder why a similar scheme wouldnt work in aust.

[malleefarmer]

Also three nieghbours a,b and c
A has 60 bushel crops has best management techniques, b sows two weeks earlier and his crops get frosted and his yield only 35 and farmer c is a bit of a lagger his crops are late in and weedy and his only yield 35 as well but due to poorer farming practices.

I presume they all insure for say 60 does b and c get paid out or only b whilst a cant claim at all?

hope that makes sense and also do all farmers insure?

thanks in advance

[malleefarmer]

Crop insurance in Canada is not a blanket type thing, as the provinces all have different programs, and goals. Here in Saskachewan, we have perhaps the most unresponsive, and lowest coverge for the premium paid in Canada. Alberta and Manitoba have much richer programs than Sask. Here in my province, crop insurance is a bad couple of words, and many don't even bother with it. Crop ins. is based on a supposed average ten year yield, and so the three farmers would all have different coverage levels. You can't just pick a coverage level. Yes poor producers are subsidized by the good ones. If you don't for example grow barley every year, the years you don't grow it, you must use the "area average", which is pathetic. For exaple, I can grow 80 bushel barley without too much concern, as can most guys I know around here. But if I don't grow it every year, those years are entered as about 50. Where they get these numbers from is beyond me. 50 is a failure where I come from, and therefore I think crop ins. arbitrarily picks a number out of thin air to use, and to heck with the farmer. I don't know a soul who grows 50 bushel barley yet that is a supposed average. Same for other crops. There are many flaws in Sask crop insurance, but in these years of flooding preventing seeding, you cannot afford to not have it, regadless of the disdain you may have for it. This is just the tip of the iceberg of frustration. If you want more horror stories, just ask.

[jensend]

since crop insurance is a federal/provincial program premiums are subsidized by about two thirds. this has the effect of producers not realizing the amount of risk in their business. i often think if farmers were made to more realistically assess the amount of risk (price, production and market) in their business they would make more rational decisions.

[TOM4CWB]

Mallee,

Not all farmers insure. If there is no weather disaster for many years, then the premiums become less expensive here in Alberta. In 2002 we had a 1 in 150 year drought. Since that time our premiums have been increasing every year with no losses since 2002. The increases and decreases are capped at 10% per year... and they take back all the losses that were paid out in 2002 that the growers portion required.

Since the system does have government money included as stated above... it is a big help in those years like 2002. However other disaster payments do overlap and fill in a good portion of the loss... but certainly not all of it.

Hail insurance because it is spot loss... is better, while crop insurance averages the whole farm together for each grower... with a big deductable manditory.

In Alberta we are working on a spot loss weather insurance program that pays out for specific weather events... like a frost or extreme drought during critical growing periods. Will let you know when it gets up on the internet. It uses 50 years of weather data for historic data to establish premiums... and is reinsured by global insurance reinsurance folks. Very interesting development. Manitoba will likely be next to put this together after Alberta... and we have had global interest in the format and premium calculation systems. It is being developed with seed money frm the Federal gov... with provincial gov. data gathering info to base the system.

Like the old story goes... you don't get something for nothing... and deciding to buy insurance just before a problem always makes the decision in hind sight look wise!

Risk management is a financial risk itself... and cash flow is king... if you don't have it... when it is needed... it is difficult to be a good farmer!

Hind Sight is always 20 20!

[charliep]

malleefarmer

The below is the link to Alberta crop insurance/risk management programs.

http://www.afsc.ca/annualCrop.asp

Likely more than you want but a full description of one provinces approach.

Likely obvious from the posts but the programs are revenue replacement based. Area average yields times a market based price which is set prior to seeding. In Alberta, the area average yields are indexed for individual farmers based on their individual yields over time and claim experience. There is also a factor called cushioning which protects a farmers crop insurance yield from decreasing rapidly after a year or two of claims. Crop insurance premium cost remains the same but actual coverage can vary depending on the experience based yields used in farmers individual coverage. It also has the impact of preventing coverage yield indexes from increasing rapidly for younger/better managers. Lots of other rules - a combination of being government and an insurance program.

AFSC (our crop insurance group) is experimenting with revenue insurance through spring price endorsement and revenue insurance.

Always curious how Australia approaches issues.

[FarmRanger]

I’m in Alberta, the supposed “rich” crop insurance province. I’ve paid in long enough now that my premiums are low enough to almost justify buying it now. I can now buy CI hail rider at the 60% rate for slightly less than straight hail premiums. Even though my CI premium is subsidized and I’m supposedly only paying about 40% of the premium, our farm has still paid more into CI than it’s collected over the years. I can’t imagine using the program at all without the premium subsidy as it would become far cheaper to self insure.

For our farm, crop insurance provides a small amount of cheaper hail insurance. In addition to this, we get some poor coverage that won’t cover our costs of growing the crop we are insuring. I don’t understand how their yield indexing works, but cwbcostsme’s explanation of using extremely low yields in uninsured years may explain it?

Looking forward to the spot loss weather insurance that Tom mentioned.

[FarmRanger]

we dont have spot loss hail anymore. That was one reason to be in CI. I'm only in it for the too wet conditions right now. Otherwise, there is not much point.

[skhadenuf]

Just like to add a comment or two about the so called poor managing farmers. In our neck of the woods those kind were gone long ago and in fact so are a lot of good managers as well. Take for example this year a farmer seeded 40% of his acres prior to May 22, likely will miss the frost but he screwed up and ordered too much rain let's say 4.5 inches 23 of May and since then about 5 inches more and has lost on average 30% of his crop on those acres, and remaining acres because it was seeded into cold ground and too much rain and minus 8 after seeded crop is only fair. His remaining acres most seeded after 10th of June, beautiful crop coming, but let's say 70% chance frost will get it either grade or yield and now after recent rain may loose a few acres. Now before the fall arrives who here would like to tell me when this farmer was a good manager and when he was a poor one. When he seeded before the 23 May 4.5 inches or after? It drives me up the wall to hear fellow farmers knocking other farmers as poor managers. The biggest reason we have these crap programs is those farmers who keep insisting that the other guys must be poor managers, then governments throw that back in all of our faces saying see even farmers are concerned that we don't want to have a good program because that .01% of farmers not planning well might get a dollar or two too much therefore none of you will have a good program and none of you will get much of anything.
This is reality of Crop insurance in Saskatchewan. Most farmers good bad or ugly managers had in the last 5 years drought, hail, frost and now 2 and 3 years of flood loss. Therefore 4 years of basically 0 yield or very little. So because our insurance bases out of 10 years here is our coverage take the 4 years at 0 in the 10 years leaves 60%, premiums run about 10% so netis down to 50%, now we can only insure 80% max, so basically 80% x 50% leaves us insuring 40% of what a crop should be.
So for those so wise as to put down their fellow farmers, what is your secret to order rain when there is drought, heat when it's going to freeze, dry when it rains etc, etc. and finally survive when you loose that 60% of acres to August 15 frost and the early 40% of acres turn out mediocre and you crop insurance is gonna give you 40% of what you need to grow to survive.

[skhadenuf]

What if that farmer had nothing seeded until june 4, then decided to seed canola by plane, because he couldn't get on the land? Now say that canola is suffering because since june 4 it has rained twice a week. The canola is still barely visible, half the field there is none since it flooded, and half you might find a 3 leaf canola, yellow as i'll get out, and the size of a dime. As the farmer steps over the tiny plant to try and save it, his boots hit the ground and water spurts out everywhere. Disgusted, the farmer, who is now so friggin' depressed with 9 dollar canola looming, goes back to the house and lays on the couch again, cuz its raining again, and nothing can be done about it. Now bear in mind this is year two for said farmer. Is he a poor manager? His heart is breaking, his family life is tense, and there is no crop to look forward to selling. Worst of all, crop insurance sucks. He phones Ritchie Bros. and says forget it, while probably on the verge of the next several years being amazing years to be farming.

[TOM4CWB]

cwbcostsme$$$$,

This situation you refer to should be proof enough that we need a true program that fills in the gap a real disaster creates in our safety net programs.

I hope the Honourable Chuck Strahl can put together, with provincial co-operation, a compensation package for this type of disaster.

Please write Minster Strahl, and your provincial ag minister; and explain the real need for this.
Honourable Strahl has been trying to get provincial Ag ministers together to resolve and proceed with the Disaster Program Project! It looks like Alberta may be ready to move in this direction.

[skhadenuf]

cwbcostsme$$$

I really sincerely understand your situation, these MP's had better start doing less talking and get something done for situations just as you said.

[skhadenuf]

Shucks guys, thanks! I do not mean to complain and such, but here it is: I am one of those guys who is the future, I'm 31, three kids, and I love to farm, I just have those "had enough" days, and last night after looking at my crops; DANG it sucks! I embellished about calling Ritchie bros., but some days you know?