Federal Crop Insurance Programs: A Good Deal for Northeast Producers

Volume 15, Issue 4
April 2021

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Federal Crop Insurance Programs: A Good Deal for Northeast Producers

Ask any farmer, anywhere, and they will tell you that farming entails a great deal of risk. There are a number of types of risk ranging from production and weather risks, market risks, legal risks, and more. Thankfully, the USDA’s Risk Management Agency (RMA) has established a number of insurance programs that can help American farmers manage production and weather risks, and even some market risks.

The RMA was created in 1996 to help America’s agricultural producers through market-based risk management tools. The development of RMA programs represented an attempt to move away from ad hoc disaster relief funding that Congress approved, and USDA delivered when severe weather events or conditions caused crop losses. The crop insurance model is an innovative public-private partnership between USDA, approved insurance providers, and independent crop insurance agents such as Crop Growers.

Unlike the former ad hoc disaster programs which failed to provide widespread and predictable coverage for all farmers, crop insurance:

• Is reliable and predictable
• Is available in all 50 states and Puerto Rico
• Requires farmers to share in the cost of protection
• Is available for an extensive range of crops and livestock
• Involves private insurers to help manage risk in an actuarily-sound manner

In the crop insurance partnership, agents like Crop Growers advise farmers and sell policies, private insurers such as Rain & Hail and RCIS collect premiums and pay indemnities, and RMA subsidizes crop insurance premiums to make policies affordable for farmers.

An analysis of indemnities paid over the past 10 years in Farm Credit East states shows the value of these programs for Northeast producers.

While the premiums and indemnities paid vary by state and from year to year, Table 1 clearly shows that all Farm Credit East states had a significantly positive balance of indemnities paid relative to producer-paid crop insurance premiums. Overall, across the region, indemnities exceeded producer-paid premiums by nearly half a billion dollars over the 10-year period.

Table 2 looks at the causes of crop insurance losses. Precipitation, whether too much or too little, is the top cause of loss, collectively representing more than half of all losses. Interestingly, too much moisture is the problem far more often than drought.

Freeze, frost and cold weather is another major cause of loss. Hail represents about 10% of losses, and finally, price declines in the market represent just over 6% of losses.

While major row crops such as corn and soybeans have some of the highest participation rates, crop insurance is available for more than 100 crops and livestock products. While the exact products that can be insured vary by county, here are some of the most important crop insurance programs for the Northeast.

Dairy Revenue Protection (DRP): The DRP policy provides protection against declines in quarterly revenue from milk sales.

Yield Protection (YP) and Actual Production History (APH): These policies insure producers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects and disease.

Revenue Protection (RP): This plan gives you all the coverage of Yield Protection (YP) and Actual Production History (APH), plus protection against loss of revenue caused by yield and/or market fluctuations. It allows you to “lock in” or guarantee a pre-determined price.

Crop Hail Coverage: Particularly important for fruit and vegetable growers, Crop Hail provides farmers protection against any yield or quality reduction caused by hail. This coverage gives you acre-by-acre protection that can be up to the full value of the crop.

Whole-Farm Revenue Program (WFRP): The WFRP can protect your farm’s overall revenue from losses. It uses a producer’s 5-year historical farm average revenue as reported on the IRS Schedule F and an annual farm report as a base to provide a level of guaranteed revenue for the insurance period. This program is particularly useful for diversified farms growing multiple crops.

Livestock Gross Margin – Dairy (LGM-Dairy): This policy provides protection against the loss of gross margin (market value of milk minus feed costs) on the milk produced from dairy cows. LGM-Dairy uses futures prices to determine the expected gross margin and the actual gross margin.

Pasture, Rangeland & Forage Insurance (PRF): The PRF insurance plan is designed as a risk management tool to insure against a decline in the Rainfall index for a geographic area.

For additional information on these policies and other coverage options, visit CropGrowers.com.

Editor: Chris Laughton 
Contributors: Chris Laughton, Jeremy Forrett and Tom Cosgrove

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Farm Credit East Disclaimer: The information provided in this communication/newsletter is not intended to be investment, tax, or legal advice and should not be relied upon by recipients for such purposes. Farm Credit East does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions, and data included in this report. In no event will Farm Credit East be liable for any decision made or actions taken by any person or persons relying on the information contained in this report.

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