Another Wet One – How Crop Growers Can Help Northeast Tobacco Growers

2023 was another wet tobacco growing season in the Northeast. Since it can cost over $1,000 per acre to grow tobacco, it’s important for producers to have risk management plans in place. In fact, Connecticut has more than 3,000 acres of the highly valued crop insured. For 2023, Crop Growers, Farm Credit East’s crop insurance team, had over $11 million in cigar wrapper and cigar binder tobacco indemnities. Not all 2023 claims are closed at this time, so there is potential for more indemnities to be paid to producers who paid premiums for this coverage.

The purpose of crop insurance, like any other insurance, is not to bring profits but to make the producer whole again so they can continue to farm the following year. Crop insurance values the tobacco at a lower per pound price than if a producer was able to sell their crop to a buyer as intended (just like any other insured crop). For example, the cigar binder 2023 conventional established price was $10.50/pound, and the average market price was about $13.00/pound. The Multi-Peril Crop Insurance (MPCI) policy covers any natural peril up to 75% of the producer’s average production history (APH). If production falls below 75% of the producer’s APH, the policy will pay the established price per pound up to the 75% guarantee.

Tobacco insurance covers each farm number as its own policy. Every farm number has its own basic unit, and each basic unit is viewed individually with its own APH history. Meaning, if Farm 123 has a loss greater than 25% but Farm 456 does not, an indemnity will be paid only for the loss on Farm 123. This unit structure requires good recordkeeping and allows the producer to have the best coverage possible for their crop.

MPCI policy covers typical loss reasons for tobacco, however, with extreme weather becoming more commonplace in the Northeast region, the Hurricane Insurance Protection – Wind Index (HIP-WI) policy and the Tropical Storm (TS) endorsement are of growing interest to many producers to help manage these risks.

HIP-WI is put into action when a county, or adjacent county, is within the area of hurricane-force winds from a named hurricane. Wind damage is the only peril protected under HIP-WI.

The TS endorsement can be added to HIP-WI. If the TS endorsement is elected, the county loss trigger will be amended to include coverage for a tropical storm weather event. These weather events must have a sustained surface wind speed of 34 knots (39 mph) and at least six inches of total precipitation received over four consecutive days (one day preceding the arrival of the tropical storm, the day of the tropical storm, and two days following the arrival of the tropical storm).

The tobacco MPCI and HIP-WI policies are intended to get the operation through to the next year, but like any other MPCI, selling a good product is always more profitable. Two of the last three years have been tough growing seasons in the Northeast.

Contact Crop Insurance Agent, Peter Frizzell, at (860) 962-2053 or peter.frizzell@cropgrowers.com, before March 5 to go over risk management options for your tobacco operation.

Owned by Farm Credit East, Crop Growers has developed risk management plans for northeast farmers for more than 20 years. To learn more about the crops insured and various crop insurance policies available to help Northeast producers manage risk, click here.