Crop insurance is a great program and it doesn’t get the praise it deserves. However, it could be even better with relatively minor adjustments. Saskatchewan should take a look at what Alberta offers.
The federal and Saskatchewan governments can rightly claim credit for a number of program enhancements this year.
Yield trending has improved the coverage levels for hard red and hard white spring wheat, along with oats. As well, more Saskatchewan producers are eligible to insure soybeans, and the establishment benefits for canola and field peas have been increased.
However, the main improvement comes from higher grain prices rather than any government decision. The average coverage level is a record high $194 per acre, up from $174 last year and more than double the coverage offered in 2007.
In 2012, the insured price for canola was $11.11 a bushel. This year it will be $12.36. Hard red spring wheat was $5.14 a bu. last year and is now $6.80. Peas have gone from $6.93 to $7.43.
A few crops are going the other direction. Large green lentils are dropping from 22 cents a pound down to 20 cents. The biggest drop is on chickpeas with the large kabuli type falling from 38.5 cents a lb. to 29 cents.
Overall though, the price outlook was higher for most crops in December 2012 than in December 2011. That’s why overall crop insurance coverage has jumped.
To its credit, Saskatchewan Crop Insurance has a contract price option. If you lock in a favourable price on part of the crop you hope to grow, that contract price can be used to increase your insured price.
Conversely, the variable price option being offered has little attraction. A July price forecast is used with the variable price option, so you get to insure at a price closer to harvest time values. The problem comes from how premiums are handled.
At one time, the premium went up or down corresponding to whether the variable price ended up higher or lower. Now, producers choosing the variable price option pay a higher premium up front, but their coverage might go up or down depending on what happens with the price of the crop.
Who wants to pay a higher premium when you could end up with coverage dropping by as much as 50 percent?
Alberta has this figured out. It offers a variable price benefit on most crops at no additional cost. If the price in the fall is higher than the spring price, producers receive the higher coverage automatically. And Alberta uses an October price, making it more relevant than the July price used in Saskatchewan.
Alberta has also been offering a program that it funds jointly with producers without any federal support. Called the spring price endorsement, it is price insurance rather than production insurance. Enrolled producers get a payment If the October price is more than 10 percent lower than the spring price.
If a producer has a 40 bu. per acre average yield on barley and chooses 80 percent yield coverage, the crop insurance yield guarantee is 32 bu. an acre.
Let’s say the producer grows more than 40 bu. per acre, but the price of barley drops from $4.35 a bu. in the spring to $3.75 in the fall. The producer is paid the 60 cents difference on 32 bu. per acre.
Only in Alberta. Pity.