Many producers could benefit by expending more effort to properly analyze and understand their crop insurance coverage.
Saskatchewan has just an-nounced its program details for 2016, and overall it’s good news because of higher insured crop prices.
The big wild card in coverage levels is that these prices are forecasts from the Market Analysis Group of Agriculture Canada.
The insured price for canola of $11.23 a bushel is a surprise, which is well above the current market. In 2015, the insured price was only $9.30. For a producer with an insured yield of 32 bushels an acre, coverage is going from $298 to $359 an acre.
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It’s a common mistake to assume that the $359 an acre is the lowest possible outcome. Of course, that isn’t the case.
For example, let’s take a 32- bushel per acre crop and a market price that ends up being only $9 per bu. Growing a crop right at the yield guarantee will result in a return of $288. A producer with a crop failure would actually end up with a much better return.
The program is actually a bit perverse when insured prices are higher than market prices.
The insured prices for lentils have seen big increases, particularly on large green lentils that were 27 cents a pound last year and are now 41 cents. On an insurable yield of 1,200 lb. an acre, coverage has gone from $324 to $492 an acre.
Red lentils have an insured price of 35 cents a lb. but typically have higher yield guarantees.
The insured prices on lentils may be warranted, given the contract prices that were available. However, the same caution applies. Crop insurance is production insurance. It’s not a price guarantee. Producers need to take other steps to protect prices and thereby revenue.
Each of the prairie crop insurance programs has different features. In Saskatchewan, producers can use either a Variable Price Option or an In-Season Price Option.
Rather than act as an estimate of market prices that are available now, the Variable Price Option sets a final crop price in July. The In-Season Price Option sets final prices in February of the following year.
Prices can go up or down a maximum of 50 percent compared to the crop insurance base price. The premium is adjusted accordingly.
If you think a crop has a great deal of upside price potential, it might make sense to use one of these options. Looking at market conditions this year, there would seem to be more downside than upside on most crops, making these pricing options unattractive.
There is also a contract price option available for flax, lentils, alfalfa seed, canary seed, mustards, identity preserved canola and field peas.
If you have a contract for a higher price than the insured price, the contract can be used to raise your price guarantee.
Field peas is one crop where this would appear viable this year. The crop insurance price is only $7.54 a bu., while yellow peas have been contracted for $10 a bushel.
A copy of the contract must be provided to Saskatchewan Crop Insurance by May 31. The contracted volume per acre and the price are then factored into the coverage.
Some producers don’t believe in crop insurance. Instead, they think they are better off in the long run to self-insure. Some producers will go with Global Ag Risk Solutions and reduce their crop insurance coverage.
Whatever your strategy, it’s important to understand the options and tailor coverage to your needs.
