Crop Insurance Market Updates

August, 2021

Higher prices for the crops you grow present many opportunities; however, they may create challenges as well. In many cases, those challenges are unique to higher price environments.

For example, operating costs often tend to rise in tandem with crop prices. This year is no exception. Prices for fuel, land, crop inputs, etc. have risen, threatening margins. Your Crop Risk Services specialist will often speak to managing farm margins as a cornerstone of executing a marketing plan.

Focusing on margins reduces the effect of emotion when considering crop sales. Fear of missing out on higher prices and worries about producing enough grain to fill commitments can get in the way of selling at profitable prices. These are valid concerns. But at the end of the day, net value is the driver of return to the farm, not the top line.

Margin Protection (MP) crop insurance helps protect against decreasing margins. MP is a federally offered, subsidized product that uses area/county-based guarantees and triggers. It also can be used in combination with your usual Revenue Protection or Yield Protection insurance.

MP sets a base margin that is established through 1) the price of the commodity, minus 2) the cost of inputs during the discovery period for each commodity and input. Some corn inputs that are considered variable include diesel, DAP, potash, and interest. The Risk Management Agency also uses a calculation for seed, machinery, and other operating costs as part of the equation. A payment is triggered when net margin falls below the coverage level on a county basis.

It is key to understand that this product is not intended to back up sales of your crop, but it can add a layer of protection on the net return. So, if you want to start selling the 2022 crop because the price is attractive but have not been able to lock in your inputs, this may give you a little more coverage if input costs rise more (on average), causing net margin to decrease. In other words, the sale looked great at the time, but input prices caught up to you later and squeezed your expected profit.

The insurance products you choose to use on your farm should be unique to your situation. Very rarely is there a one-size-fits-all situation. Revenue Protection insurance is your single biggest controllable option to defend against poor production outcomes and protect much of your ability to execute a sales plan with more security.

Each year is potentially different in how to approach your risk management strategy. Consider talking to your trusted Crop Risk Services appointed agent to find out if a Margin Protection insurance product may be right for you. The policy application deadline of September 30 is coming quickly.

One other way to protect your margin is to consider the ADM Farm Direct Fertilizer program. This allows you, in many cases, to buy dry fertilizer up to 12 months ahead of time, without taking delivery until you need it. Reach out to your local ADM Fertilizer representative or your Crop Risk Specialist for details.