Crop insurance provides guarantees — but not for everything

MARISSA, Ill. — When farmers in southern and south-central Illinois see a check or an automatic deposit from SC Crop Insurance, it’s a good news/bad news situation.

“I always tell my customers, at meetings and individually, if you are getting a check from me, that means bad things happened,” said Eric Brammeier.

Brammeier is the owner of and an agent for SC Crop Insurance, as well as a farmer himself, so he understands, from both sides, what crop insurance can and cannot do.

With discussions around crop insurance ramping up as part of farm bill negotiations, Brammeier also sees information and misinformation around federal crop insurance.

“It’s farm bill time and I have seen the articles that the Environmental Working Group puts out. It basically said farmers received $19 billion in indemnities. That may be true. I think that’s close. But farmers paid a premium for that. It’s not free money. They paid a premium to have that coverage in place,” he said.

Brammeier was referring to a Sept. 7 statement from the EWG, a national activist organization that tracks farm programs and farm subsidy payments, along with environmental issues such as toxic chemicals and water pollution.

The news release announced the results of an EWG analysis into 2022 crop insurance indemnity payments.

“Indemnities, paid to farmers for reductions in crop yield or revenue, reached a record $19.13 billion in 2022,” the report said.

But there’s more to the story, Brammeier said.

“There is a deductible and you have to have suffered a loss greater than that deductible before you are getting a check. That means a loss occurred. If you have an 80% policy, what that really means is you’ve lost more than 20% of your revenue and then the crop insurance loss payments will start,” he said.

The federal government subsidizes on average of 60% of the crop insurance premium. The federal government also compensates crop insurance companies for selling and servicing those policies.

Brammeier provided an example of what crop insurance premium costs might be in his area.

“In southern Illinois, where soils are not as deep, i.e. as good, just lighter soils in general, the premiums are more expensive for a 200 bushel (Actual Production History), or average corn farm, than they are in Decatur or Springfield. Losses occur more often in southern Illinois, so the premium reflects that,” he said.

“In southern Illinois, a 75% corn policy on enterprise units might run $20 an acre in 2023. Without the premium subsidy, that number would be $38 to $40 an acre. A good rule of thumb is 48% to 50% subsidy for the most common policies purchased.

“Without the subsidy, many farmers would buy the minimum required for any USDA programs or disaster loans and many would forego crop insurance altogether.”

An enterprise unit is defined by the USDA Risk Management Agency as “all insurable acreage of the same insured crop in the county in which you have a share.”

While crop insurance can help when there’s a loss, it isn’t a solution to every challenge.

“Crop insurance does not guarantee a good marketing year. I don’t care what a guy sells his corn for because crop insurance and revenue policies don’t guarantee what you sell your corn for. They just guarantee that those bushels will be there, and if they are not, we will replace them for the market price,” Brammeier said.

“I am not insuring a farmer to be a good marketer. I am not doing that. If you raise 300 bushel an acre corn and sell it for $1 a bushel because you are the world’s worst marketer, that doesn’t mean I am paying you money because you fell short of your revenue guarantee.”

He said that while he understands periods of low crop prices, marketing skills are not included with crop insurance policies.

“I have customers who tell me, ‘Well, I can’t help that the price never got above $2.’ Well, I get that. However, if you got lucky and sold it on that day when corn was $8, are you going to pay me the overage? If you raise 300 bushel corn and sell it for $8, that’s $2,400 an acre,” he said.

“I guaranteed you $900, so are you going to write me a check back for $1,500? The answer is no. They are going to keep all their money. And I say that’s right, and so is the insurance company, if you are short.”

Brammeier also urges farmers to prioritize adequate crop insurance coverage and to make it part of their list of must-have inputs.

“As an agent, I would argue, I don’t care if it costs $40 instead of $20, they should pay the $40. Does spending $40 or $50 or $100 an acre on fertilizer guarantee you a certain percentage of your 10-year average? Absolutely not,” he said.

“However, if you spend that money on a crop insurance policy, subsidy or not, as long as you get it planted — and even if you don’t, because you have prevent plant coverage — as long as you get it planted, I will guarantee 75% or 80% of your 10-year average and it doesn’t have to rain a drop.

“I would argue that the ranking of importance for input dollars, crop insurance, along with cash rent, should be No. 1. You should budget for crop insurance first because that is the only thing that guarantees you your desired level of revenue.”