class="post-template-default single single-post postid-343295 single-format-standard custom-background group-blog header-image full-width singular wpb-js-composer js-comp-ver-5.5.2 vc_responsive"

Rules, Risks of Adjusting Crop Insurance Yields for Soybean Damage

Rules, Risks of Adjusting Crop Insurance Yields for Soybean Damage
RRN photo

Kyle Krier is racing the fall weather. After receiving more than 10 inches of rain on his central Kansas farm in October, he finally started cutting soybeans last Friday. More rain is in the forecast for Wednesday.

“Some way, somehow, an absolute miracle was performed, and we didn’t end up having a whole bunch of shattering going on,” he told DTN, adding that not all farmers in his area are as lucky.

Shattered, sprouted and discolored soybeans are a common sight in parts of Kansas, Iowa and the Mississippi Delta that have been pelted with persistent, heavy rains this harvest season. Damage levels have become so widespread, USDA’s Risk Management Agency issued a new fact sheet aimed at helping producers understand the process of filing for quality adjustment claims for soybean damage under the federal crop insurance program.

While quality adjustments could help some farmers receive indemnity payments, it’s far from a sure thing. Yields in many parts of the country are expected to notch new records, and even adjusted levels may not fall below a producer’s crop insurance guarantee.

And in the Mississippi Delta, the high levels of damage are so widespread it’s creating a situation long-time crop insurance agents have never seen before: Farmers are being forced into selling into salvage markets without meeting RMA’s reduction in value criteria.

“It’s gut-wrenching when you have to tell somebody that’s hanging on by a thread and a prayer, that well, we’re going to count 80% of that load as production, and you’re going to have to haul it out of your marketing area, and I know you’re going to get $4 a bushel for it, but that’s just how RMA wrote the program,” said Bill Kirksey, owner of crop insurance firm The Kirksey Agency Inc. and a 38-year veteran of the crop insurance business.

Farmers have to alert their crop insurance agents within 72 hours of discovering the damage, and agents can start adjusting yields once damage hits 8% or greater, according to RMA’s factsheet.

You can find it here:

https://cb4q22fdswq370gsj3m681um-wpengine.netdna-ssl.com/…

Soybeans that qualify for an adjustment could be assigned a zero market value, but only after the farmer does due diligence to find a home for the damaged soybeans.

Krier, who sells crop insurance in addition to farming, said elevators in his area are on high alert for damage this year. But sometimes the samples elevators collect vary, and some will accept the damaged load without as much of a dockage. If no grain elevators will take the damaged load, then it’s time to look at livestock buyers — in his area it’s hog producers — and other salvage buyers.

Kirksey and one of his crop insurance agents, Jay Calhoun, say that’s where their Louisiana-based agency is seeing trouble.

Historically, elevators feeding the Mississippi River export channel would buy heavily damaged beans and blend them off to meet export specifications, but pay less for them. But with this year’s large supplies, widespread damage and reduced exports out of the Gulf of Mexico due to the trade standoff with China, many elevators have set strict limits on the amount of damage they’ll purchase.

For more background, please read “Soybean Discounts Skyrocket as Demand Slows the Flow of Beans Down the Mississippi River” here:

https://www.dtnpf.com/…

Calhoun said he recently got a call from a farmer with 22% damage on his soybeans. The only place that would buy those beans was over 100 miles away. It’d cost the farmer $1.80 per bushel in shipping, and the buyer would pay a steeply discounted price — between $2 and $4 per bushel.

Under crop insurance rules, the farmer has to sell beans to any buyer in their marketing area as long as the damage level is under 35%, Calhoun explained. Soybeans with 35% damage or more qualify for a reduction in value, which allows crop insurance adjusters to factor the cost of shipping into viability of selling into a salvage market. They can then make a determination of whether or not it’s worth it to the farmer to sell it or whether the crop insurance policy should pay an indemnity based on the farm’s guarantee.

For anything with less than 35% damage, crop insurance adjusts yields based on a formula established by RMA.

In this farmer’s case with 22% damage, the yield could be reduced by 15.6%. However, Calhoun said yields across his territory have been exceptional this year, with some farmers harvesting up to 60 bushels per acre. USDA is calling for the state to average 50 bpa, the third highest in history. Yet the average crop insurance guarantee ranges between 25 and 35 bushels per acre.

In addition, most farmers in the South buy crop insurance with enterprise units, which combines all acres of a particular crop in one county into a single unit. Optional units, which carry a far more expensive premium, provide insurance farm by farm or by practice within a farm.

After six weeks of rain, Calhoun said, any beans still left in the field are probably over the 35% damage threshold. But if a farmer has already harvested half of his soybeans at an average of 60 bpa, he’s probably already exceeded his crop insurance guarantee for the entire enterprise unit.

“They can’t sell them (for a reasonable price). They’ve cut more than the guarantee. They’re just stuck between a rock and a hard place with no room to turn around,” he said.

Kirksey and Calhoun say they would like to see Congress update the rules around selling to a salvage market. If a farmer is forced to sell in to a salvage market, they think the reduction in value factor should come into play immediately. The reduction in value factor takes into consideration the cost of trucking as well as the reduced price offered by a salvage buyer.

“If they have to take it to a salvage market, then there’s an issue there,” Calhoun said. “They’re being penalized. We could come in and help. We’re not trying to make them whole, we’re only trying to make up their guarantees. But when it’s under 35% damage, the cost-adjusting procedure requires the producer to sell outside of his normal marketing area without any consideration of the cost of trucking or the salvage price.”

If no salvage market is available, Kirksey said, farmers need at least two and ideally three rejection letters from elevators in order to qualify for a zero market value determination.

If farmers do opt for an adjusted yield under crop insurance, University of Tennessee crop marketing specialist Aaron Smith said, there are a few additional nuances to consider.

If you do a quality adjustment this year, that’s going to end up rolling into your actual production history (APH) because it’s unlikely the discount will be so severe you’ll be able to exclude it.

“If you’re going from, say, 50 bpa to 46, maybe that’s not a big hit to your APH, so you might want to end up doing it, but you are going to have to work through those numbers because it’s going to be very circumstance-specific for each individual farm,” Smith said.

You can find a paper Smith wrote detailing some of these concerns here:

http://news.utcrops.com/…

Lower yields from crop insurance could lead to another issue. Many farmers use crop insurance records to certify their yields with the Farm Service Agency, which is administering the Trump administration’s one-time Market Facilitation Program payments. For soybeans, those payments amount to 82.5 cents per bushel of harvested production.

For more on how USDA calculates payments on its Market Facilitation Program, check out “USDA Details Trade Aid Metrics” at:

https://www.dtnpf.com/…

“You can end up running into a set of circumstances where you’d get less money out of the MFP payment than what you should be getting,” Smith said, so he recommends bringing additional documentation showing the quality adjustments to your crop insurance yield or using alternative documentation to show your harvested data to maximize your payments.

“You really need to be very regimented in how you document individual fields or individual units, depending on how you end up setting up your crop insurance purchases,” he said, adding that farmers’ primary thoughts need to be on how to get the most money they can from the current cash market. “Crop insurance and the MFP payment, that is all supplemental to what your cash receipts are going to be for your crops.”

© 2018 Nebraska Rural Radio Association. All rights reserved. Republishing, rebroadcasting, rewriting, redistributing prohibited. Copyright Information
Share:
Comments