Should I get crop insurance? Will the costs be worth it for me and my business? Many farmers have these questions at first, especially if they’re starting new businesses or just beginning to grow.
1. Loss of revenue
2. Adverse weather events
3. Loss of crops
4. Unborn livestock
5. Fluctuations in market prices
1. Death or loss of livestock
2. Direct loss or spoilage of product (dairy, produce, other)
3. Farmer- or personnel-related accidents or losses
The basis for this: naturally, like any newcomer to anything, business owners aren’t sure about how crop insurance works. What will it cover? What won’t it? If you’ve been asking yourself these questions, or hemming and hawing over whether or not to get in touch with a crop insurance agent (without fear of being sold something you don’t need), never fear. We’ve got answers for you here.
Read on to learn 5 things crop insurance will protect you from, and 3 things it won’t (and what to do instead). Crop insurance won’t directly cover or compensate you for every single loss. But, it will protect you in other ways that may surprise you, making for those losses in other ways no matter what.
5 things crop insurance will protect you from:
1. Loss of revenue.
Whether it’s fruits, vegetables, hemp, livestock or dairy, the foremost thing most major crop insurance policies are designed to protect you from is any loss of expected revenue from your main product—that will always stand.
The way it works: regardless of your product—projected row crop harvest, dairy production, livestock sales or meat products, etc.—insurance works with you to determine your expected and guaranteed maximum revenue. If you are a dairy farmer especially, agents will also work with whatever the most recent market prices may be at the moment, as set out by the USDA (though this applies to all products across the board of course, even if they fluctuate less regularly).
Come the close of the year, coverage compensates you for anything below the ground floor you would expect from your enterprise’s revenue established with your agent—no matter the cause of revenue loss! This way you know your business is always maintaining or moving forward, never backward.
However, this can be huge for row crop farmers especially, who face the most risks to their guaranteed revenue than other farmers and deal with the tightest profit margins. In fact, crop insurance could even be considered a mainstay for annual row crop farming, though don’t discount the undeniable financial security year-to-year it grants for livestock, dairy, and perennial crop growers as well.
2. Adverse weather events.
Regardless of what you grow once again, crop insurance will have you covered. These policies are set aside as more specialized coverage options, so you are able to “shop” for and customize your protection based on the weather risks you’re most likely to face, depending on the climate and region you reside: such as hail, rainfall, frost, wind, or heat/drought events.
Any specific single weather event spelled out in your insurance policy makes it a Named-Peril Insurance product, which also has the added benefit of being purchasable any time of year (unlike other policies). That said, you can save a bundle by literally “bundling” all possible weather risks you could face together with Multi-Peril Insurance products, especially if you find more than one of these events at your doorstep (or threatening to) with any regular frequency.
And no, Multi-Peril doesn’t just apply to row crop farmers or fruit growers! Whether a wind event takes out a good portion of your field or an entire livestock facility, it won’t matter. For a wide spectrum of farmers (including diversified growers that produce both row crop AND livestock or dairy), Multi-Peril Insurance is considered yet another mainstay for fully insured and financially progressive farming. Built into these policies are included Revenue Protect (RP) and Yield Protection (YP), giving you options to approach compensation from either the financial or product side of things—or, both.
3. Loss of crops.
Any substantial and financially threatening loss of crops—whether it be fruit, vegetable, hemp, or other row crops—will be covered in some way by crop insurance. While this technically tends to be caused directly by weather events, you will also find protection against common nature-related crop losses such as excess moisture or disease, which tend to go hand-in-hand with weather causes.
Loss of any crop you grow (especially if you deal with disease or moisture issues) is best addressed and protected through a Multi-Peril Insurance product. This is because these types of issues could be caused by any number of weather events: hail, excessive rain, heat stress, wind damage, and more. Again, you also get the benefit of Yield Protection (YP) to be rest assured you’ll be well taken care of in any instance of crop loss.
However: if these are concerns, be sure to purchase your plan before you get anything in the ground! An insurance agent will work with you on the numbers before determining or cashing out your coverage.
Unfortunately for ranchers and dairy farmers, product loss due to things like disease is not specialized to or directly covered by insurance like it is for row crop farmers. But for those with livestock, this can be indirectly covered with Revenue Protection (RP) plus these producers get a different set of advantages.
4. Unborn livestock.
While row croppers should explore and move forward with options before their planting season begins, dairy and livestock farmers get the benefit of extending coverage to unborn livestock like cows and piglets: directly protecting their assets well into the future.
Plenty can imperil the health of adult livestock and thus the financial success of your operation. But young animals represent livestock at their most vulnerable stage: they’re more easily prone to loss, whether it’s to disease, predation, or other health complications. They also represent the future of your enterprise and require protection, too.
If you’ve ever wondered if you could get coverage for unborn livestock for your dairy or other livestock operation, the answer is yes. This could even kick in if birth numbers for the year are far below what was expected, or if the unpredictable (or unthinkable) occur to reliably fertile or pregnant animals. The best named policies for this type of coverage will be a Livestock Risk Protection (LRP) product.
Not all crop insurance companies offer this type of protection. But, you’ll find that the most specialized companies and agents do—and will. If you keep tight records of expected new additions to your herd, with reliable past records showing how your livestock operation can be expected to grow, this will be instrumental to getting this type of coverage; otherwise, if you don’t have these records and this coverage could greatly help you…start keeping those records, now (even if the numbers aren’t certain)!
5. Fluctuations in market prices.
Farmers and ranchers know all too well that things are always changing on the farm—perhaps with nothing changing more often than product prices. Crop insurance companies know this very well, too. That’s why an insurance plan for any farmer (row crops, dairy and beyond) takes changes in market prices into consideration.
Prices go down to the point where you don’t meet your expected revenue? Crop insurance will take care of that. And yes, most insurance companies as a rule make policies flexible with the changing of market prices, taking into account the market forces that will never be in the farmer’s control…but that shouldn’t be the farmer’s fault!
For livestock raisers, a Livestock Gross Margin (LGM) insurance plan would be right up your alley. This will even take into consideration any price hikes in livestock feed that could impact your farm operation and bolstering overhead.
Reading the writing on the wall, having coverage that takes this into consideration is one of the biggest lifesavers most of all for dairy farmers. Getting a Dairy Revenue Protection (DRP) policy takes into account the frequent changes in dairy product prices, up to as frequently as monthly changes.
3 things crop insurance won’t protect you from:
1. Death or loss of livestock.
Unlike row crop insurance which offers policies that directly cover crop loss, most crop insurance companies won’t offer policies that directly cover or compensate for the costs of loss of livestock: whether from disease, accidents, or predation.
While this may read as disappointing on paper (and not make sense at first to dairy farmers or ranchers), once you get more deeply acquainted with other policies that extend to dairy or livestock coverage, you’ll see that they can get at the heart of what really hurts a farm business the most when death or loss happens: loss of revenue.
If possible livestock loss is of concern to your business, or you’ve dealt with loss with increasing frequency, the best thing to do is to look at Livestock Risk Protection (LRP) coverage products or Livestock Gross Margin (LGM) plans. Or, if you’re a dairy farmer, take a look at the more dairy-specialized Dairy Revenue Protection (DRP) coverage.
Take into consideration as well that Named Peril and Multi-Peril policies will cover loss of livestock due to weather related events. While you won’t get compensation dollar-to-dollar for the loss of your livestock assets, you will get money back in your pocket for how that loss impacts your product in the future.
2. Direct loss or spoilage of product (dairy, produce, other).
However, a crop insurance policy—just like with loss or death of livestock—won’t match or cover you dollar-to-dollar for that product loss right as it happens. Instead, it’s best to keep record of the loss and submit it as part of your end-of-year (or other period) claims with a Revenue Protection or Gross Margin-protecting policy of some sort purchased in advance of the year.
It’s a no brainer anyway: the bottom line being impacted with loss or spoilage of product (or damage in transit, for example) is loss of revenue regardless. Out of all categories of growers and producers, dairy farmers are the most vulnerable to this type of product loss, damage or spoilage. This is why dairy-covering policies like Dairy Revenue Protection (DRP) are so well-tailored and suited to dairy farmers: this type of loss happens and it is guaranteed to be covered in some way.
3. Farmer- or personnel-related accidents or losses.
Larger agricultural companies with plenty of employees and workers may occasionally have to deal with the occasional accident or incompetence with equipment, product or animals. No matter how careful a farmer is, sometimes the workers aren’t!
Operators may wonder: how are these mistakes covered by insurance? Are they at all? Rest assured that any loss of revenue due to an accident or incompetence, even if done by an employee or worker, will be covered by most crop insurance plans. It doesn’t matter if it is you or someone you hired. However, once again, the expenses of the loss won’t be covered dollar-to-dollar.
Like with damage to product or death of livestock, you can turn to a Revenue Protection or Gross Margin-protecting policy of some sort in order to gain those losses back, especially if they impacted your bottom line significantly at the end of the year. Worried about especially high losses? Look into enhancing your coverage with an Enhanced Coverage Option (ECO) or Supplemental Coverage Option (SCO) to make sure your deductibles can be easily met, and that your coverage will go the extra mile.
Farmers are resourceful and cautious by nature. We don’t blame you for looking twice at whether a crop insurance plan would really be worth it, or “right” for you and your business—it’s wise to do so.
We also know that farmers are outcome- and results-oriented! Once you get in touch with a specialized crop insurance agent, and they’re able to walk you through how crop insurance works and addresses all your financial concerns, you may just find that policies are perfectly crafted for just about any situation, and the proof is in the pudding: crop insurance is a mainstay for successful farming all over the country.