Damage levels have reached high levels across a widespread area. Farmers have begun to consider how they can minimize losses. In light of this, farmers need to be considering different options for crop insurance.
Rain, Rain Go Away
Rain has plagued farmers all season and it’s not over yet.
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 were so high USDA’s Risk Management Agency issued a new fact sheet to aid growers in insurance matters. The goal of the sheet was to help producers understand the process of filing for quality adjustment claims for damaged soybeans.
Quality adjustments could help, but there is simply no guarantee. Quality adjustments could help some producers receive indemnity payments. However, this is not the single solution.
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.
The Mississippi Delta is experiencing situations crop insurers don’t quite know how to digest. Damage levels are so high and so widespread, farmers are being forced to sell into salvage markets. They are also forced to do so 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.
Damage, Damage and More Damage
Farmers have 72 hours after discovering damage to report this to their crop insurance agents. Afterwards, agents can adjust yields once damages reach at least 8% according to RMA’s fact-sheet. Qualifying soybeans can be assigned a zero market value. However, farmers must first find a home for the damaged soybeans.
Due to the high levels of damage across regions, elevators are on high alert for damage. Samples can vary and are not always indicative of the quality of the load. Additionally, some elevators will accept damaged loads without much dockage.
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.
Given this year’s large supplies, widespread damage and reduced exports out of the Gulf of Mexico, many elevators have set strict limits on the amount of damage they’ll purchase.
If your grain elevator options are exhausted and you are still left with grain and nowhere to go, there is still hope. The next avenue to pursue is livestock buyers and other salvage buyers.
Weigh the Costs and Benefits
Given all the questions surrounding crop insurance decisions, it is important to weigh the costs and benefits each decision holds.
Crop insurance agent, Jay 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.
Crop insurance rules state farmers must sell soybeans under 35% damage to buyers in their marketing area. If damage rises above 35%, soybeans qualify for a reduction in value. This allows cost of shipping to be factored into adjustments. This can help farmers determine whether they should sell or if the crop insurance policy should pay an indemnity based on the farm’s guarantee.
Typically, crop insurance protects against low yields and revenue. However, it also protects against low quality. It is important to understand how crop insurance adjusts soybean yield due to quality.
The final outcome depends upon what the county actuarial documents stipulate. Discount rules contain quite a few if/then statements, so final outcomes will depend upon the particular production characteristics.
Crop insurance uses predetermined factors to adjust harvest yield based on quality discounts. These factors represent the way the discount impacts yield.
When looking at soybeans, there are four types of discounts to consider.
The four discount types are: grade, test weight, damage, and sample grade. The other category, formally called “deficiency not in discount factor charts,” determines the final discount when quality discounts fall below, say a very low test weight that is not outlined in the quality discounts.
Final yield is determined by taking the harvest yield times one minus the sum of all discount factors.
Producers who have multiple insurable units should be in contact with their insurance agent to determine the process for keeping samples of each unit.
Unfortunately, quality discounts will more than likely not make up for elevator price deductions. However, it is important to remember something is better than nothing in this instance. Even though not all costs can be accounted for, insurance can provide some relief.
Read Ag Nook’s related article titled, “Dealing With Wet Beans“.
Rain has been here to stay recently and is certainly giving farmers trouble in the field. Given the issues producers have been faced with this season, it’s important to consider all the discounts and insurance information.
Image courtesy of The Iowa Soybean Association