By: Trevor Troyer, Vice President Agricultural Risk Management, LLC
Crop Insurance is unique in the insurance world with its deadlines. You can only sign up for crop insurance at certain times. Since crop insurance is partially subsidized through the USDA these dates along with premiums are set by them.
All states where you can obtain grape crop insurance, with the exception of California, have the sign-up deadline or Sales Closing Date (SCD) of November 20. The states where grape crop insurance is available are Arkansas, California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Virginia and Washington. Grape Crop insurance is not available in all counties in the above states though. That being said you may be able to obtain coverage through a special Written Agreement with the USDA in one of those counties where it isn’t.
If you want to make changes to an existing policy it needs to be done by the Sales Closing Date. For those growers in states other than California that time has passed. Right now, there is still time for vineyards in California to sign up for coverage for 2023. California has a SCD of January 31st.
What changes might you want to make by the SCD?
The obvious ones are:
1. Add coverage
2. Cancel coverage
3. Increase coverage levels
4. Decrease coverage levels
What about other options that you might not realize are available?
While all crop insurance is the same from one insurance provider to the next, not all options may be added by your agent. He or she might not have told you about certain ones or they themselves might be unaware of different endorsements that are available. Contract Pricing and Yield Adjustment are a couple I think can be very important. And what about price election or percentage, what’s that?
Yield Adjustment is option that allows you to use a higher yield, in a disaster or in place of a really bad year. This would replace your actual yield, in the database that is used to calculate your average tons, with a higher one.
Here’s what the Crop Insurance Handbook, 2023 and Succeeding Years says:
For APH yield calculation purposes, insureds may elect to substitute 60 percent of the applicable T-Yield for actual yields (does not apply to assigned and temporary yields) that are less than 60 percent of the applicable T-Yield to mitigate the effect of catastrophic year(s). Insureds may elect the APH YA and substitute 60 percent of the applicable T-Yield for low actual yields caused by drought, flood, or other natural disasters.
T-Yield is a transition yield. These are set by the USDA for each county and variety. I will go into more detail on these in another article. But the main point is that Yield Adjustment allows you to use a higher yield to calculate your average. This can make a huge difference.
I saw many vineyards in California and Oregon a few years ago that had zero production due to fires and smoke taint. Their averages would have been significantly worse moving forward without Yield Adjustment (YA). This would in turn cause them to have less insured value and lessen the likelihood of future claims getting paid.
Contract Pricing is another important tool that allows growers to increase their price per ton. Prices per ton are set by the USDA Risk Management Agency per county and variety. Some counties allow for Contract Pricing. If you have a contract or contracts with a winery or processor you may be able to get a higher per ton price. This endorsement – Contract Pricing (CP) needs to be elected at the Sales Closing Date. Contracts are not due till the acreage reporting date which is later. You can check with your agent on these dates and availability or visit rma.usda.gov.
There were some changes in Contract Pricing a year ago. It used to be that if CP was allowed in your county, then all the grapes in your vineyard had to be grown under contract. If they weren’t, you could not get CP. The change allows for vineyards to have some grapes grown under contract and some not. A weighted average is used to determine the per ton price.
Here is an example out of the Crop Insurance Handbook:
Production based contract for 290 total tons at $2,100 per ton = $609,000 total contract value. Non-contracted 72.5 tons at the price election of $1,622 per ton = $117,595. Total value of contracted and non-contracted tons = $726,595. Total value of $726,595 divided by the total expected production = $2,004 weighted average price.
So, at the time of a claim in the above example any indemnity payment would use $2004 per ton instead of $1622. Of course, using Contract Pricing means your premium will go up. The higher the dollar value the more the premium will be. I have seen growers choose not to use CP because of this.
What is price election or percentage? Simply put it is a percentage of the price you are getting per ton. For example, with CAT (Catastrophic Coverage) the level is 50% and the price percentage is 55%. So, you are getting paid 55% of the value of the grapes. If your price per ton is $2000 then at CAT coverage you would get 55% of that for every ton of loss. In other words, you would be paid $1100 a ton on a claim instead of $2000.
Some of you are probably thinking that I am getting very complicated and getting down into the “weeds” on how crop insurance works. Bear with me a little more. You can select different price percentages for different coverage levels. What if you choose a higher coverage level and then a lower price percentage? Sometimes this makes more sense.
Here is an example let’s say you choose 65% coverage. If your average is 5 tons per acre then you are covered for 3.25 tons per acre. You have a 35% or 1.75 tons per acre deductible. You have to harvest less than 3.25 tons an acre to have a loss. Maybe you think 35% is too big a deductible. You might have had a loss last year of 30% and didn’t get paid anything. You have looked at 80% with a 20% deductible and that seems good, but the premium is too high for you at a 100% of the price. You could instead choose 80% coverage and then decrease the price percentage. That way you lower your deductible percentage making it more likely to have a claim paid while paying around the same premium. Decreasing the price percentage lowers the dollar value of what is covered and therefore lowers the premium. You will get less money per ton but you may get a claim payment, where in the past you would not have been paid as much or at all.
This is all very relative to the grower, the state, the county or growing region and the main perils you are concerned with. These are some tools you can use to mitigate your risks. Hopefully this helps.