Crop Insurance for Beginning Farmers

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					                                                                are best for your operation, and to understand the type and
Beginning farmers face unique challenges in terms of            format of records that you will need to keep.
exposure to risk and ability to absorb risk. In addition to a   This publication provides an overview of the different types
solid business plan, a farmer’s risk management tools           of crop insurance available in New York State, and tips for
include marketing and business planning, record keeping,        beginning farmers to get on track to crop insurance
and personal and farm insurance.                                eligibility.
In addition to business, liability, disability and health
insurance plans, beginning farmers should consider crop
insurance to protect against farm-related yield or income        Q: What percentage of your
losses. Recent changes in the US farm bill require that          crop yield do you need to
producers have crop insurance coverage (NAP for non-
insurable crops) in order to receive crop disaster payments      realize to cover your farm
under the federal disaster relief program Supplemental           expenses?
Revenue Assistance Payments (SURE). Crop insurance
premiums are subsidized by the federal government.
                                                                DETERMINING ACTUAL PRODUCTION
                                                                HISTORY (APH)
                                                                Most types of crop insurance have guarantees based on
                                                                past production yield or past revenue. Beginning farmers
WHERE TO BEGIN?                                                 are not penalized for a lack of production history, provided
First, review your business plan and ask yourself some          they begin their record keeping with their first crop
questions in light of your needs and goals.                     plantings.

•   What is the minimum percentage of your crop that you        The first step in developing a crop insurance plan is to
    need to harvest to cover your operations costs, and         establish your actual production history (APH). It is used to
    your farm and equipment loan payments?                      set the guarantees under both the yield and revenue plans of
                                                                insurance. Assessing the need for crop insurance protection
•   How quickly do you need to receive payments to cover        must be based on your farm’s production potential and risk
    any losses? Can you wait the year or more that federal      exposure. It is a good idea to establish the APH for each
    disaster insurance payments can take to arrive, or do       insurance unit with a crop insurance agent long before the
    you need payments in the shorter time frame that crop       sign-up date. An APH yield is needed even if you are only
    insurance can provide?                                      interested in the catastrophic (CAT) level of coverage. It
Next, start keeping complete planting, production yield and     will also allow you to evaluate higher levels of coverage
financial records. Crop insurance provides revenue              under the yield and revenue protection insurance plans (if
protection and/or yield protection based on past                they are available in your county).
performance. Beginning farmers may find it challenging to
qualify for crop insurance because they lack actual             To establish an APH requires a minimum of four years of
production history (APH) data. New farmers without APH          records for each crop to be insured. Information used to
data may receive more generous substitutions for their          prove a crop yield includes sale receipts, farm or
missing yield history than established farmers with             commercial storage records, and feed consumption records.
incomplete yield records. Accurate and complete yield and       The records must be for continuous years, starting with the
production records are crucial to achieving crop insurance      most recent year and continuing back in time. Once a
eligibility, and maximum policy benefits when crop losses       missing year is reached, no yield data before that year may
occur.                                                          be used. Dropping out a yield from one year because of
                                                                poor production is not allowed, however the county
It is never too soon to meet with a crop insurance agent to     average yield may be used as a substitute. It is not
determine which type(s) of insurance and coverage levels        considered a missing year of records if the crop to be
insured was not planted in a certain year. In that case, a              year. The APH cannot fall to less than 70 percent of the
zero acreage report is submitted and continuous records are             “T”-yield for growers with only one year of yield records,
maintained even without data for that year. This is                     75 percent for growers with two to four years of yield
especially important for farmers who rotate crops.                      records, and 80 percent for growers with five or more years
                                                                        of yield records. This “floor” prevents one year with a
If at least four successive years of records are not available,         severe crop failure from having a disproportionately large
a transitional or “T”-yield is substituted for each missing             influence on the APH yield, especially when only a few
year. Each insured crop within a county has an assigned                 years of yield records are available. There is also an option
“T”-yield. It is usually based on the latest available 10-year          to substitute 60 percent of the “T”-yield for actual yields
county average yield. Farmers with no records at all are                that are less than 60 percent of the “T”-yield. There is a
assigned 65 percent of the “T”-yield as their APH yield.                slightly higher premium when this option is selected.
Farmers with one year of records receive 80 percent of the
“T”-yield for the other three years to calculate their APH              TYPES OF CROP INSURANCE PLANS
yield. Farmers with two years of records receive 90 percent
                                                                        Note: If crop insurance is not available for a crop in your
of the “T”-yield for the other two years. Farmers with three
                                                                        county, you may still be able to obtain coverage with a
years of records receive 100 percent of the “T”-yield for the
                                                                        special written agreement. A written agreement must be
one remaining year. Once each year has been assigned a
                                                                        initiated with a crop insurance agent before the insurance
yield, the APH is an average of the four yields. If only a
                                                                        sign-up deadline. Contact a crop insurance agent for more
couple years of yield records exist, the APH yield may be
considerably below the actual expected yield, because of
the reduced “T”-yields.
                                                                        YIELD-BASED INSURANCE COVERAGE:
New farmers or those who have never planted the crop in                 Yield protection insurance protects you against losses due
the county to be insured receive 100 percent of the “T”-                to natural causes such as drought, excessive moisture, hail,
yield for determining their APH yield. If they continue to              wind, frost, and unavoidable insects and diseases. You
plant the crop for four years, the “T”-yields will be                   select from 50 to 75 percent of the amount of your APH
replaced with the actual production each year. New                      yield. You can also select less than 100 percent of the crop
producers who have previously been closely associated                   price determined annually by the USDA’s Risk
with a particular farming operation, such as children taking            Management Agency (referred to as the “projected price”
over a family farm, may be able to use the previous                     and based on Chicago Board of Trade (CBOT) futures
operator’s records to establish their APH yield, if they                prices for barley, corn, grain sorghum, soybeans, and
participated in the previous management..                               wheat). If your production is less than the yield insured,
                                                                        you are paid for the loss based on the difference multiplied
                                                                        by the price you selected when the crop insurance was
  New farmers without actual                                            purchased. Yield protection policies are available in most
  production history (APH)                                              New York counties for corn and oats, and in some counties
                                                                        fruits, vegetables and field crops.
  data receive a more generous
                                                                        Catastrophic crop insurance (CAT) was introduced in
  substitution for their missing                                        1995 to replace ad hoc disaster assistance programs enacted
  yield estimates than                                                  by Congress with an insurance-based producer safety net
                                                                        that reflects your actual production history. Per acre
  established farmers with                                              insurance premiums for CAT are totally paid by the federal
  incomplete yield records.                                             government. For a flat application fee of $300/crop/county,
                                                                        you get a crop insurance yield guarantee of 50 percent of
                                                                        your farm’s actual production history yield, with any losses
When four years of production history are available, the                reimbursed at 55 percent of the established crop price.
APH is the average of all of the yearly reported yields.                Compared to higher levels of coverage, CAT provides only
Additional years of data will be averaged into the APH                  a low level of protection against yield losses. For some
yield until 10 years are included. Once 10 years of yields              diversified farmers this low level of coverage is enough to
are available, the APH becomes a moving 10-year average.                protect them against severe cash-flow shortfalls.
When a new year of production history is added, the oldest
record is dropped from the APH calculation.                             Group Risk Plan (GRP) policies use index values as the
                                                                        basis for determining a loss and are available for pastures
When a new yield record is added to the APH history, the                and hay (PRF) for all counties in New York. Honey bees
APH cannot decrease by more than 10 percent in any one                  and byproducts may also be insured under this plan via an

Crop Insurance for Beginning Farmers in New York State            -2-
apiculture endorsement. The PRF policy is available on                 at the projected early-season price. The revenue that counts
approximate 12 x 12 mile grids, so you are insured based               against your guarantee, for both revenue programs, is your
on your grid location rather than your county like most                production multiplied by the harvest price based on CBOT
other crop insurance programs. The PRF policy protects                 prices. Revenue protection coverage is available for corn in
you against yield losses related to lack of precipitation and          52 counties, soybean in 24 counties, barley in 15 counties
uses a rainfall index as a measure of crop productivity. It is         and wheat in 27 counties. Revenue protection insurance is
based on historical NOAA rainfall data and NEXRAD                      not available as CAT coverage.
weather radar system data. You must choose at least two, 2-
month time periods to insure under the PRF rainfall index              Adjusted Gross Revenue (AGR and AGR-Lite) policies
policy. You have the flexibility of insuring all or part of            insure the revenue of your entire farm rather than an
your acreage for all or part of the year. Loss payments are            individual crop by guaranteeing a percentage of your
made under this insurance plan for every two-month                     average gross farm revenue. These plans use information
insurance period you insured where the rainfall index for              from the past five consecutive years of your Schedule F tax
your grid is less than the coverage level you selected.                forms (not to exceed the projection of the annual farm
                                                                       report for the current year) to calculate the policy revenue
 Beginning farmers need crop                                           guarantee. Depending on the number of commodities
                                                                       grown, you have the choice of three coverage levels (65,
 insurance;                                                            75, and 80%) and two payment rates (75 and 90%).
   • To survive losses,
   • To obtain credit to grow the                                       •   AGR insurance is currently only available in 13
                                                                            counties in New York. Besides limited availability, a
     business,                                                              major limitation of this product is that only farms with
   • To be eligible for federal                                             35 percent livestock revenue or less are eligible for
                                                                            coverage. An additional requirement of AGR
     disaster payments.                                                     coverage is that if crops with individual crop
                                                                            insurance availability exceed 50 percent of farm
                                                                            revenues, crop insurance must be purchased for those
Dollar Plan (Dollar) coverage provides protection against                   crops. (CAT insurance can be used to meet this
declining value due to damage that causes a yield shortfall.                requirement.) The maximum policy size for AGR is
The amount of insurance is based on the typical cost of                     $6.5 million liability (based on maximum adjusted
growing a crop in a specific area. A loss occurs when the                   gross revenues of $13.3 million and the 65% coverage
annual value of the crop is less than the amount of                         level and 75% payment rate). The sign-up deadline for
insurance. The maximum dollar amount of insurance is                        AGR is January 31.
stated on the actuarial document. You may select a percent
of the maximum dollar amount equal to CAT (catastrophic
                                                                        •   AGR-Lite represents a major improvement on the
level of coverage) or higher coverage levels. Dollar
                                                                            original AGR product, expanding it to provide
insurance is available for nursery and greenhouse crops
                                                                            protection for all crops and animal revenues (with no
throughout New York State, and for fresh market sweet
                                                                            limitation on livestock income) and making it
corn and forage seeding in select counties.
                                                                            available to farmers in 52 counties statewide. The
                                                                            application process for AGR-Lite is also streamlined
REVENUE INSURANCE PLANS:                                                    in various ways and there is no requirement for the
Revenue protection plans that provide protection against                    purchase of crop-specific insurance coverage (but it
both yield and price risk are available for corn, grain                     may be purchased at your option). The maximum
sorghum, soybean, barley and wheat. You select from 50 to                   policy size for AGR-Lite is $1 million liability (based
75 percent of the amount of your projected revenue to                       on maximum adjusted gross revenues of $2,051,282
protect based on your price and yield history. Losses are                   and the 65% coverage level and 75% payment rate).
paid if your revenues fall below the guarantee based on                     The sign-up deadline for first-time AGR-Lite policy
CBOT prices. Two revenue plans are available. The first                     holders is March 15.
plan is called “revenue protection” which uses the higher of
a projected (early-season) or harvest CBOT futures price to            PREVENTED PLANTING COVERAGE
set your revenue guarantee. Under this insurance plan
                                                                       Prevented planting coverage provides protection whenever
harvest versus early-season projected prices are covered for           an eligible crop cannot be planted because of adverse
up to 100% increases and unlimited decreases. The second               weather conditions, provided it is a condition general to the
is called “revenue protection with harvest price exclusion”            geographic area. In New York, prevented planting coverage
which for a reduced premium sets your revenue guarantee                is automatically part of all barley, corn, soybean, grain

Crop Insurance for Beginning Farmers in New York State           -3-
sorghum, oat, wheat, green pea, potato, processing beans                      based program that uses a formula to compare the expected
and dry bean policies (including CAT policies). Basic                         revenue to actual revenue for the entire farming operation.
prevented planting coverage provides an amount of                             The SURE guarantee is based on the producer selected
protection equal to 60 percent of the insurance guarantee;                    level of coverage of the underlying crop insurance or NAP.
higher levels of protection at the 65 and 70 percent level
are available for additional premium.                                         To be eligible for the SURE program, producers are
                                                                              required to purchase crop insurance or NAP coverage on all
                                                                              crops that are of economic significance on the farm. For
FEDERAL DISASTER ASSISTANCE                                                   SURE program purposes, a “farm” refers to all acreage in
PROGRAMS                                                                      all counties that is planted or intended to be planted with
Noninsured Crop Disaster Assistance Program                                   crops by the producer, including all hay crops (with the
(NAP)                                                                         exception of grazed acreage). Coverage must also be
The Noninsured Crop Disaster Assistance Program (NAP)                         obtained for other crops for which crop insurance or NAP
provides benefits to producers of commercial agricultural                     is available, including nursery, honey, aquaculture, and
products for which multi-peril crop insurance coverage is                     floriculture.
not available. NAP is designed to reduce financial losses
when natural disasters cause catastrophic reduction in                        Congress envisioned that if a serious regional disaster was
production. NAP provides coverage that is very similar to                     declared by USDA, then a farmer would be covered by a
that provided by CAT crop insurance policies available                        combination of crop insurance and SURE. When a
through crop insurance agents. NAP coverage is available                      producer buys higher crop insurance coverage levels, the
through your local USDA Farm Service Agency office. To                        SURE guarantee also increases. Unlike crop insurance,
purchase NAP coverage you pay a fee of $300 per crop per                      however, payments under SURE should not be expected
county (with fees capped at $750 per producer per county,                     until a year or more after the loss occurs.
but not to exceed a total of $1,875 for producers growing
crops in multiple counties). Sign up deadlines for the NAP                    Maintain complete yield and financial
program vary by crop; contact your local FSA office for
more information.                                                             records from the start of your
                                                                              operation. Important types of
Supplemental Revenue Assistance Payments                                      documentation include:
In the past, many producers did not buy CAT or NAP                            • Revenue and expenses
coverage because they felt that if a catastrophic event                       • Production and yield history
occurs, the U.S. government would offer ad-hoc disaster
                                                                              • Storage inventory
                                                                              • Planting data
The 2008 Farm Bill created a permanent disaster program                       • Farming practices
to replace the “ad hoc” crop disaster programs (CDP) of
past years. This new program is known as Supplemental
Revenue Assistance Payments (SURE). It is a revenue

                NYS Department of Agriculture & Markets                                            Risk Management Agency
                10B Airline Drive                                                                  US Department of Agriculture
                Albany, NY 12235                                                         

NYS Department of Agriculture & Markets Crop Insurance Education Program, in cooperation with USDA Risk Management Agency.

This publication is for educational purposes only and does not cover all aspects of the crop insurance products described. For specific
information about crop insurance products and how they could help you manage risk on your operation, visit your local crop insurance

The sections titled Determining Actual Production History (APH) and Federal Disaster Assistance Programs are excerpted from the NYS Department of
Agriculture and Markets publication “Crop Insurance for New York field Crops” prepared by Jayson K. Harper.

Crop Insurance for Beginning Farmers in New York State                 -4-