Lower commodity prices pose a unique challenge of staying profitable in a tough market. Crop insurance provides farmers with an important risk management tool, and this is especially important as farmers look at continuing tight margins in 2016.

“Producers are trying to find a positive net return in their budgets for 2016 and it’s hard to find,” says Giles Distinguished Agricultural Economics Professor Keith Coble, Ph.D., with Mississippi State University. “But good management and smart decisions will go a long way this year.” In this episode of Profitability Matters, Coble shares his insight on crop insurance decisions and steps farmers can take to maximize profitability in 2016.

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Key Takeaways:

• The 2014 Farm Bill emphasized crop insurance as a farm safety net and eliminated direct payments.
• Crop insurance is meant to protect farmers from extreme downturns in price or yield. It’s those extreme events that producers need to focus on in their crop insurance decisions.
• Price benchmarks in crop insurance are tied to the futures markets.
  • That means when the futures markets are low, the coverage is lower as well.
  • This also affects the cost of insurance—the premium rate is going to be multiplied times the value of the crop.
• Talk to your crop insurance agent early.
  • If you haven’t looked at enterprise units or trend-adjusted yields, weigh these options with your agent.
  • Request quotes for different coverage levels—for example, one-up and one-down from where you are at today.
  • Farmers can now implement different coverage levels by practice for irrigated, mixed or dry land production—for instance, farmers might try an 80 percent coverage level on irrigated land and a 70 percent level on dry land.
  • Look at the Actual Production History (APH) Yield Exclusion provision, which provides options for farmers who are hit by serious disasters.
• Consider changing coverage in 2016.
  • Many soybean producers are in the ARC program—they buy crop insurance and they’re forward pricing—and they might have more protection than they need.
  • Consider whether you are double or triple covered before purchasing additional coverage.

Want to learn more? Stay tuned for the next episode of Profitability Matters, and read our previous posts for additional insights into farm profitability:

“Cutting $100 per Acre in Soybeans” with Gary Schnitkey
“Staying Ahead of the Curve in 2016 Finances” with Steve Johnson