Do landlords need crop insurance?

Our discussion topic is a review of a subject matter from January of 2018 — do landlords need crop insurance? I’ve made this comment previously and will again here: everyone has a different appetite for risk, varying circumstances cause each situation to be different. What risk(s) are present and, most importantly, what capital investments are at risk that need protection? Would a crop failure create an undo financial hardship on the person?

The current farm bill does not have any “coupling” requirements of U.S. Department of Agriculture (USDA) administered program benefits and removes the “requirement” to have a policy in place. Disaster monies paid for the 2021 and 2022 crop did have a two-year linkage requirement if monies were received and taken. 

The crop insurance options are the same for all who have an insurable interest in a crop grown for harvest as grain. Landlords that actively participate in and share the input costs to produce a crop have a much greater financial risk at stake than landowners that do not participate. 

Multiperil Crop Insurance (MPCI) has two options for wheat coverage: revenue protection and yield protection. I am a very strong advocate for the Revenue protection policy, as it provides excellent financial protection. Revenue protection is more expensive than yield protection and may not be necessary in certain scenarios. Revenue protection provides the insured with a guaranteed dollar amount of protection, which is known at the Sept. 30 sales closing date.

Yield protection provides a bushel guarantee at a price announced by the USDA’s Risk Management Agency reflecting the market price. The difference between revenue protection and yield protection is a guaranteed revenue dollar amount vs. a guaranteed number of bushels. If the crop income from the farm does not create a hardship if reduced due to unfavorable weather conditions, yield protection may be sufficient coverage.

Coupling either revenue protection or yield protection with an enterprise unit (EU) option could further reduce the cost of crop insurance protection. Please note, EU is NOT for everyone. I believe it fits very well with most all landlords; however, a complete understanding of the application and limitations must be understood. Specific to wheat, and this is a recent change, EU is now classified by type, meaning fall wheat is a different unit than spring wheat. All like crop in the county, fall wheat and spring wheat, would be two separate units. Additionally, one could mix and match unit structure — EU on the fall wheat, optional units, typically farm location, on the spring wheat.

I highly recommend that the landlord and operator employ similar policy coverages to help avoid any potential gaps in coverage. If not, policy language requirements of the landlord may conflict with the requirements of the tenant policy; the actions required of one party must be consistent for both parties insured.

Additionally, crop hail and grain fire are private product policies that are available to all parties involved. The cost of crop hail is driven by location, prior experience, and history. Rates can vary significantly within a county. The MPCI policy does not provide coverage for manmade fire losses, such as combine, vehicle, etc., which is why all need to have some fire coverage in place as well, either with a crop hail policy or a fire only policy.

I believe that all crop insurance agents do their best to design and tailor a risk management strategy to fit the needs of our customers. If you don’t believe that is happening with your current agent, seek counsel and opinion from another agent to review your situation and request a recommendation. Remember, crop insurance is a federal program, and the cost and rules are the same for all agents and crop companies; the only difference is the service you receive from each.

Why do you have or not have crop insurance — habit or need? Talk with your business partner and have them develop a risk management strategy that best fits your specific needs.

I wish all a Blessed Thanksgiving!

Curtis Evanenko serves as a risk management advisor with McGregor Risk Management Services. He can be reached at (509) 540-2632 or by email at cevanenko@mcgregorrisk.com.