Maintaining your crop insurance plan year-round
As the father of three teenage daughters who play a lot of softball, there’s a saying I’ve heard coaches tell players that’s stuck with me: “the game never stops.” It’s often said when young players on the field shift their focus to the umpire after a close play to see what the call was, all while offensive players are still running around the bases.
Stopping to see what is going on isn’t always a bad thing, but there are times when you need to keep intense focus on playing the game, because the game never stops.
Grain production has some similarities — there are times you can relax, but you need to be cognizant of where you’re at, where your business is headed and the plans in place to reach your goals. You can’t take your eyes off the game for too long.
Tracking your crop insurance, which helps to manage cash flow, secure farm loans, back forward grain sales and more, is a critical component in safeguarding a farm operation’s annual income.
There are several ways to track your crop insurance policy performance throughout the year. First, find a method or tool to track the current year’s performance. This can be as simple as a handwritten record in a notebook, a spreadsheet on your home computer or using Compeer Financial’s free margin manager tool. Use the tool that works best for you.
Next, be sure to update your anticipated yields and harvest prices based on a revenue policy. These projections will likely change throughout the growing season, but that’s to be expected. As harvest gets closer, your predictions should be a closer reflection of what’s to come.
If your tracking tool allows you to easily change crop insurance coverage levels, adjust them to see how different levels of coverage can impact various outcomes. During this step of the process as numbers in the tracking system change, you may:
1. Recognize that you’re going to have great yields with good prices and won’t need to use your crop insurance policy.
2. Speaking from personal experience, you might wish you selected a different level of coverage or even a different crop insurance product.
3. Recognize how different crop insurance coverage levels impact cash flows and potentially your working capital if you get into a challenging production year.
4. If things don’t look promising or you have concerns, consider a discussion with your trusted partners and advisors if the year appears to be challenging because of low yields or poor prices.
Don’t be afraid to start making projections for next year, even before the current year has ended. Using your tracking tool, apply the information you are currently learning to the next crop year. This can be very difficult because conditions are always changing, but use the best information you have. This could include cost projection, yields, prices and the current crop insurance program.
When doing this, I find it interesting that the next crop year’s level of insurance coverage is primarily impacted by what I’ve most recently experienced.
For example, in last August of 2018 I was at a point on my own farm when we appeared to be setting up for a good harvest. Because of that, my initial perspective of the 2019 growing season was influenced by what I experienced in 2018. My 2019 crop insurance projections used a lower level of coverage than what I ultimately ended up selecting for the 2019 growing year.
My personal bias at the time – was that a good crop doesn’t need a high level of crop insurance, but I recognized I had been wrong. I chose to raise my 2019 coverage from my initial intentions. And after the spring we’ve had – I’m sure glad I did, because we all know a good crop isn’t guaranteed.
Because I regularly utilize tracking tools, to my benefit when February arrived, I recognized how my perspective in August was molding my view of the next crop year. Several things can be learned by spending some time looking forward:
1. Will the current crop insurance levels that I can purchase provide the protection I need based on what I know today?
2. Assuming crop insurance doesn’t change and I have that added layer of security for a future crop year, how does it impact me at this point in time? Can I forward market some of next year’s crop? Can I make a needed capital improvements like tile or grain storage?
3. Can I adequately protect next year’s revenue?
To summarize, this process can be as simple or as complex as you make it. By simply knowing where you’re at and having a plan to get where you want to be is a huge step in accomplishing your goals. Every operation is continually evolving. Whether it is short or long-term decisions - the game never stops, be sure you don’t take your eye off the ball.
Dusty Walker is an insurance officer with Compeer Financial