Winter wheat growers have had more than their fair share of failed acres this year, although the extent is still unknown.
"Farmers who have lost their wheat crop may have a whole new set of risk considerations that they had not envisioned," said Kansas State University agricultural economist Art Barnaby. "Many of those growers have proceeded to settle their loss with their insurance companies. They will destroy any remaining crop and replant to a spring-planted crop."
Under that scenario, explained Barnaby, a risk management specialist with K-State Research and Extension, the insurance company would have appraised the yield in the field and released the ground to be replanted to another crop. Many growers under the Revenue Assurance (RA) plans, who have settled their loss with their insurance company, now have discovered they will not be paid for the loss until after July 15. Some of them will need an advance on their operating line of credit to plant the replacement crop, he added.
Under the Crop Revenue Coverage (CRC) contract, when there is an early loss, growers are paid for the indemnity payment based on the appraised yield and a price of $3.31 per acre, which was the planting price.
"Next summer, assuming the price either goes up or down, there will be a second supplemental check paid based on the price change," Barnaby said. "That would be true unless the yield was zero, and then the CRC contract would pay the entire indemnity payment as soon as the insurance company released the crop, unless prices go up. If prices rise, a second additional indemnity payment would be paid next summer after the harvest price is determined."
Growers insured with Multi-Peril Crop Insurance (MPCI) would be paid as soon as the loss is settled, based on the guaranteed bushels less the appraised yield times the $2.80 price election, he said. That is, unless the grower selected a lower price election at sign-up.
"The new replacement crop would be insured under the grower's policy, assuming the grower has signed up for spring-planted crops. It's too late to sign up a new crop, but if growers already have grain sorghum, corn, soybeans, sunflowers or other spring-planted crops on their policies, then replanting their failed wheat acres to one of the crops listed on their policy will be insured under the provisions that were signed up for on March 15," Barnaby said.
If prices fall, the economist said, the revenue insurance, (including RA) indemnity payments will become larger. Also, if growers salvaged the remaining wheat as hay or silage, they would be eligible to claim the loan deficiency payment (LDP) on the appraised yield. If they salvage what is left of the field by grazing, however, they would not be eligible for LDP payments because they collected under the insurance contract.
"The risk that many growers may not have considered is what happens if prices increase," he said. "If prices rise, growers with failed wheat acres insured under revenue assurance with the harvest price option (RA-HPO) and CRC would have their indemnity payments increased. However, growers insured under RA without the harvest price option would have their indemnity payment reduced, unless the appraised yield is zero.
"Growers with failed wheat acres that have already been adjusted know the appraised yield. Because they have already met one of the conditions for a claim under revenue insurance, the second condition that will impact the indemnity payment is the harvest price. Again, if the harvest price falls, the revenue insurance indemnity payment becomes larger," he said.
However, if harvest prices increase, RA without the harvest price option will generate a smaller indemnity payment, Barnaby added. Because growers have already destroyed the appraised yield so that they can plant a replacement crop, they do not benefit from higher wheat prices.
For further information and side-by-side comparisons of insurance contract types for wheat, interested persons can visit http://www.agecon.ksu.edu/risk/.