Farming is not for the faint of heart. Long hours and hard work are hallmarks, as are the risks — like weather events and natural disasters — that can create dramatic swings in your farm’s income.
For example, in 2017, a number of billion-dollar weather-related disasters devastated agricultural lands in the United States. Farmers in multiple states suffered incredible losses due to hurricanes and wildfires. For example, Hurricane Harvey claimed 27% of Texas’ beef cattle, according to Texas A&M AgriLife Extension Service. And the Florida Department of Agriculture reported that Hurricane Irma flattened 534,324 acres of sugarcane in the state.
But these aren’t the only uncertainties: Crop production and prices, government regulations and global markets can affect your farm’s ability to thrive. With your livelihood on the line, turning to crop insurance, also known as agriculture insurance or crop-hail insurance, is a way to offset economic damages that could result from these factors.
When Congress passed the Federal Crop Insurance Act of 1980, coverage was extended to many crops and farming regions in the United States. After a number of ad-hoc disaster assistance bills, the Federal Crop Insurance Reform Act of 1994 made participation in the crop insurance program mandatory for farmers to be eligible for federal benefits. Even though the mandatory participation requirement was repealed in 1996, participation in the crop insurance program continues to be popular among American farmers.
Crop insurance today
With crop insurance, you and your farm are protected against losses that occur during the crop year. Losses must be due to unavoidable issues beyond your control, like an extreme weather event. Insurance companies have also introduced protection that combines both yield and price coverage, which safeguard your crop’s loss in value due to a change in market price during the coverage period. While crop coverage is generally similar across all crops and farms, some customizations are allowed to reflect your farm’s unique risks or because of the unique nature of the crop.
The USDA Risk Management Agency has issued many different policy types, each covering specific risks. Some examples include:
- Actual production history (APH) policies, which insure farmers against yield losses due to natural causes like drought, excessive moisture, insects and disease
- Dollar plan policies, which protect against declining value because of damage that results in a yield shortfall
- Livestock policies, which insure against lowered market prices of livestock and exclude any other loss
- Revenue protection policies, which, like APH policies, insure against yield losses due to natural occurrences and revenue losses caused by a change in the harvest price from the projected price
- Whole-farm revenue protection (WFRP) policies, which provide coverage for everything on the farm under one policy; WFRP policies are typically used by any farm with up to $8.5 million in insured revenue
Supplemental coverage is available through policy endorsements, like catastrophic risk protection endorsement and high-risk alternate coverage endorsement.
If a loss should occur, insurance payments are disbursed immediately following the loss. This could be before harvest time (in the case of prevented crop planting or replanting payments) or after the harvest (in the case of a shortfall in crop yield).
From an economic standpoint, you and your farm play an important role in the U.S. and global economies. In fact, according to the American Farm Bureau Federation, one U.S. farm feeds 166 people around the world annually. Whether it’s milk, beef, eggs or produce, farming also comprises about 1% of the U.S. gross domestic product. But your farm is also your livelihood, and while a disaster or unforeseen event can greatly impact the bigger picture, it can wreak personal havoc as well.