Agricultural producers are bombarded with challenges when raising a crop. Risk comes from many areas, including labor market, market price volatility, geo-political issues and regulations. With revenue shortfalls from reduced yields, a farm may not have the income necessary to purchase inputs for the coming-year crop. Farmers need to use a number of risk management strategies that allow themselves to “hedge” for various scenarios that can lead to reduced or eliminated crop revenue.
For many farms, crop insurance is an option for the crops they raise. Crop yield and revenue insurance is administered through the Risk Management Agency (RMA) of the USDA and can be purchased through private crop insurance agents. This insurance provides most grain, oilseed and tree fruit farms with a variety of insurance contract options to protect against yield or revenue loss risks. Farms typically pay a premium that has been subsidized for participation in these types of programs. Although crop insurance increases per acre costs, it can provide additional revenue when needed due to losses incurred through weather and other events.
Unfortunately there are many for which crop insurance is not available. The Noninsured Crop Disaster Assistance Program (NAP) that is administered through the Farm Services Agency (FSA) of the USDA is available for crops not covered by crop insurance. A producer must sign-up through their local FSA office for NAP.
The NAP program provides loss risk protection for crops that are not insurable through commercial crop insurance or for crops that are in a “pilot” status, such as the Cherry Revenue insurance program. NAP may also be available if crop insurance does exist for a crop, but coverage is not available for your crop type or intended use such as fresh market versus processed market.
The 2014 Farm Bill made substantial changes to the NAP program. Previously, the program was almost a pure catastrophe with maximum coverage at 50 percent of a farms approved historical yield. Shortfalls were paid at only 55 percent of the NAP market price. Now NAP coverage can be purchased up to 65 percent of a farms approved historical yield with shortfalls being paid at 100 percent of the NAP market price. The NAP program has a maximum payment of $125,000 and the premium is also capped at 5.25 percent of the yield guarantee valued at the NAP market price. Each crop does have a $250 administrative fee in addition to the premium cost which means, between the capped premium cost and administrative fee, the most a producer will have to pay would be $7,062. However, if you are a beginning farmer, a socially disadvantaged farmer or limited resource farmer, a producer may qualify to have the premium reduced by up to 50 percent and the administrative fee waived.
Michigan State University Extension, through collaboration with University of Illinois and FSA, developed a NAP Crop Eligibility, Premium, and Payment Estimator that producers can use to help determine if a farms crop(s) are eligible for the NAP program, what the premium would be, and an estimate of payments with a disaster. Adam Kantrovich of the MSU Extension Farm Information Resource Management (FIRM) team and Eric Fischer of the Michigan USDA-FSA developed a short instructional video on how to use the NAP Crop Eligibility, Premium, and Payment Estimator. These links and other relevant information can be found on the FIRM team Crop Insurance webpage, or the FIRM Team NAP Buy-Up Farm Bill webpage.
MSU Extension reminds you to always contact your trusted legal and tax advisors.
Source: Adam Kantrovich, Michigan State University