Abrand new type of revenue insurance is being offered to grain farmers this spring. If it proves itself, it may decrease the need for crop and hail insurance.
The company behind the offering is Global Ag Risk Solutions of Moose Jaw. Financial planner Grant Kosior is one of the founders. The others are Dean Klippenstein of Meyers Norris Penny and insurance specialist Clark Coulson.
It’s a unique concept. They will insure a margin over and above a farm’s cash input costs. It’s called the Production Cost Solution Program.
The costs being covered include seed, fertilizer and crop protection products.
Other costs are not covered including fuel, interest payments, rental payments, machinery depreciation, labour, custom work and property taxes.
Over and above the cash costs of seed, fertilizer and crop protection products, producers can purchase margins of $25, $50, $75 or $100 an acre. Of course, the higher the margin, the higher the premium.
While every producer will be assessed individually, Grant Kosior expects premiums for most producers will be around the same range as what they pay for hail insurance.
Let’s say that across all the crops you grow the costs for seed, fertilizer and crop protection products comes to $100 an acre. And let’s say you purchase the top margin coverage of $100 per acre. Your guarantee totals $200 an acre. On a 3,000-acre farm that’s a revenue guarantee of $600,000.
If you get hailed out, flooded out, dried out or frosted out or if grain prices crash, you’re guaranteed $600,000. To access whether the program works for specific producers, they’ll need to find out the cost of their insurance premium.
While hail insurance only covers hail damage, it will pay for damage on individual fields. This Production Cost Solution Program is based on the entire farm.
The cost of hail insurance varies from one rural municipality to the next depending upon the local hail claim history. It also varies by crop. The base premium might be as low as two per cent or as high as eight per cent. Crops like lentils and peas are typically charged two times the base.
For $200 an acre of hail insurance, a producer might be paying as little as $4 an acre or as much as $32 an acre, depending upon the crop and the area.
The multi-peril insurance under Saskatchewan Crop Insurance covers yield and quality losses, but does not provide any protection from dropping grain prices.
Premiums vary according to the type of crop, the level of coverage you buy, and your claims history. The insurance is specific for each crop, but not each field.
Not every producer will qualify. This is a private offering.
Interested producers will have to supply their farm financial records for the past number of years. The records will need to be based on an accrual rather than cash accounting system.
No more than 400 producers will be accepted in this first year. Major Canadian and international reinsurers are backing the Production Cost Solution Program, so there should be no worry about the company living up to its obligations.
Every farm is different and each manager looks at the risks in a different way. However, this new form might be a fit for many producers. If you want to find out more, contact information is available through www.agrisksolutions.ca.
Kevin Hursh is a consulting agrologist and farmer based in Saskatoon. He can be reached at [email protected]