After close to a year of high grain prices, Warren McCutcheon expects they should be reflected in the crop values used to calculate crop insurance payouts in 2022.
“We’ve seen these prices sustained here for almost a year now so if crop insurance comes out with $4.50 corn and $8 wheat guys are going to be like, what? Where would you possibly come up with that? Premiums will probably have to go way up if you’re going to have those kinds of dollar value coverage, but at the same time that is the only backstop that grain farmers have,” McCutcheon, who farms near Homewood, said in an interview. “There is no AgriStability. Those programs don’t work. Your crop insurance is your backstop.”
Prices off the combine a year ago were not far off the crop insurance values set in January 2020, but it wasn’t long after they started going up and continued to do so until this summer.
Why it matters: Farmers prefer a good crop over crop insurance payments, but when production falters farmers want crop insurance payouts to closely reflect market prices.
Canola is selling for around $20 a bushel, but $11.23 a bushel is the value the Manitoba Agricultural Services Corporation (MASC), which administers the federal-provincial crop insurance program, will use to calculate a crop insurance payout on canola this year. The value was set last December.
“Even prices for 2022 are 25 per cent less than they are today, but they are still much, much higher than they were last year,” McCutcheon said. “The bids I am getting from the line companies right now are $9 wheat, $15 canola, $6 corn — those are actual life 2022 off-the-combine bids. Those are out there and those exist.
“So if you’re going to have (crop insurance values in 2022) of wheat at $7, no, no, no because it hasn’t been $7 since September 2020. Let’s be realistic here.”
Trying to determine future crop prices is a mug’s game, but necessary. MASC needs to know what value will be assigned to a crop when a payout is made before it can calculate the insurance premium, David Van Deynze, MASC’s chief product officer, said in an interview Sept. 21.
“And it helps them (farmers) make decisions about what crops they want to insure and how they want to insure them because there’s a March 31 deadline to make those decisions,” he said.
Crop insurance values are mostly determined by Agriculture and Agri-Food Canada (AAFC), Van Deynze said.
“We don’t have the market expertise within our own company to do that function so we rely on them,” he said. “They give us opportunity for input, but the reality is we’re not equipped to provide much input.”
AAFC presents the value to MASC in December giving it time for the Manitoba government’s Treasury Board to approve them and other changes to the program, Van Deynze said.
The upcoming crop insurance contract, including crop values, is announced in mid-January, usually at Ag Days, giving farmers just over two months to make decisions before the March 31 deadline.
If AAFC had another month to work on its forecast it would give farmers less time to consider their options and probably wouldn’t be much more accurate, he said. Even this year most of the price increases came much later in the crop year, Van Deynze said.
“If we don’t release prices until the middle of February we think it presents different challenges and problems,” he said. “The reality is this year even if we had used a January forecast it would have been somewhat higher, but still nowhere near what we’re seeing at this point in time.
“I firmly believe to make informed decisions they (farmers) need all that information as early as we can give it to them. It’s a bit of a conundrum. There are a lot of years when there are some differences. Some years we’re high, some years we’re lower, sometimes we’re right on the money. This year is somewhat of an extreme year where the market really rallied a lot. Obviously it’s not ideal, but it’s not a hugely common problem by any stretch.”
AAFC’s farm gate price forecast is based on international and domestic supply-and-demand factors affecting each of the individual commodities, as well as other key variables such as the forecast exchange rate, the department said in an email Sept. 29.
“The price forecast helps inform the Manitoba Agricultural Services Corporation in setting the crop values at which commodities will be insured,” the email says. “The forecast prices provided by AAFC are only a guideline. MASC has the sole authority to set the insurable values for Manitoba.”
For more content related to drought management visit The Dry Times, where you can find a collection of stories from our family of publications as well as links to external resources to support your decisions through these difficult times.