We are still waiting for a comprehensive Hemp Crop Insurance program. While we wait we wanted to take the time to explain how Crop Insurance works, so you can be one step ahead when a program becomes available.
If this is your first time to our blog I would recommend reading up on our previous posts about APH (Actual Production History) -
Unit Structure is an incredibly important concept to understand in Crop Insurance. It doesn't matter if you are growing Hemp, Wheat, Corn, Soy Beans, etc. Dialing in your Unit Structure matters.
Why does it matter?
Think of your operation in terms of buckets. Each bucket represents a group of field/s aka a Unit. Before harvest each bucket is empty. As you harvest your crop you fill your bucket. If you are unable to fill your bucket then Federal Crop steps in and fills the rest for you in terms of a loss payment.
However, if you do not have multiple Optional Units anytime a Field over produces/over fills your bucket (more production then your guaranty) instead of the bucket just spilling over Federal Crop would then add the surplus to other buckets you were trying to fill. Meaning you could have a loss on one field, but if you Unit structure is not set up correctly a neighboring field that did not have a loss could take you out of a loss situation. Confused? Here's a more detailed explanation - -
There are many types of Unit Structures in Federal Crop. We will focus on two of them: Optional Units and Enterprise Unit.
The idea behind Optional Units is fairly simple - each Section of Land is one unit by itself. That means each Section carries its own Production History/APH which in turn means it will carry its own Guaranty.
This concept of Optional Units would remain "simple" if farming followed the imaginary lines of Section Township Range. In some parts of the Country the Section Lines follow the County roads in a nice 1 mile by 1 mile grid for as far as the eye can see. However, in a lot of places this is not the case. There may be a coulee, a river, a road, a mountain, a railroad track, etc. that divide up a farm. This complicates things, but for now let's focus on the basic rules of Optional Units.
This list is by no means extensive, but should give you a basic understanding:
- If all of the "farming" is contained within a Section line then it is 1 Unit.
- If you cross over a Section line in your farming practice then the two Sections (or more) are now combined into one Unit. However:
- If there is a break in farming practice on the Section Line you can break the two Sections into two Optional Units. Tip - this does not mean you can farm straight across an old field road and count it. You must turn the seeder and the combine at the Section Line for it to count. It is audited!
- If the ownership changes between two fields you can separate into multiple Optional Units.
- Field A you Cash Lease 100% yours and Field B you share 2/3 1/3 with another entity. Those two fields could be considered Optional Units.
- If there is a natural barrier that is preventing you from following the Section Lines you could apply for a Written Unit Agreement to try and get the Units divided up. However, WUA's are a process. This is best handled case by case.
Examples of Optional Units:
- The red lines are the Section lines
- All of the crops seeded are Winter Wheat
In the image below you will notice there is a Field seeded in Section 1 and a Field seeded in Section 3. If this were the case the farmer would qualify to have two Units. One for each Section.
Optional Unit 1: Section 1
Optional Unit 2: Section 3
In the image below you will notice that the field in Section 1 cross over into Section 4, and the field in Section 3 crosses over into Section 2. What happens now is that Sections 1 & 4 are combined into one Optional Unit, and Sections 2 & 3 are combined into another Optional Unit.
Optional Unit 1: Section 1 & 4
Optional Unit 2: Section 2 & 3
In the image below you will notice that the farmer seeded an additional field into Section 2 that crosses over into Section 1. What happens now is that all four sections are lumped into one Unit. Why? Field A is in Section 1 &4 so those two are combined, Field B is in Sections 2 & 3 so those two are combined, and Field C is in Sections 2 & 1 so those two are combined. Since Field A brought Section 1 and 4 together it must stay together with any other Sections that any other fields associated with it are connected to. Same rule applies for Field B, so all four are combined.
Optional Unit 1: Sections 1, 2, 3, 4
There are many more scenarios that can come into play, but this should give you a very basic understanding of how Optional Units can be created / assigned.
Why does it matter; take 2?
Simply understanding how Optional Units are created is not enough. You need to understand why it is important. Does every field on your farm perform the exact same? An overwhelming number of farmers would say no. Soil differences, seeding dates, moisture changes, varieties, insects, inputs, etc. There are many reasons why the production can vary. When it comes to Federal Crop Insurance this makes a big difference.
Using the very first map we showed you can see an Optional Unit in Section 1 and an Optional Unit in Section 3. Let's now assume that a hail storm comes through and damages the field in Section 3, and the farmer only harvests a couple of bushels per acre off that field. However, the field in Section 1 is not hit by the hail storm, and the farmer harvests a record crop off it.
If the two fields are in separate Optional Units the production harvested from them goes towards their individual guarantees. Meaning the farmer could collect a loss payment on one unit, and not have a loss on another.
There is a huge draw for producers to sign up for EU. The premium subsidy is incredibly high. However, Enterprise Unit means One Unit per Crop per County. There are options to separate out Irrigated from Non-Irrigated, combine multiple Counties, etc. For the most part let's stick to the basics.
If you have EU for Wheat - all of your Winter Wheat seeded in your County is in one unit. Period. In order to have a loss you would need to have a farm wide disaster. This is why the premium subsidy is so much higher. Fewer losses are paid out. Makes sense.
**Word of caution** you still should report your crop insurance as though you are utilizing Optional Units even if you select Enterprise Unit. That way if you ever want to go back to Optional Units from Enterprise Unit you can, and not have any penalties. Don't use Enterprise Unit as a "saving time" tactic. If you have a Written Unit Agreement - then you need to think really hard about this. Getting a WUA back is almost impossible these days. You may lose them if you go to EU.
It gets confusing the deeper you dive into the program, however, that's what you have me for! At anytime if you find yourself with more questions then answers be sure to hit us up in the Live Chat or our Contact Us page.