Market Matters Blog

While farmers have their choice of many colors of combines, nobody has ever purposely chosen the white one. That one is the unwelcome color only chosen by Mother Nature.

The big white combine got its name from, you guessed it, a hailstorm that destroys or severely damages a farmer's crop. Depending on the time of the year and the stage of the plant, it can mean the end of the growing season or substantial yield loss.

The four states that receive the most hail are Kansas, Texas, Oklahoma, and Nebraska. according to research by Weather Fusion, a provider of forensic weather verification services. Those four states grow wheat, corn, soybeans, barley, cotton, sorghum and other crops.

Nick Vos, of Hugoton, Kansas, was visited by the white combine June 19. He sent DTN pictures of his 30 acres of destroyed corn and barley. "I have 80 acres of hail-damaged wheat and 80 acres of hail-damaged corn. Around my house in Stevens County there are about 10,000 to 15,000 acres that got hail damage. In Texas County, Oklahoma, about the same, maybe more."

On top of that, he sent me a picture of a milo field in Texas County that was completely under water from the same storm of June 18 through June 19 that dumped as much as 7.6 inches of rain in 12 hours in the Panhandle, flooding farm fields, county roads and homes.

According to Oklahoma Mesonet, "Mother Nature went nuts on Hooker, Goodwell, and Beaver last night! Goodwell's total hits their 1,000-year rainfall mark, and Hooker broke their all-time daily rainfall record in less than three hours."

While the rain was welcome, the hail was not. However, the rate at which the rain fell was too much for the soil to handle. "We haven't had much rain at all in the Oklahoma Panhandle, so the soils are extremely dry, very rigid. They have a clay soil, like we do down here, and so the water just ran off. So how much actually seeped into the ground is going to be a big question mark," said John Harris, KAMR Local 4 News chief meteorologist.

"It seems it's been an already active year for severe weather in the U.S. Corn Belt. With more moisture this year than in years past, we have witnessed a very active weather pattern across much of the Corn Belt, with several major systems resulting in both severe wind/tornadic activity and hail," said Ben Rand, of The Home Agency insurance company. "The most noteworthy includes the massive storm that came through Yuma, Colorado, working as far east as Stratton, Nebraska. The damage to property was extensive, but it was early enough in the season that the corn grown in the region will likely come of out it very well; the wheat however was far enough along that it will not recover.

"There were several other major systems that dumped crop-damaging hail and wind on portions of western Nebraska, damaging what was some of the best-looking wheat producers had seen there in some time. Another recent storm stretching from Sioux City, Iowa, to Omaha, Nebraska, destroyed a number of acres on the Iowa side of the I-29 corridor. Yet another recently destroyed crops in the panhandle of Oklahoma, southwest Kansas and eastern Colorado."

HAIL INSURANCE

I asked Rand to explain key points about hail insurance to understand it better as far as how much is covered versus federal crop insurance. One thing I was curious about was how soon hail coverage would take place once it is purchased.

"Hail insurance is a private market product, meaning it's not federally subsidized. As such, each carrier has different rules in how hail can be bought and coverage bound. Policies vary from state to state. There are some carriers that have a 24-hour wait, some that have a 2-hour wait. Meaning from the time the hail is booked, coverage does not take place until that waiting period is over. Again, it varies from carrier to carrier, state to state," explained Rand.

"Hail policies can be divided into two categories, Production Hail (HPP) and everything else that is a variant of Basic Hail. Production Hail is a hail policy that uses your APH to establish a bushel guarantee and pays you when you have a qualifying hail event that results in a production loss. These hail policies cannot pay until you've harvested your crop, and use your databases established through your Federal Multiple Peril Crop Insurance (MPCI) policy to determine your guarantee. The second is a Basic Hail or variant of Basic Hail. These policies do not use your APH and you choose how much you want to buy per acre (limitations apply). An adjuster will be assigned to your loss, come to your field seven to ten days after the hail event, stage the corn, and conduct and adjustment. There are many different versions of this hail policy. Ones that have deductibles, ones that have no deductible, ones that have payment factors, etc. etc.," said Rand.

Rand explained what and how much insurance a farmer should buy. "Let's look at statistics first. The average hail claim results in a 18% to 19% adjusted loss. That means, ideally, we want a hail policy with no deductible and totals out at around 18% to 19% adjusted loss. Well, no such policy exists and if it did, it would be so ludicrously expensive no one would buy it," said Rand. "But a Comp 80 policy gets really close. It pays one for one up to 6.33% adjusted loss, then has a 5 deductible and 5x multiplier after that. Sounds confusing but it's not. Here is how it works.

"Adjuster says you have a 10% loss. You take the 10% loss, subtract your 5 deductible, which brings you to a 5% loss. Now multiply that by a factor of 5%, and your final adjusted loss is 25%. Which means that any adjustment over 25% results in a total loss of the policy. Say your adjuster says you have a 25%, subtract your 5% deduct and you have a 20% loss. Multiply it by your 5x, and there you go, 100%, and the policy is totaled. If you bought $100 per acre, you get all $100. If you bought $300, you get all $300. Generally speaking, our agency prefers to write these policies. They typically pay within days of adjustment, and you don't grow yourself out of a claim like you could with a Production Hail policy," said Rand.

"Here is how I look at this," said Rand. "Let's say you're a 200-bushel grower and corn is worth $5. You potentially have $1,000 out there in the field. If you have 80% MPCI, you have protected $800 of that, which leaves $200 at risk of loss. So, you buy $200 of Comp 80. The Comp 80 reacts to those shallow hail and wind losses that your MPCI doesn't catch, and by the time the Comp 80 policy is exhausted and totaled out, the MPCI picks up the rest. While there are a handful of companies that offer a wind only policy, wind is typically an endorsement to the hail policy. Meaning you must buy the hail coverage to get the wind coverage."

Rand said some farmers have asked why they should buy hail insurance, since it's so expensive? "Margin Protection (MP), Enhanced Coverage Option (ECO) and Supplemental Coverage Option (SCO) seem like better options to get to a higher (up to 95%) coverage level, and they are subsidized," said Rand. "MP, ECO and SCO are area plans. They require a county-wide loss. While there are certainly areas where MP, ECO and SCO have their place, in the High Plains of western Nebraska, Kansas, South Dakota, North Dakota, Oklahoma, Texas and Colorado, that simply isn't the case. And with MP, any indemnity from the underlying MPCI can offset the MP claim in partial or whole. So, if you do get hailed out and MPCI pays, it will reduce, potentially totally, any MP indemnity.

"Additionally, county losses do not pay back producer operating notes. The producer's crop pays back his note. And while ECO triggered in many counties of Nebraska last year, on the irrigated acres it was primarily due to a setback in the spring price from the fall price. Plus, ECO/SCO/MP doesn't pay until June of the year following. A Comp 80 policy will pay you within a couple weeks of the event."

Ben Rand can be reached at The Home Agency, 800-245-4241.

Mary Kennedy can be reached at Mary.Kennedy@dtn.com

Follow her on social platform X @MaryCKenn

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