Building an Effective Crop Insurance Program – Understanding Unit Structure

Wheat field

Building an Effective Crop Insurance Program – Understanding Unit Structure



The key to providing accurate information in a timely manner is good communication. When we call our clients to remind them it is time to collect accurate information, an acreage report, or production report, we understand they do not wake up every morning thinking about their crop insurance agent or their crop insurance program and may not be ready with the needed information.

We realize we may have to call a second time to remind you to get your information ready.  When you do not take responsibility for your crop insurance program and your acreage and production reports become late or non-existent is when you’re crop insurance program becomes ineffective.

The important element to understand, that will greatly improve the effectiveness of your Federal crop insurance program is to understand what unit options are available to the crops that you are growing.

There are many different unit options and they are found in different documents of the crop insurance policy.  Why is there so much discussion on units? What is so important about units anyway? The reason is statistical information gathered from the history of claim studies show that individual farms that use unit options in their Federal crop insurance strategies participate in more claims and receive higher payouts from those claims. Please do not misunderstand me. I am not saying that if this coming year you implemented units to your Federal crop insurance program that you will have a claim or that a possible claim would be any larger. However, if you implement consistent unit strategies, over time you will have a greater chance of participating in more claims.  When you do participate in a claim, on average, you could possibly receive a larger payout.

A unit refers to the way we report the acreage of an insured crop that you have planted. A basic unit is all the acreage of that particular crop planted in the same county. Basic units can be established by ownership share. For example, if I planted 1000 acres of crop A, I have a 1000 acre basic unit. When 200 acres of those 1000 acres have a low yield due to a weather event I may not have a claim due to the fact the other 800 acres did well and had a high yield. There is a premium discount for choosing the basic unit structure as your reporting option. This is because statistically, you will participate in fewer claims and therefore are charged a lower premium.

An optional unit is when you break up that thousand acres of a planted crop and report in smaller units. For example, let us say that you implemented a strategy for your farm using one or more of the rules that allow us to break your farm up into units and you end up with four units that look like:

  • Unit 1 = 300 acres
  • Unit 2 = 200 acres
  • Unit 3 = 280 acres
  • Unit 4 = 220 acres

Now that 200 acres in unit two had a low yield and we file a claim, and that 200 acres stand alone no matter if the other 800 acres in the other 3 units did well. Optional units will increase your insurance premium per acre but, this will increase our ability to participate in a claim. This is increasingly important as farms continue to grow and get larger and their crop growing risks are spread over increasing geographical areas.

As discussed earlier the crop insurance provisions give different crops different unit options. However, not all unit options apply to all crops. For example, the discussion on the sectional equivalent option is a great strategy to implement Federal crop insurance to any grain crops such as corn, soybeans, wheat, barley, and oats. This option is not available to any of your fruit crops like apples, peaches, grapes, and cherries.

When we have taken the time to understand the importance of units, determine which unit option best applies to the crops you grow and implement those unit option strategies, there is a second component to the unit rules. A farm producer is required to maintain his production records by these same units. The penalty for not keeping production records according to these units is that the insurance provider would collapse your acreage reported by units back into a basic unit that would include all reported acres.

Over the years with all the technologies applied to modern agriculture, providing production records down to the unit level has become easier and more effective. The handling of certain crops by their very nature makes production reporting easier, for example by using precision farming technologies to record a grain harvested by a combine. There are situations where the buyer of the commodity is keeping track of your production for processing crops such as peas, snap beans and sweet corn. However, for some crops and for some farms, keeping production records down to the unit level is a challenge. In the crop insurance standards handbook the paragraph on records states: The following records or similar records from a third-party of commercially sold or stored production are acceptable:

1. Bin records                                                                                        8. Warehouse receipts

2. Ledger records                                                                                9. Elevator receipts

3. Load summaries                                                                            10. Settlement sheets

4. Processor records                                                                          11. Storage facility records

5. Buyer records                                                                                  12. Packer records

6. Distiller records                                                                              13. Boiler house receipts

7. First handler reports


The crop insurance standards handbook goes on to state what information needs to be included with these records.

  • The Crop
  • Quantity of production & unit of measure
  • Name of the insured
  • Unit number, block number, location
  • Date of transaction
  • Nature of 3rd party, broker, buyer, handler
  • Type of practice of crop
  • Crop year commodity was produced
  • Planting periods if crop has 2 planting periods

This sounds extremely easy; on the other hand, this can be very cumbersome. Let’s look at an example where the rules would allow a grower to have optional units however the grower cannot meet the requirement to report his production by those separate units.

We had a grape grower producing roughly 20 acres of grapes all in one block. Part of the land that these grapes were grown on was owned by the farmer and part of the land that these grapes were grown on was owned by his father. At the county Farm Service Agency office, each individual had their own farm serial number, tract number, field number. Under the rules and procedures outlined in the common policy provisions, this farm could have two units, by separate shares (ownership) designated by the two separate farm serial numbers.

Does this farm have two units? The answer is no! When these grapes get harvested, the custom harvester comes in and harvests the whole block of grapes. When done the farm producer receives one production number of the total tons of grapes off that block. The harvester does not know where the artificial line in the field is that separates the two farm serial numbers and therefore cannot stop and harvest the acreage on one farm serial number vs. the other. Even though this grower qualifies for optional units, the method of harvest and lack of a third-party providing acceptable records prevents him from implementing optional unit strategy and has one basic unit of grapes.  You can get a more complete picture of how you can make your crop insurance work for you by reading my book, The Ultimate Guide to Simplifying Your Crop Insurance.