Crop Insurance Basics | 4: Unit Structure

If this is your first time to our blog I would recommend reading up on our previous posts about APH (Actual Production History) –

• Intro to APH –
• APH and the YA Option –
• Coverage Levels –

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.

What is a Crop Insurance Unit?

Rain & Hail describes it as this:

• A grouping of insurable acreage of a crop, in a county, which is taken into consideration when determining:
  • Guarantee/Coverage
  • Premium
  • Amount of any indemnity (loss payment)

I like to think of it in terms of buckets.  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, and represents your crop insurance guaranty.  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.

Your farm is divided into “Units” that are small buckets.  If you have Optional Units as you fill each bucket up it either has a loss, or it does not.  As you move into larger Unit Structures, like Enterprise Unit, as you fill your buckets they all dump into one large bucket for each crop in each county.  Then you either have a loss, or you do not have a loss.

Unit Structures

Take a look at the “Unit Strucutre Figure 1.0” from above.  You can see there are three* types of Unit Structures when it comes to Federal Crop.  Enterprise (EU) > Basic (BU) > Optional (OU).  As you can see the Enterprise Unit is the largest and most expensive whereas the Option Unit is the smallest and most expensive.  The smaller the Unit Structure the more specific the requirements become.

Enterprise Unit (EU)

Enterprise Unit is the “largest bucket” of the three Units Structures as it is based on Crop and County.  In other words, each Crop in each County is its own unit.  One bucket for all of your Wheat regardless of share, section, type, etc.

Key notes on EU

• Must contain at least 2 sections with planted acreage
• Each section must have planted acreage that constitutes at least the lesser of:
  • 20 acres, or 20 percent of the insured crop acreage in the enterprise unit
• There are options to separate out Irrigated from Non-Irrigated, combine multiple Counties, by type etc.
  • Irrigated and Non-Irrigated can be split into two EU in a County
  • Peas, in Montana, can be broken up by Type as EU’s for example
    • Small Kabuli Chickpeas as one EU, Large Kabuli as another EU, etc.
  • You can combine Multiple Counties into one EU in some scenarios

The biggest reason that producers sign up for EU is the premium subsidy is much higher then in Optional Units.

If you sign up for EU, and fail to qualify on or before the Acreage Reporting Deadline:

• Optional Units will be assigned if you qualify for OU
• If you do not qualify for OU then BU will be assigned.

If you sign up for EU, and fail to qualify after the Acreage Reporting Deadline:

• BU will be assigned.

If you have EU for Wheat – all of your 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.

**Word of caution** you still should report your crop insurance as though you are utilizing OU even if you select EU. That way if you ever want to go back to OU from EU you can, and not have any penalties. Don’t use EU 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.

Basic Unit (BU)

The benefit of a BU is that is can qualify for a discounted premium vs an OU.  The discount on BU is not as significant as EU though.

Optional Units (OU):

Optional Units qualify for a separate unit structure based on the following criteria: Crop > County > Share > Section > Type

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:

Assumptions:

• The red lines are the Section lines
• All of the crops seeded are Winter Wheat
• All of the crops have the same Share

In the figure 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 figure 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

Now let’s take a look at the same images, but take Share into account:

In the figure 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.  The Share in this example would not have any affect on the Unit Structure as they qualify for separate Units no matter what.

Optional Unit 1: Section 1

Optional Unit 2: Section 3

In the figure below you will notice that the farmer seeded an additional field into Section 2 that crosses over into Section 1.  However, in this example the field that cross over has a 75% Share.  Whereas when all fields were 100% all of the fields were combined into one unit.  However, since the field that would cause the other fields to be combined has a different Share then you can treat it as if it does not exist.  In this scenario you would end up with 3 Optional Units.

Field A – Optional Unit 1

Field B – Optional Unit 2

Field C – Option Unit 3

There are a lot of scenarios out there that can make things confusing in a hurry.  I urge you to sit down with your Crop Insurance Agent to go over your maps to help you sort this out.  I handle this with my clients online in a proprietary mapping tool, so reach out if you are interested!

Why does it matter?

It only matters if you need/want it to matter.  If your primary concern is premium dollars then EU is probably your best bet.  If your primary concern is insuring your crops to as specific and customized of a policy as possible then OU is probably your best bet.  There are many factors that contribute to selecting the appropriate Unit Structure for your operation.  There is not a right or wrong answer here.  It is all about your risk tolerance, and how you want your crop insurance policy to better help you manage your risk.

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.