When the Farm Bill passed in December 2018, many U.S. farmers rushed to quickly add hemp to their crop roster. At the same time, insurers were caught flatfooted, not quite ready to cover the sought-after crop’s growth and the catastrophic weather events that could damage it. As a result, the majority of domestic hemp crop in the 2019 season went uninsured.
While still limited, 2020 will usher in more insurance options for hemp farmers.
The USDA Pilot Program, which will roll out in early 2020, will offer an extension of the federal crop insurance program to hemp farmers in 12 or more states. While the details are yet to be announced, the federal crop insurance program will likely carry policy limits in line with traditional crops, which falls well beneath the expense to plant and harvest hemp.
Regardless of the crop, growers can retain a Retail Hail Program. This type of crop insurance can be engaged for any farm land susceptible to hail damage. Carriers offer hail insurance to growers in all 50 states, with some location restrictions. While hail programs are known to be costly, those backing hemp farms can be even more so.
There’s always the standard insurance market. Like the retail hail program employed for other indoor or outdoor crops, a coverage package can be built around independent peril policies for each farm land, including fire, general liability, crime, etc.
The latest and most uniquely-tailored hemp insurance coverage is a Parametric Program. For this coverage, local, historical weather data from a third-party municipal source is mined to determine the likelihood of a weather event that would damage or destroy the hemp crop, including hail, rain, wind or frost. From this data, a trigger threshold for coverage payout is determined and named in the policy. Additionally, the insurability of the hemp isn’t affected by the THC level should stress on the plant cause it to run “hot.”
Weather data is based on the exact latitude and longitude of the hemp fields. Unlike typical crop coverage, where an adjuster from the insurance company comes out to evaluate the field post-loss, the parametric crop program pays out the established daily or policy limits as soon as the trigger threshold is reached, based on the local data being monitored and regardless of the damage in the fields. Daily limits will be paid out automatically when the named weather event happens on a given day.
While carriers are unable to ensure the $150 to $200K/acre hemp farmers expect to make when harvesting hemp, a parametrically-rated program aims to insure farmers for the costs they incur in planting and growing the crop. This is typically $30 to $40K/acre, a payout the other insurance options can’t meet.
Parametric program insurance is costly and must be paid in full upfront without financing. Typically, the cost can be as much as 8 to 10 percent higher than general crop coverage. However, it provides the greatest ROI for farmers on the market today.
Case In Point: One Oklahoma hemp farmer wanted to insure his crop from tornado-force winds. Historical averages of local wind data revealed how often the farm land sustained a significant wind event, coupled with how long those wind events lasted and determined what the wind velocity would have to reach to ruin the farmer’s hemp crop. Ultimately, the trigger threshold for the daily limit coverage was set at a wind event that contained at least 55 mph winds, and was sustained for two minutes or more. The policy limit was set to be triggered when the daily limit is reached on four consecutive days.
Contact your HUB Agribusiness expert to find out how you can insure your hemp crop this year.