Farmers look to diversify during a time of shrinking profit margins, but at what cost?

By: Brady Gooden

As we enter the sixth year of declining or flat prices, ag producers continue looking for additional ways to increase revenue.  Even with three consecutive years of record or near-record yields for many local producers, operations continue to face shrinking profit margins.  What will happen if prices continue to stay flat and production slips to average or below average yields?  Hoping to combat this reality, many producers have looked to diversify their operation as a  way to increase revenues.  Diversification often involves using the tools and equipment at their immediate disposal.  Custom spraying, custom manure hauling, custom grain hauling, custom planting, custom harvesting, custom tillage, custom livestock feeding…custom, custom, custom. 

What’s the problem then?  If the proper steps are taken, absolutely nothing.  Increasing revenue with a minimal increase to expenses or wear and tear on equipment is a fantastic way to improve the bottom line.  Taking the proper steps is the key to protecting yourself, however.  Sure, it would be great to spray the neighbors’ 500 acres twice per season at $5 or $6 per acre, but what does your farm liability company think of that?  More than likely, they are not automatically providing coverage for overspray or drift while custom applicating.  However, if you contact them, many companies WILL provide the coverage for an additional premium.  You might even be surprised to find out how inexpensive it really is. 

State or federal regulations are another thing to consider.  Do you need your commercial applicators license if you start custom spraying?  Putting your semi-tractor and trailer to work during the slow months is an extremely popular idea among producers, but what needs to be done to haul for others?  This one is usually a bit more complicated and the costs can add up a little faster.  Federal motor filings, commercial truck insurance, cargo insurance, truck authority…all things that need to be considered.  These items can certainly add up, to the point where it may not make sense to pursue custom hauling, unless you’re going to do a lot of it.  But again, some larger ag insurers are willing to take on these risks for an additional premium.  

The cost for additional licensing or insurance may be very reasonable, or may be prohibitive, depending on what you are doing.  However, it pales in comparison to what it might cost a producer that fails to go through the proper steps.  Let’s say Farmer John decides to start custom hauling grain for a couple of his neighbors.  He thinks, “I’ve got $3 million worth of liability coverage between my vehicle policy and my umbrella, I’ll be fine.”  What if Farmer John gets into an accident and seriously injures or kills someone?  Well, if he’s custom hauling and his company doesn’t know about it, there’s a chance his liability coverage is going to be $0 at the time of a claim.  So, then what happens?  If Farmer John doesn’t have the money in the bank to cover the judgements against him, he’s likely going to have to sell the farm.  This is a nightmare scenario, and something that could have been avoided with a call to his insurance agent. 

This is not to say producers should avoid taking on custom work.  As stated before, it’s a FANTASTIC way to increase revenue at what’s usually a small additional cost to the operation or wear and tear on equipment.  But, producers need to make sure they are asking the proper questions beforehand and not leaving themselves and their operations exposed to unnecessary risks.  More than likely, the resources to properly conduct custom operations are readily available to all producers.  If there is a question regarding licensing, filings, or regulations, call your attorney.  If you have insurance related questions, call your agent.  These are key members of your business team and they are in your corner willing to help.

Rented, leased and borrowed machinery – are you covered?

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With harvest in full swing in Minnesota, it is crucial to keep your equipment functioning properly, especially during a late harvest like the one we’re experiencing. What if you have a breakdown that forces your combine to be in the shop for a week?  What if you need a specific piece of machinery to perform fall tillage, but would rather lease it? Rented, leased or borrowed machinery comes into play for many reasons. Would you be covered for all the unknowns during harvest? Well, we are here to help explain the different coverages.  Here are seven frequently asked questions with some very important information to know:

1.      Is rented, leased or borrowed machinery included on your policy?  Or, do you need to call your agent to add it?  That depends on the company and type of policy you have.  Some policies automatically include that coverage and others only include the coverage if you specifically list the equipment at the time it’s borrowed, rented or leased.

 

2.      If it’s included, is there a limit to the amount of time you can rent, lease or borrow it?  That, too, depends on the policy.  Some companies allow 30 or 60 days of use.  Other companies may not have any time limit.

 

3.      Is there a limit to the value of rented, leased or borrowed machinery you can have?  It’s likely that there will be a limit to the value that’s automatically included, like $100,000.  With the values of combines and tractors today, that limit wouldn’t be enough for those items.  But, if you’re renting a skid loader or tillage equipment, that limit may be sufficient.

 

4.      What deductible will be applied if there is a claim?  Policy deductible will most likely apply.  Certain policies may allow for a lower deductible to be applied.

 

5.      Is Special Form coverage extended to the rented, leased or borrowed machinery?  No, Special Form isn’t automatically applied.  This is especially important during harvest when ingesting a rock into a borrowed combine could mean lots of damage that your insurance policy may not pay for without the correct coverage.  Rock ingestion would only be covered under Special Form coverage.

 

6.      What might NOT be covered?  Motor vehicles (cars or pickups) or recreational vehicles like Rangers are not eligible to be covered by rented, leased or borrowed equipment.  Rented, leased or borrowed machinery primarily pertains to tractors, combines and other farm implements.

 

As always, if you have any other questions, we are just one phone call away and would love to help you with your questions. Contact us at 507-473-4900!

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