Minding Ag's Business

Is Crop Insurance on the Rocks?

Drought years like 2012 should be a testimonial for federal crop insurance and its evolution into meaningful revenue protection. After all, U.S. agriculture suffered the disaster equivalent of Hurricane Sandy and no one is writing "FEMA, please help me" messages in farm country.

Instead, the federal budget crisis means much of that sound economic policy could be up for grabs when Congress tackles the farm bill in the next few weeks, speakers at the upcoming DTN-The Progressive Farmer Ag Summit in Chicago tell me. Kansas State University Economist Art Barnaby, University of Illinois Economist Gary Schnitkey and John Deere Insurance Co. President Don Preusser all see 2012 as a pivotal year and maybe the high water mark of coverage as we know it. What has been the backbone of farm risk management in the last decade may look entirely different within the next few years.

"This is the largest crop disaster since 1988, allowing critics to claim that crop insurance is a runaway program," Barnaby says. "They seem to forget about all the years farmers have paid premiums and in some of those years, the government even generated underwriting gains."

At issue is whether the Harvest Price protection has been overly generous, and whether it will be offered at all once Congress revamps farm programs. This year, corn coverage got a 32% price boost between spring and fall, bailing out growers who oversold forward contracts or needed to buy feed to replace homegrown crops. "Farmers are going to have to fight for it if they want it," observes Schnitkey.

Second, how much should the federal government subsidize farmer premiums? Barnaby points out that the government subsidized about 63% of farmer premiums this year, up from about 26% two decades ago. By making coverage more affordable, the number of acres insured soared from 83 million in 1992 to 264 million this year. Corn growers spend about $25/acre an acre to insure now, but how would they feel about $75 or $100? Would you just install irrigation instead?

Third, caps or payment limits on insurance might chase big farmers out of the program. The problem is, that's like chasing all the 25-year-olds out of your health insurance pool. It might not be actuarially sound.

To hear a heated discussion of what crop insurance might look like in the near future and how it might affect your policy buying habits, please join us at the Ag Summit Dec. 10-12 in Chicago. Early bird registration ends Nov. 23. Go to www.dtnagsummit.com for details.

In the meantime, let me know your concerns about crop insurance. Is there a better way to deliver protection without breaking the federal budget?

Follow Marcia Taylor on Twitter@MarciaZTaylor

Marcia Zarley Taylor can be reached at marcia.taylor@telventdtn.com



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Jarrod Bennett
12/27/2012 | 10:28 AM CST
Thomas, your agent gave you bad advice which led to a poor purchasing decision. Unfortunate for you, the program you purchased worked exactly as it was supposed to. Had your agent advised you to purchase fall price protection (something I do to ALL policyholders in ALL years) you would have received not only that 15% payment on the lost bushels, but you would have also received another roughly 33% additional pricing payment on those lost bushels. I sure hate to hear that someone who had a half a crop didnt receive a payment this year...I would suggest you agent shop this year and seek one who will spend the time to fully explain what you're buying. As much as it costs, you deserve a knowledgable agent who'll take the time with you and make the right offerings based on what he or she knows about you. Best of luck Thomas.
Lon Truly
12/25/2012 | 7:53 PM CST
A major reason that margins in ag are tight is because of government not only assuming nearly all the production and marketing risks for many of the major ag crops, but also government guaranteeing a profit to many farmers with current prices and current government insurance schemes. Current farm bill proposals double down on these government risk assumption schemes with new and crazier shallow loss income guaranteeing schemes. When farmers have to budget for more of the production and marketing risks they are not as crazy about driving profitability margins below zero.
Lon Truly
12/5/2012 | 10:34 PM CST
The clueless and or corrupt congress ever fixated on re-election has chosen to be oblivious to the economic carnage it is creating with the unfair and inequitable crop insurance schemes. It should be obvious to everyone that targeting the largest and most profitable farm businesses with the largest investment and income guarantees grants these operations with an overwhelmingly competitive edge in a highly competitive business. It should be noted that many of these operations have little or no land costs and that government has no business guaranteeing ever increasing land values with insurance schemes that cover land costs. It should also be obvious that smaller farm operations targeted with no or minimal government benefits have little or no chance of competing in such an economic environment. Considering the stratospheric levels to which land values have escalated it should be obvious to all that extreme government income and investment guarantees are capitalized into land values and that government has no business targeting the wealthiest with multimillion dollar investment/profit guarantees and billions in insurance subsidies.
Thomas Trojan
11/30/2012 | 8:10 AM CST
No farmer gets rich off of crop insurance. I took 70% cover with sping price option. I came in with about a 55% crop. you would think i would get 15% times the spring price. Wrong I got Nothing!!! They said the fall price was high enough to cover my costs. Funny thing is no one told me this when we were signing up for the program. I have found out Im not the only farmer that this has happend to. So if you foward contracted your crop at the spring price you were really on the short end of the stick. They still kept my premium though. What a scam.
11/19/2012 | 6:45 PM CST
Trillion $ deficits and the taxpayer on the hook for price/yield guarantee? Looks like low hanging fruit to me.
Jarrod Bennett
11/19/2012 | 4:13 PM CST
If this year isn't a testament to the functioning safety net crop insurance is, there isn't one. Congress just can't help seeing something be successful and work for a change... Ask any farmer if they're glad they had insurance this year. Then ask them if they're glad they have FSA disaster payments this year. See what kind of response you get from both. Insurance works folks, as it has for years; don't defund it Congress.
Matthew Schreurs
11/16/2012 | 9:48 AM CST
Marcia, I don't think your thought process of health insurance & 25 years old vs. crop insurance vs. large farmers is an apples to apples comparison. I don't know a single banker out there that would lend money right now to a farmer paying $10k+ per acre or $300+/acre cash rent if they didn't have crop insurance. Look at it this way, home many farmers would have lost nearly all their working capital or profits in the drought stricken areas from this year? Maybe they can survive one year, but probably not 2. Crop insurance is a necessity, but if they cap it or reduce the premium, farmers will still have it, but they will carry more of the risk and/or cost.
Bruce Cumberland
11/15/2012 | 9:35 PM CST
Marcia, Everybody seems to rave about the crop insurance. What people don't realize every year that your yields are a wreck the less coverage you have for bushels because your average goes down. As alot of these farmers know in a combine you can have 300 on the monitor but the moment you get into pockets of bad the average gets killed. You continually show crop failures year after year your average and insurance bushels drop. Eventually it is to the point you got troubles. This will be an issue in the next couple of years if dry conditions persist and the yields are below the normal. Levels of proctection will decrease and no one is talking about this. Yield history is a part of the equation that will rear its ugly head. Interested to hear you thoughts and the thoughts of the American Farmer. Bruce