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."

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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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