Minding Ag's Business

Add crop insurance claims to the potential fallout from a government shutdown.

October marks the month when futures prices determine crop insurance guarantees for two of the nation's largest crops--corn and soybeans. Since February when the Risk Management Agency set planting price guarantees for corn at $5.65/bu., average prices have declined $1.23/bu., or more than 20%. If corn prices stay that depressed through the end of the month, insured growers with average or below-average yields and high levels of revenue-based crop insurance will likely trigger claims, points out Gary Schnitkey, a University of Illinois economist.

That will most likely affect growers in Iowa, southern Minnesota and parts of the Dakotas with late planted crops, since other parts of the country are experiencing above-average corn yields. It's not unlike 2008 when steep market declines were enough to trigger payments without yield losses though.

There's just one problem: Nobody at the Risk Management Agency is minding the store.

"RMA is shut down completely. Its IT systems are not operating," Keith Collins, a former USDA chief economist and crop insurance consultant told attendees at an industry meeting in Louisville today. Private insurers still have to deliver reports and financial data to the agency, he said, but now must comply by delivering information by registered mail so it meets legal deadlines. More serious, companies must collect and remit farmer-paid premiums that were due Sept. 30 to RMA, but the agency is not funding escrow accounts so insurers have the cash to pay farmer claims.

USDA's Office of General Counsel has indicated that companies have a contractual agreement to farmers and must continue to pay claims, with or without cash from their escrow accounts. "Still, there's a fair amount of turmoil created due to the shut down," said Keith Collins, a consultant for National Crop Insurance Services and a former USDA chief economist.

"All of our carriers have assured us they will be able to make claims, so farmer should see business as usual as long as it's a temporary situation," said Tom Sloma, who heads up the crop insurance division of Farm Credit of Mid-America, which serves growers in Ohio, Kentucky, Indiana and Tennessee. "But there is a backlog of data piling up at RMA." For example, RMA has the option to review all claims over $200,000, so it's likely these payments will be slowed at the very least.

In most states, spring price guarantees for revenue-based crop insurance were set at $5.65 for corn and $12.87 for soybeans. Through Oct. 7, futures prices averaged $4.42 for corn and $12.85 for soybeans. DTN will run daily updates of potential harvest prices for crop insurance during the month of October. Subscribers can find this data under the Crop Insurance segment on Farm Business.

Follow Marcia Taylor on Twitter@MarciaZTaylor.

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