Drought Worsens As USDA Cuts Crop Projections; Farmers Hopes Sink

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The weekly U.S. Drought Monitor map released August 14 held more bad news for the contiguous United States, with 62 percent remaining in some level of drought. And the expanse that is gripped by extreme or exceptional drought rose nearly two percent last week to 24 percent.

The center of the drought remains directly over the Corn Belt. With some stage of drought covering the entire states of Indiana, Illinois, Iowa, Missouri and Kansas, the drought is certainly taking its toll on the corn and soybean crops. According to the August 10 estimates from USDA – the first “in the field” estimates of the year – production numbers are down substantially from what was projected at the beginning of the planting season.

Despite the fact that this was the largest corn crop planted since 1937, production is projected to be down 13 percent, the lowest output since 2006. Corn yields are expected to average 123.4 bushels per acre, down nearly 24 bushels from last year, which would be the lowest average yield since 1995. Soybeans tell a similar story. Soybean production is forecast to be down by 12 percent from last year, and if realized, would have the lowest average yield since 2003.

“Thankfully, the vast majority of the farms in these drought-ravaged areas are protected by crop insurance,” said Tom Zacharias, president of National Crop Insurance Services, in a statement released to the media. Zacharias noted that farmers purchase crop insurance policies to protect themselves against situations just like this, although many have never collected an indemnity. “This year, their decision to purchase crop insurance confirms their practice of sound risk management,” he said.

While there continues to be speculation about the ultimate cost of the 2012 drought, it is still too early to provide precise estimates of the losses. Zacharias explained that NCIS is analyzing the August 10 report and will compare that with reports from the field along with the crop insurance policy data that is still being processed and reported to the Risk Management Agency.

It will be hard to gain a complete picture of the situation and final outcomes will vary by state, crop and types of policies purchased. “What is certain is that the crop insurance industry is on the ground in the drought-stricken areas, mobilizing loss-adjuster teams,” Zacharias pointed out.

“Farmers can be assured their claims will be paid, and that the companies will move as quickly and as efficiently as possible, given the expected volume of claims, to assess damages and get indemnity checks into the hands of farmers.”

In order to be approved to sell federal crop insurance, companies must have adequate surplus and reinsurance at their disposal so that even if a catastrophe of this magnitude strikes, and then one strikes again the next year, the company is still capable of paying indemnities on the policies they sell.

In addition to company surplus and reinsurance, the federal government serves as the backstop reinsurer for all companies that sell crop insurance. As such, the federal government shares in the gains and the losses of the program. Gains in prior years can and will be used to offset losses in years like this one.

Zacharias explained that the industry has 5,000 claims adjusters and 15,000 agents working tirelessly right now to help growers cope. These adjusters are working hard to get money to farmers who have suffered losses, already paying out more than $1 billion in indemnities to date. Companies are also mobilizing adjusters away from other parts of the country that have not been affected by drought and sending those adjusters to the hard-hit states.

“With their crop insurance policies in hand, farmers will not only survive this drought but plant again next year, ensuring a continuity of the food, feed, fiber and fuel supply for this nation and an increasingly hungry world,” he added.

 

Crop Insurance Helps An Iowa Farmer Plant Another Day After 2011 Floods

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There are few places in the country that personify the radical whims of Mother Nature as well as the state of Iowa. Last year, Iowa and much of the upper Midwest suffered under record flooding when major rivers left their banks. This year, Iowa farmers are facing one of the worst droughts in decades. The entire state is experiencing drought conditions that are considered either “severe or extreme.”

Leo Ettleman, an Iowa farmer who lost nearly everything last year to the flood waters of the Missouri, was back on his feet again this year planting his fields and hoping for better luck. “The house, the barn, all the buildings, all the fields, everything was swallowed by the great Missouri,” Ettleman said of last year.

Ettleman says that through it all, having crop insurance gave him a “great peace of mind” knowing that when the waters receded, he, his father and his son could return to farming. The Ettlemans are likely again drawing some comfort from the fact that they always purchase crop insurance to hedge the unpredictability of Mother Nature.

Leo Ettleman, Percival, Iowa

The Ettleman farm is located on some of the richest bottomland in the state; in the part of the country that many believe is one of the best locations on earth to farm corn and soybeans. Leo Ettleman has been farming his whole life, and in his 57 years on the fourth-generation family farm that is close to the Missouri river, he’s well aware of the ups and downs of farming on bottomland: “In the good years, it’s the best land around and your yields will be high,” said Ettleman. “But in the bad years, flooding is always a possibility.”

The Ettleman farm – which consists about 2,300 acres of corn and soybeans plus a cow-calf operation – has flooded before, in 2008 and 1993, but that was mostly due to the fact that high water in the river kept his land from draining and the water just sat on the saturated fields. But nothing in living memory could prepare the family for what they would be facing in 2011.

The year actually started off great, with adequate rainfall over the winter and into the early spring. By April, the corn and soybeans were doing well, and crop prices were steadily ticking up. “Yes, 2011 could definitely be a good year,” Ettleman thought to himself.

Then came the rain, both directly on his farm, but more importantly far upstream. Record snowfall during the winter in the Rockies, which carried more than double its average snowpack, began melting quickly. This, combined with heavy spring rains, which according to the National Weather Service dumped nearly a year’s worth of rain in a two-week period over the upper Missouri River basin, would spell inundation for those living downstream.

By Memorial Day weekend, the news came to families near the Missouri River that they would have to evacuate for two weeks. Ettleman explained that the task before them was enormous, as three generations of the Ettleman family, living in three different houses, and all of the livestock and machinery, were to be moved to higher ground. “But moving to higher ground and hoping for the best was the only option,” he said.

On June 13, the first breach occurred in the long flood control system, roughly 10 miles south of their farm, near Hamburg, Iowa. On June 30, the crisis hit much closer to home as the levee failed near his parents’ home in Fremont. That signaled the beginning of a massive inundation that would leave nearly every farm in every direction under five feet of water. It would last four months.

By the time the levees failed, the Missouri River, which is normally a few hundred feet wide in this part of Iowa, was six miles across where the Ettlemans live.

“The house, the barn, all the buildings, all the fields, everything was swallowed by the great Missouri,” Ettleman said. June, July, August, and even into September, the water was still there. “We could get on a levee and drive down to where we could keep an eye on our property with binoculars and so we knew we had 3 to 5 feet of water against our house but the structure was not destroyed,” he said.

Ettleman and the other farmers in the area attended disaster meetings at the local high school and were apprised of the status of the flood and what to expect once the water left.

Thankfully for Ettleman, he had purchased 80 percent multi-peril coverage on his crops, along with rain and hail damage. Ettleman says that through it all, having crop insurance gave him a “great peace of mind” knowing that when the waters receded, he, his father and his son could return to farming.

Ettleman worked directly with his crop insurance agent and the local claims adjuster to ensure that everyone had everything they needed to get his claim filed. “We got the paperwork started early to get the ball rolling so that when it was time to file my claim, I’d be ready,” he said.

When the Missouri finally receded it left a strange, almost lunar landscape in its path. “Everything was a mess,” he said. “There was three feet of sand in my parent’s house.” The fields were full of trees, debris, trash, and scour holes that could swallow your car. “There were 3 to 5 foot sand drifts in the middle of some of my best fields,” he added. “In some places, I had lost 2 to 3 feet of topsoil from some of my most productive fields.”

With his claim filed and the promise of an indemnity check on its way, Ettleman and his family worked the fields diligently over the winter, testing the soil to see if it could support a crop the following spring and filling the large holes left by the river with the copious amounts of sand that it had also deposited on their farm. And what a difference a year – and an indemnity – can make.

“Right now,” he said, “we’re looking a whole lot better than we thought we would, with 99 percent of our farm planted for the 2012 crop.”

“There’s only about 3 acres that have so much sand on them that we couldn’t plant them,” he noted, “and that will give us something to do this winter.”

 

A Drought Isn’t A Disaster if the Right Tools Are in Place

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A drought specialist with the national weather service recently compared the drought and heat wave here in the Midwest with the catastrophic dry period of 1988 that at the time cost agriculture $78 billion. This year’s weather pattern, which settled into the Great Plains and the Southwest last year and has spread into the Corn Belt, resembles those of a quarter century ago, he noted.

USDA Chief Economist Joe Glauber recently said that “49 percent of the corn crop, 50 percent of the soybean crop, and 45 percent of the hay crop are all in areas that are experiencing drought,” adding that a lot of that area is actually in the “severe drought” category. For consumers, this drought could spell higher food prices as food and feed supplies tighten further and global demand continues to rise.

For farmers and ranchers ­ who in 2011 experienced one of the most disastrous weather years in history ­ this could mean yet another year of dismal harvests and dashed hopes. Thankfully, the vast majority of U.S. farmers purchase crop insurance policies, which last year covered 84 percent of eligible lands, protecting 266 million acres of crops.

But the agricultural destruction experienced in 2011 — which ranged from drought in the plains to flooding in the Midwest and Delta regions to freezes in Florida and Hurricane Irene on the East Cost — differed from previous years. In the past, large natural disasters would have triggered nearly immediate and always expensive ad hoc farm disaster bills in Congress. Last year, there were none.

Why? Because crop insurance, the public-private partnership designed to encourage the private sector to sell and service policies, was in place and working to help America¹s farmers pick themselves up when Mother Nature struck. Crop insurance is the most widely used and popular risk management tool available to farmers today.

This past year, as Congress began writing the 2012 Farm Bill, farmers and ranchers from each corner of the country and nearly every major commodity group came to Washington to testify about what that Farm Bill needed to do. There was one main theme that threaded through their testimony: “Do no harm to crop insurance.”

Unfortunately, an amendment in the recently passed Senate Farm Bill could harm the crop insurance system by mandating means testing to farmers who seek to purchase crop insurance. This might sound like a common-sense amendment at first glance, but what is important to remember is that crop insurance is purchased by the farmers themselves, so trying to make crop insurance sound like some government handout is very misleading.

Means testing could potentially disrupt the whole system because crop insurance, like other forms of insurance, relies on large pools of policy holders, who are all interconnected, meaning that less risky producers make policies more affordable for the riskier producers. In laymen¹s terms, that means that the well-financed, established farmers make policies more affordable for the less established, heavily-leveraged farmers or new farmers seeking to enter agriculture for the first time.

For those of you who don¹t farm, think of it this way. If a car insurance plan removed all of the most experienced and safest drivers from the pool of the insured, the cost for the remaining participants would increase because the low cost members were no longer there to balance out the high cost members. The same is true with crop insurance.

Without an adequate pool of insured participants, the whole system could collapse, making it much more difficult to secure insurance policies or to quickly collect indemnities when disaster strikes.

It’s important that this idea gets stopped in its tracks in the House Farm Bill, which will soon be written and then debated later this summer. An effective insurance program requires more acres in the program, not less. Means testing and arbitrary caps on crop insurance will reduce participation and hurt everyone in the system, including consumers.

The crop insurance system has helped American farmers survive the mishaps of Mother Nature last year, and it will do it again if it’s not undermined. Last year, farmers received nearly $11 billion in indemnities for the damages and losses they incurred over the course of the year. And hopefully, we can maintain crop insurance in its current form, because the current system works for both farmers and consumers.

 

Mike Pfantz is a crop insurance agent from Omaha, Nebraska. This op-ed appeared in the Lincoln Journal-Star on July 13, 2012.

 

Tropical Storm Irene Proved the Value of Crop Insurance

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One side benefit of the popular “eating local” movement is a growing recognition by urbanites and suburbanites of the importance of agriculture and the need to ensure that farmers are able to withstand the many challenges presented by Mother Nature. While farmers manage their many risks using a wide variety of tactics, there is one tool in most farmers’ risk management portfolio, which they consider indispensible: crop insurance.

The value of crop insurance to New England’s farmers was made crystal clear last year by Tropical Storm Irene, which brought heavy winds and even heavier rains just as crops were nearing harvest. While 2011 saw record losses across the U.S. with freezes in Florida, drought in the Southwest and floods in the Midwest, it was farmers in Vermont who sustained the highest loss ratios in the country. As a crop insurance agent, I can attest that many of our farmers saw their entire crops devoured in one day as floodwaters, sometimes six feet high, swallowed their fields.

After the waters finally receded and the extent of the damage to their farms was assessed, it quickly became clear that Irene’s wallop had the potential of being a “game changer” for many New England farmers. And crop insurance was the only thing that saved many of them from losing their farms to bankruptcy and instead allowed them to return to their fields this spring and plant.

Crop insurance is a public private-partnership whereby a farmer buys a policy that protects his crops from adversity. Just like homeowner’s insurance or car insurance, crop insurance is personalized to match each farmer’s degree of exposure to losses and comfort level with risk. It’s sold, monitored and delivered by the private sector, so farmers receive their indemnities quickly after catastrophe strikes.

But it wasn’t always like this. When I first became an agent in New England in 1984, probably only about 10 percent of our farmers purchased crop insurance. Lack of familiarity was one reason for that low percentage: It was a relatively new risk management tool for farmers in New England. But the biggest reason was cost. So every time a disaster hit, farmers would have to rely on receiving help through federal disaster bills because they didn’t have crop insurance. Such disaster relief is expensive for taxpayers and painfully slow to deliver help – taking up to one or two years at times – for the farmers who lost everything.

In the mid 90s, the federal government, weary of disaster payments and looking for a better risk management tool, put forward funds to help partially underwrite crop insurance premiums. Today, most farmers in New England and elsewhere have purchased crop insurance policies, which last year covered 80 percent of eligible crops covering 263 million acres.

Crop insurance is also great for consumers because it makes purchasing locally produced food possible. Consumers nowadays are concerned about the origin of their food, the cultural practices used to produce it and its overall safety. Many of us believe that the best food in the world is local, because we know that the farmer down the road has produced a product that is not only delicious but also secure. Without some kind of policy protection in place for those farmers, “buying local” could be a thing of the past.

And in the tight credit markets we live in, crop insurance has proven to be an indispensible tool for farmers seeking lines of credit from banks. When I first started in the business, it was rare to see a lender who would ask about crop insurance. Nowadays it’s almost ubiquitous, particularly for farmers who raise expensive specialty crops, like potatoes and apples.

Crop insurance has already shouldered $12 billion in federal funding cuts in the name of balancing the budget — about 10 percent of the total federal expenditure in 2008 and another cut of 7 percent in 2010. The federal government now spends about $90 billion on crop insurance subsidies. But if the government continues to bleed crop insurance, it will become either unaffordable for farmers to participate or incapable of meeting the challenges when a disaster strikes, or both.

When the next farm bill is written, Congress needs to remember that it should “do no harm” to crop insurance. Those who weathered Irene and lived to plant another day can attest to the fact that a robust crop insurance policy is in the best interest of not only farmers, but consumers as well. The farmers down the road that grow the food for your family and mine need some common-sense protection against Mother Nature. Crop insurance fits the bill.

Art Carroll owns the Arthur Carroll Crop Insurance Agency in Limerick, Maine, which insures farmers in all New England states and New York. This commentary was prepared with assistance from National Crop Insurance Services.

This op-ed ran in the Valley News on May 25, 2012.

 

House Marks Up, Senate Passes Farm Bill

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The House Agriculture Committee marked up its Farm Bill on July 11, sending the package to the full House for consideration. The current Farm Bill expires on September 30. Overall, the bill would cut Agriculture Department spending by $35 billion over 10 years, or $12 billion more than the Senate. Almost all the additional cuts come from food stamps.

The bill, known as the Federal Agriculture Reform and Risk Management Act (FARRM) maintains crop insurance as the primary risk management tool for farmers and ranchers. In a press statement, Chairman Frank Lucas of Oklahoma and Ranking Member Collin Peterson of Minnesota called FARRM “a bipartisan bill that saves taxpayers billions, reduces the nation’s deficit, and repeals outdated policies while reforming, streamlining, and consolidating others.”

The bill is awaiting floor time and an eventual vote in the House of Representatives.

The Senate approved the bi-partisan 2012 Farm Bill on June 21 with an overwhelming majority vote — 64 to 35. The bill passed by the Senate contains two controversial crop insurance amendments that lack widespread support from most farm and ranch groups.

One amendment, sponsored by Senators Tom Coburn (R-OK) and Dick Durbin (D-IL) would apply income caps for farmers and ranchers who wish to purchase crop insurance. The other amendment, sponsored by Senator Saxby Chambliss (R-GA) would require mandatory farmers purchasing crop insurance to comply with strict soil conservation erosion standards.

In its coverage of the passage of the two amendments, DTN noted that in both cases, a majority of the Senate Agriculture Committee voted against the provisions, including both Chairman Stabenow and Committee Ranking Member Roberts. DTN speculated that the lack of support for both amendments is “a strong indication that without similar language coming out of the House, Coburn-Durbin is unlikely to make the cut” in the final bill that will come out of conference committee.

In a letter to Senator Stabenow following passage of the bill, a large number of national farm groups and lending institutions expressed their opposition to “amendments that will limit participation in crop insurance by producers, including efforts to impose means testing and limit premium support, and those that threaten efficient and effective private sector delivery.”

The American Association of Crop Insurers (AACI) and the Crop Insurance and Reinsurance Bureau (CIRB) applauded the passage of the bill, noting “farmers from across the country, agribusinesses, and the nation’s lending community sent a unified message to Congress this year: Do no harm to crop insurance.”

Both organizations also pointed out the critical role crop insurance played in 2011 while also underscoring the $12 billion in budget cuts the policy has endured since 2008. “As crop insurance takes a more prominent role in risk management strategies for farmers and ranchers, Congress should look for ways to strengthen crop insurance, not weaken it.”

Importance of Crop Insurance Highlighted as Drought Widens

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A drought specialist with the national weather service recently compared the drought and heat wave here in the Midwest with the catastrophic dry period of 1988 that at the time cost agriculture $78 billion. USDA Chief Economist Joe Glauber recently said that “49 percent of the corn crop, 50 percent of the soybean crop, and 45 percent of the hay crop are all in areas that are experiencing drought,” adding that a lot of that area is actually in the “severe drought” category.

“The farmers who suffer crop losses from this drought, or any other covered peril, can rest assured that crop insurance indemnities will be paid timely,” said Tom Zacharias, president of National Crop Insurance Services. The drought, which targeted the southern plains last year, appears to have the Midwest in its sights.

According to the July 10 U.S. Drought Monitor, all of the top ten corn-producing states are experiencing various stages of drought, with the situation worsening by the week. The entire state of Iowa, Illinois, Nebraska, Indiana, South Dakota, Kansas, Ohio and Missouri are in various stages of drought, as is roughly half of both Minnesota and Wisconsin. Nationally, nearly 80 percent of the contiguous U.S. is experiencing some level of drought, with nearly 40 percent of that considered severe to exceptional.

Zacharias instructed producers who think they have a loss on an insured crop to take the following steps:

1. Notify their crop insurance agent within 72 hours of the initial discovery of damage;

2. Continue to care for the crop and protect it against further damage if possible and,

3. Obtain consent from the insurance company prior to destroying any of the insured crop.

“There are other requirements that insureds need to follow that can be found in their specific policy,” said Zacharias. “But these three are key for right now.” Zacharias assured America’s farmers and ranchers that while it is far too early to predict loss estimates, the insurance industry is ready for any claims that are filed.

“2011 was a busy year for the insurance industry when we paid out more than $10.8 billion in indemnities,” said Zacharias. “The insurance companies handled those losses quickly and accurately and they will do the same this year.”

Crop insurance, the most popular risk management tool for farmers, is the key to their financial stability, enabling them to supply food and fiber to our country despite severe weather and other challenges that impact their business. Congress is currently writing the 2012 Farm Bill and farmers and ranchers from each corner of the country and nearly every major commodity group testified about what that Farm Bill needed to do. There was one main theme that threaded through their testimony: “Do no harm to crop insurance.”

 

Crop Insurance Saved Taxpayers $10.4 Billion Since 2002

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Federal crop insurance has come in under budget every year since 2002 – the last year of major revisions to the program – saving taxpayers more than $10.4 billion in projected spending, according to a new analysis of Congressional Budget Office (CBO) data.

The savings, taken as the difference between the projected cost of the crop insurance program by the CBO and the actual cost of the program, shows that in some years, the CBO overestimated the cost of crop insurance by more than 45 percent.

Year CBO   Estimate($ bil.) CBO Actual($bil.) Difference($ bil.)
2002 2.876 2.818 0.058
2003 3.179 2.906 0.273
2004 3.682 3.366 0.313
2005 3.626 2.242 1.384
2006 3.864 3.291 0.573
2007 4.670 4.374 0.296
2008 7.746 4.146 3.600
2009 7.496 6.767 0.729
2010 7.784 4.547 3.237
Total   Savings $10.4   billion

For example, the difference between projected and actual cost ranges from being 6.3 percent too high in 2007 to 46.5 percent too high in 2008.  In 2010, the most recent year for which final data are available, the CBO estimated the cost for crop insurance would be $7.784 billion, but the actual cost of the program was $4.547 billion, or 41.4 percent lower than projected.

The constant discrepancy is due to the fact that the CBO always assumes that the gross premiums—which include what the farmers pay and the government premium subsidies—will be equal to the indemnities paid out, which in the real world, is almost never the case.

Whenever the gross premiums exceed the indemnities paid, this excess is called the “gross underwriting gain.”  This excess is divided between the Federal Crop Insurance Corporation (FCIC) and the private insurance companies.  When the government’s share of the underwriting gains are positive, they help offset the cost of the premium subsidies provided to farmers.  Such positive gains reduce the actual cost of the program to the taxpayers below what CBO had expected.

And these government underwriting gains and overestimates in the cost of the program have been consistent in recent years, and may continue into the future,    while overestimates are the long running pattern and may continue in the future, although 2011 may prove to be one of the exceptional years given the record indemnities due to drought, floods, hurricanes and freezes.

Despite the size of the nation’s food and agriculture sector and the fact that agriculture has been a major economic factor in lifting this nation out of the long recession, federal investment in crop insurance is less than one-tenth of one percent of overall federal spending.

Crop Insurance A Key to Credit Access, Bankers Tell House Subcommittee

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Several witnesses representing key agriculture lending institutions and credit agencies told members of the House Agriculture Committee’s Subcommittee on Department Operations, Oversight, and Credit that access to credit is essential for farmers and crop insurance plays an important role in that access. The hearing, held May 10, went largely unnoticed but is pertinent given the need for most farmers to secure credit.

“Crop insurance is important to the adequate supply of credit to farmers and ranchers as it provides assurance that farmers will be able to repay their operating loans in the event of weather or price related calamities,” said Jeff Gerhart, a banker and chairman of the Independent Community Bankers of America.  Gerhart noted that crop insurance was a good risk management tool that their farm customers have learned to use to better manage risk. “The dramatic evolution of crop insurance in meeting the needs of most of our nation’s farmers has been truly impressive,” he said.

Bob Frazee, president and CEO of MidAtlantic Farm Credit, one of 87 Farm Credit cooperatives that is owned by more than 10,500 farmers from the region told the committee that crop insurance gives lenders the peace of mind to loan to farmers in a very risky environment.  “It is extremely important as a lender to agriculture that we know our customers have insured their production,” he said.  “This protects the farmer and it protects lenders as we provide credit to farmers to cover their operating expenses.”

Matthew Williams, testifying on behalf of the American Bankers Association, told the committee that crop insurance provides his customers with “the certainty they need to make responsible planting decisions and provides my bank with the confidence we need to extend credit to our customers.”  Williams reminded the committee that input costs to plant crops today are “staggering,” and explained that his customers use credit to get their crops planted and harvested.  “If federal crop insurance was in some way diminished, our ability to lend – in some cases – would be curtailed,” he added.

Subcommittee Chairman Jeff Fortenberry underscored the importance of access to credit and the essential role it plays in maintaining the United State’s abundant and affordable food supply.  “Ensuring a stable food supply is directly connected to farmers and ranchers having access to steady sources of credit,” he said.

Crop Insurance Helped Mississippi Farmers See Yet Another Spring

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The state of Mississippi and farming are so intertwined that it is hard to imagine one without the other.  Agriculture is not only our state’s number one industry; it employs roughly one-third of our population, contributing $5.8 billion to the state’s economy.  There are approximately 42,000 farms in the state covering 11 million acres, producing rice, cotton, soybeans and other commodities, and there is not a county in our state where farming doesn’t play a major role.

Agriculture in this state, and throughout the U.S., has been one of the bright spots that is helping the U.S. turn the economic corner.  But the productivity of the American farm and the consumer benefits of the American food supply did not just happen in a vacuum.  It all happened because of hard-working farmers, abundant natural resources and public policies that provided risk management tools for farmers when disasters struck.  And hands down, farmers across the country will tell you that their most important risk management tool is crop insurance.

As a crop insurance agent who was on more than a few farms the day after Hurricane Katrina struck, I can tell you first hand that crop insurance was a financial lifeline for many farmers.  Katrina hit so many farmers who had never before gone through a large-scale natural disaster that wiped out their entire crop at harvest time.  For farmers whose crops survived the storm, their fields were so waterlogged that they couldn’t get their crops out.  It was precisely in this kind of situation that crop insurance showed its value to Mississippi producers, and for those who had purchased crop insurance it was a godsend.

Crop insurance is privately written and delivered insurance that is purchased by individual farmers and tailored specifically for to the risks they face on their farms.  Because crop insurance is delivered by the private sector, indemnities are made to farmers who suffer losses quickly and efficiently.

After Katrina, crop insurance companies dispatched crews from other parts of the U.S. to the Gulf coast states to meet with the farmers and perform the appraisals.  And, believe it or not, despite the size of the disaster and the number of claims made, indemnities were paid in a matter of weeks.

For farmers, the speed with which they received their indemnities enabled them to pay off their production loans from the crop they had just lost and bounce-back to plant again the following spring.  Compare that to federally-administered disaster programs, such as SURE, that take as long as two years for a loss payment to finally reach a farmer in need.  Two years is often too late when you have just lost everything.

NCIS Unveils Newly Revamped, Redesigned Website

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National Crop Insurance Services recently unveiled a newly redesigned and revamped website that will ensure that policy makers, members of the media and academics are able to easily find and utilize the organization’s many tools and online resources. The site prominently features key farmer, lender and insurance agent testimonials discussing the importance of crop insurance as the principal risk management tool as well as making key articles, magazines and videos readily accessible.

The improved sites contains all of the content of the former site with greatly improved usability and functionality, including optimization for mobile devices and tablets, as well as improved integration of NCIS’ social media channels Twitter, Facebook, and YouTube.

Also appearing on the site are several installments of a newly-released educations video series that explains crop insurance – what it is, how it works and why it has become the risk management tool of choice for America’s farmers. In the first video, titled “Crop Insurance 101,” Zacharias explains that crop insurance has evolved as a way to limit taxpayer risk exposure by shifting it to private business. Other videos detailing the importance of crop insurance to agriculture and the role it has played in mitigating the long term damage to farmers and their livelihoods caused by natural disasters are currently being released.

“Today’s popular crop insurance system has proven time and time again to be the most efficient way to deliver assistance to farmers quickly after a disaster to help them recover,” said Tom Zacharias, NCIS president. “This website redesign will make our industry much more accessible to those who need to understand why crop insurance has become almost every farmer’s risk management tool of choice,” he said.

Will Indemnities Hit $11 Billion?

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Losses paid out by crop insurance companies to farmers for 2011 crops have now exceeded $10.7 billion and are edging ever closer to the $11 billion mark, according to data from the Risk Management Agency (RMA). This surpasses the previous record of $8.76 billion set in 2008 by almost 25 percent.

Spurred on by one of the worst weather years in history, farmers and ranchers faced unparalleled challenges in 2011 and crop insurance reached record amounts. The numbers paint a picture of Mother Nature’s devastation that befell farmers from coast to coast.

The top crops damaged, by dollar value, were corn, cotton, wheat, soybeans grain sorghum, pastureland and rangeland, and tobacco. And while the average loss ratio across the country is at .90 – which means that for every dollar purchased in coverage, 90 cents was paid out in indemnities – those numbers are much higher in some key states.

Top among them is Vermont, which felt the brunt of Hurricane Irene’s wrath last summer and is currently at a loss ration of 2.59. Texas and Oklahoma are not far behind, having fallen victims to an historic and prolonged drought, registering a 2.35, and 2.15 respectively.

The news comes as the Senate Agriculture Committee recently passed the 2012 Farm Bill and the House is conducting hearings on their Farm Bill. As Lubbock, Texas banker Rick Boyd noted in a recently-released NCIS video, the drought could have been catastrophic for many Texas farmers if they had not purchased crop insurance. “2011 was such that, with the insurance, we did not have any farmers that actually went out of business, and over 90 percent of our customers had to draw on their insurance claims,” he said. “The programs were in place that allowed them, not to make a profit, but to actually get a lot of their expense money back and that was enough to enable them to get financing for the upcoming year,” he added.

“Thanks to the foresight of Congress, crop insurance has been in place to weather enormous natural disasters and help ensure that farmers survive to plant yet another year,” said Tom Zacharias, president of NCIS. “Those billions in damages would have landed on the plates of input suppliers, lenders, marketers and farm families if crop insurance wasn’t in place,” he said.

Since 2008, more than $28 billion private sector dollars from crop insurance companies have gone back into the hands of farmers across the country for policies they purchased. During that same period, crop insurance has shouldered more than $12 billion in cuts in Federal investment even while exposure to risk has continued to rise.

“With damages from last year approaching the $11 billion mark, the fact that there has not been a single call from farmers and ranchers for a federal disaster bill is testimony to the efficacy of crop insurance and proof that farmers and rancher consider it indispensible,” said Tom Zacharias, president of National Crop Insurance Services.

 

Farmers Sometimes Need A Little Help When Mother Nature Throws a Fit

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2011 was a year that American farmers will not soon forget. The year started off with a record freeze in Florida, followed by historic flooding in the Corn Belt. While farmers were trying to salvage their waterlogged fields in the Midwest, folks in the southern plains were baking under intense heat and a prolonged drought, which still hasn’t broken. And then there was Hurricane Irene, that ravaged the East Coast, from North Carolina to the Canadian border.

Thankfully, decades ago, Congress recognized that because Mother Nature is prone to be nasty at times, policies need to be in place to ensure that when she does, farmers are able to pick up the pieces, rebuild and plant again the following year. The policy that has gained national recognition as the best risk management tool available is crop insurance.

Crop insurance is a public-private partnership, designed to ensure that when disaster strikes, the private sector – crop insurance companies – are there to help shoulder the risk and the financial burden of rebuilding. Crop insurance policies are purchased by the farmer and suited to the farmer’s needs, comfort with risk and financial situation.

In the past, before purchasing crop insurance was the widespread and widely available option, disasters like last year’s would have triggered large, stand-alone disaster bills in Congress, aimed at trying to save as many farms as possible. Those bills would have cost taxpayers dearly, and unfortunately, would have taken months, or even several years to finally get into the hands of the farmers who need the help. Not a good situation for either party involved.

In 2011, with 80 percent of eligible lands protected by crop insurance, private sector companies paid out in excess of $10.7 billion in payments to farmers who had purchased plans and suffered losses. Those checks were often in the hands of the farmers in 30 days or less after they completed the necessary paper work. It’s because of the effectiveness and efficiency of crop insurance that many of us are in our fields planting today instead of being forced to auction off our farms.

The notion that crop insurance is some kind of freebee for farmers is nonsense, because a farmer can only collect an insurance payment if he suffers verifiable damages. The idea that a farmer purchases crop insurance in hopes of watching his crops be destroyed makes about as much sense as the notion that a person purchases homeowners insurance and prays every day that his house will burn down.

Not to mention, farmers pay out of their own pockets for a significant part of the insurance premiums. Stand-alone disaster bills, by comparison, are 100 percent funded by taxpayers.

Let’s not forget what it is that we’re asking farmers to do for the nation: Grow our food, grow our fuel, grow our fiber and grow the feed we need for the meat and poultry we like to consume. This is a big responsibility for the tiny fraction of our fellow Americans called farmers.

The taxpayer cost of ensuring security for these basic public needs would have been astronomical in 2011 without privately delivered crop insurance in place. Crop insurance has become the risk management tool of choice by farmers representing the vast majority of American crops and policy-makers representing both sides of the aisle for one simple reason. It works.

Congress is debating the 2012 Farm Bill and our message to them on behalf of farmers and the American public is simple: Do no harm to crop insurance.

John Mages is president of the Minnesota Corn Growers Association, and lives in Belgrade, Minnesota where he farms with his wife Cindy.

This op-ed appeared on May 11, 2012 on AgNet.

 

Crop Insurance 101

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Tom Zacharias, President of NCIS, explains the basics of crop insurance.

Strong Financial Underpinning A Key Requisite to Strong Crop Insurance Policy

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Because of the magnitude of risk inherent in U.S. agriculture, combined with the large volume of commodities produced, companies that participate in the Federal crop insurance program are mandated by law to have ready access to large pools of liquid capital so they can meet their obligations if disaster strikes the farming sector. These rigorous financial requisites all but demand the involvement of reinsurers – large, financially fortified companies that provide insurance to insurance companies – to ensure that payments arrive to farmers for the policies they purchase in a timely fashion.

Never before in the history of the Federal Crop Insurance Program was the extent of the risk and financial exposure so evident as in 2011, which saw record indemnities in excess of $10.4 billion paid by private companies to farmers for their losses. This makes 2011 the most expensive year ever, topping the old record set in 2008 of $8.67 billion in indemnities by 20 percent. And with commodity prices rising due to tight markets and increased domestic and global demand, there will likely be an increased need for crop insurance, which protected over $113 billion worth of crops in 2011.

Although crop insurance has already been subjected to $12 billion in federal funding reductions, further reductions could raise questions of the federal commitment to the existence of a robust and effective crop insurance policy. “An unrecognized danger is that additional budget cuts will prove counterproductive in the long run, driving away the reinsurance companies that have long played a crucial role in the program’s growth by putting a substantial amount of their capital at risk,” says Jim Christianson, Managing Director, Guy Carpenter & Company, LLC.

Christianson notes that any pullback by reinsurers would have serious repercussions in the market and would, in the end, leave the federal government and the U.S. taxpayer to shoulder a greater portion of the cost of future catastrophes that hit the country’s agriculture sector.

As recently as the early 1990s, farmers purchasing crop insurance hovered around 30 percent. But the program has expanded dramatically since and in 2011, more than 1.1 million policies were written, covering 83 percent of eligible farmland and 128 crops in all 50 states. And the continued climb in commodity prices means an increase in the amount of risk that will be protected annually.

“Today, reinsurers from around the world find the U.S. crop insurance market to be a welcome addition to their portfolios,” said Christianson.

Reinsurers are keeping a watchful eye on Congress and lawmakers as they write the 2012 Farm Bill. ”Congress should be very cautious about considering the adoption of any other policies that would weaken the already over-extended crop insurance infrastructure or divert the much needed reinsurance investments elsewhere,” he added.

Farmers Tell House Ag Committee: “Do No Harm” to Crop Insurance

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Illinois farmer John Williams told the House Agriculture Committee that he firmly believed the number one goal of the 2012 Farm Bill should be to “do no harm to federal crop insurance,” during his testimony at the second of four field hearings held across the country throughout March and April to gather input in advance of writing the 2012 Farm Bill. The hearing was held on March 23, 2012 at Carl Sandburg College in Galesburg, Illinois.

Williams told the panel that crop insurance was not only an indispensible risk management tool, but an important component of his business marketing plan. “Crop insurance is a safety net in a time of disaster but it also is an integral part of my overall marketing strategy,” he said. “Because of revenue protection insurance, I can market aggressively and still be protected against market shifts.”

Members of the committee listened to testimony from two panels of Midwest producers of corn, rice, soybeans, wheat, sorghum, specialty crops and beef. Several of the witnesses underscored the importance of developing policy that appreciates and recognizes the risks involved with growing food and fiber. They stressed the need for an effective safety net and a choice of risk management tools so farmers can continue to produce a stable food supply and compete in the global marketplace.

Minnesota corn and soybean farmer John Mages told the committee, “first and foremost, please do no harm to federal crop insurance, which should be preserved, protected, and strengthened.” Mages, who is also president of the Minnesota Corn Growers Association, added, “we strongly oppose any further legislative or administrative cuts to federal crop insurance, and we oppose carrying conservation compliance or other rules applicable to the Farm Bill over to this critical risk management tool that we as producers help pay for.”

Fourth-generation southern Ohio farmer Craig Adams, told the committee that he was the only Wilmington College agriculture graduate of 1979 still engaged in full time agriculture “because of the 1980’s farm crises, poor yields,18 percent interest, and no functional crop insurance,” at the time. Adams told the committee that “crop insurance in its current form is the most effective answer to short crop years,” and that “any producer who desires an effective risk management tool can purchase crop insurance.”

House Agriculture Committee Chairman Frank Lucas (R-OK) underscored the importance of the field hearings and the role they will play in writing the 2012 Farm Bill. “The field hearings give Members of this Committee a chance to hear how programs are working for our agricultural producers. There’s no better way to accomplish this than to visit with folks in the countryside. It’s important to understand how we can write policy that works for all of agriculture,” he said.

During the committee’s third field hearing focusing on major farm issues in the southeast, held on Friday, March 30, 2012 at Arkansas State University’s Fowler Center, some of the same messages continued to be heard. Chairman Lucas said, “Now, I know that crop insurance—while a valuable tool for many producers—doesn’t work as well for producers down here. That’s why offering an array of programs is important and why we must work with the Risk Management Agency to improve crop insurance products for rice, peanuts and other crops that do not have higher buy-up levels.”

Georgia farmer Tim Burch, who grows cotton and peanuts, and serves on the Georgia Peanut Commission, urged Congress to pass a five-year farm bill and when doing so, to not undermine crop insurance. He commented that while he hopes Congress makes improvements to crop insurance so that its coverage can include other crops, he also urged Congress to “not harm crop insurance products.”

The last hearing will be held on Friday, April 20, at theMagouirk Conference Center in Dodge City, Kansas.

Thankfully, There Are Ways to Deal With Droughts Like This

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As a cotton farmer in West Texas, last year I felt that I had about as much of a chance of seeing a good soaking rain as I did of running into the Tooth Fairy when I stopped by my local dentist.

Unfortunately for the area farmers, much of the cotton in this part of Texas that was planted never even sprouted, leaving farmers hoping for a miracle but expecting the worst.  Luckily, for the vast majority of them, they had purchased a risk management tool that would serve as a backstop when a disaster like this strikes, ensuring that they would survive to farm yet another day.  That tool was crop insurance.

Crop insurance is the risk management tool preferred by most farmers across the country – about 80 percent of eligible U.S. lands are covered by a policy – because it combines the efficiency of the private sector with the universality of the public sector.

One of the most popular efficiencies of this public/private partnership afforded to those who purchase crop insurance policies is its speed of delivery when crops fail or markets crash.   Typically, when a farmer files a claim, the crop insurance company that holds that policy will have the indemnity to the farmer within thirty days of the finalization of the paperwork.  This is real money coming to the farmer in real time, allowing him to plant again or plan to plant the next year.

Government programs, on the other hand, while very well intentioned, just aren’t realistic, at least not from a business point of view.  For example, the SURE program, which many farmers depended on, is just now – in early 2012 –  providing benefits to farmers who suffered losses in 2009.  That’s just too long to wait for assistance if it’s really going to be helpful or effective.

Crop insurance, on the other hand, gets to the growers quickly, allowing them to bounce back from loss and prepare for the next season.  Many of the cotton farmers in Texas who lost nearly everything last summer, for example, had their indemnity payments in hand before Labor Day.  That makes a world of difference for somebody who has suddenly lost their livelihood and won’t be able to farm again if help doesn’t arrive soon.

Another reason why crop insurance has become the most preferred tool in almost every farmer’s risk management tool belt is because the individualized nature of each policy.  Instead of a big government plan allotting a specified amount of help based on an average amount of loss, crop insurance policies are tailored to the farmer, his or her tolerance for risk, and the strengths and weaknesses of their farm.

Each spring, a crop insurance agent meets with the individual farmer and together, they come up with a plan to manage that specific farm’s risk.  It’s not the federal government’s plan; nor is it the state’s plan or the county’s plan.

It’s the farmer’s plan.   And who would know better than the individual farmer about what their piece of land can handle, what kinds of stress it can tolerate, and how much loss they can withstand as an individual.

While farmers are charged with raising the food, feed and fiber to feed and clothe our great nation, the nation realizes that we are merely individuals who can easily be stomped on by an angry and unforgiving Mother Nature.  That’s why it’s in the nation’s best interest – as well as the best interest of farmers – to ensure that moving forward, a robust and effective crop insurance policy is part of any Farm Bill discussion.

I didn’t see the Tooth Fairy the last time I went to the dentist, but thankfully I have seen some rain.  Some, but not enough.  And according to most experts, this drought is supposed to continue.  But regardless, for those of us who farm for a living, with the purchase of a crop insurance policy, we have purchased our chance to farm yet another year to feed, clothe and fuel the nation we love.

Shawn L. Holladay, chairman of the American Cotton Producers Farm Policy Task Force, lives in Lubbock, Texas.

This op-ed appeared in the Amarillo Globe-News on March 23, 2012.

Credit Providers Urge Senators to Keep Crop Insurance “Strong and Vibrant”

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The three major trade associations representing agriculture credit providers expressed their unified view regarding the need to maintain a strong and vibrant Federal crop insurance program as a vital risk management tool for farmers and ranchers, noting that agriculture is an inherently risky business, both in terms of weather and markets, as well as being capital intensive.

“Federal crop insurance provides producers with an effective tool to manage their risk, and it provides lenders with greater certainty that loans made to producers will be repaid,” said American Bankers Association, Independent Community Bankers of America and The Farm Credit Council in a March 14 letter to the Senate Committee on Agriculture, Nutrition and Forestry that was formally submitted for the record at the hearing.

“Federal crop insurance is an important component allowing lenders to take on the additional risk of financing many young and beginning producers who have less collateral and equity,” they note.

The Federal crop insurance program has evolved into a broad-based safety net for producers. It is instrumental in assuring that American agriculture remains solid, solvent and globally competitive. “Without the risk protection provided by Federal crop insurance, agricultural lenders would be forced to increase underwriting standards, increase costs to offset risk, and likely be forced to reduce credit availability to some producers for their production, equipment and land purchase needs,” they add.

The letter explains that financially strong crop insurance companies, reinsurance companies and agents are critical to delivering the benefits derived from a strong program. “The private-sector delivery system currently in place for Federal crop insurance is working efficiently and effectively, and we believe its overall framework should remain intact,” they say.

“Federal crop insurance program is working,” the letter continued. “It continues to provide significant risk management support to producers. Producers enjoy the ability to select revenue and yield protection that enables them to obtain adequate capital from lenders to continue to be successful in their operations.”

Crop Insurance Leader Asks Congress to Do No Harm

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“How crop insurance emerges from the 2012 Farm Bill process will hold major ramifications for this risk management program and for America’s farmers and ranchers who have come to rely on it,” Steve Rutledge told the Senate Committee on Agriculture, Nutrition and Forestry on March 15, 2012.

Rutledge, who spoke on behalf of crop insurance companies, underscored the public-private partnership that is unique to crop insurance and how that relationship lowers risk for taxpayers. The chairman of Farmers Mutual Hail Insurance Company of Iowa also asked lawmakers to do no harm to crop insurance with additional funding reductions or regulatory burdens in the ongoing legislative debate.

Rutledge’s testimony comes on the heels of record indemnities being paid out by crop insurers to farmers and ranchers recouping from the worst weather year in history, with claims to date totaling nearly $10.3 billion to cover agricultural losses. This surpasses the old 2008 record of $8.67 billion by approximately 19 percent.

“The fact that the United States is planting crops just months after such devastation in 2011 should not be taken for granted,” he testified, noting the importance of a vibrant agricultural sector to the larger U.S. economy.

“I can’t tell you how many times I have seen the relief and gratitude on a farmer’s face when they realize that because of crop insurance, they will be back in the fields in the spring and life will go on uninterrupted,” explained Rutledge, who began his career as an insurance adjuster.

But this success could be upended if the crop insurance infrastructure is strained, Rutledge said. He explained that in the midst of the growth of crop insurance and the rising crop prices—both of which increase the cost of the policy and company risk—crop insurance has lost about $12 billion in funding since 2008, making it one of the only sectors to sacrifice for deficit reduction.

“This reduction is astounding when one considers that crop insurance represented only 8 percent of Farm Bill spending and a meager one-tenth of one percent of overall government outlays,” he said.

Rutledge’s testimony concluded: “We firmly believe that crop insurance should remain the core risk management tool, and we are committed to the public-private partnership of program delivery, which directly supports more than 20,000 private sector jobs across the country. The private sector should continue to provide and deliver crop insurance options, share in the risk of loss caused by changing markets and natural disasters, and adjust losses for insurable crops. We believe the private sector, not the government, is the best way to provide the individual risk management information and tools that are indispensible for producers today. We understand that is the way farmers and ranchers want the program to operate, and trust in our congressional leaders to stay the course.”

Crop insurance companies wrote more than $11.9 billion in federal multiple peril crop insurance premiums last year, covering nearly 265 million acres of farmland, protecting more than 80 percent of eligible crops, with total potential liability exceeding $113 billion.

Since 2008, a total of more than $28 billion has been sent to farmers for policies they purchased. Federal investment in crop insurance, during that same period, was reduced by more than $12 billion.

Agriculture Risk Happens, Even Where You Didn’t Expect It

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As a former Chief Economist for USDA, I can attest to the fact that farming is indeed a very risky business. Recent news reports out of USDA’s Risk Management Agency underscore that point all too clearly: With some 15 percent of all crop insurance claims yet to be processed, crop insurance companies have paid out a record $9.1 billion (1*) so far in indemnity payments to America’s farmers for 2011 crop losses, surpassing the previous record set in 2008 by nearly half-a-billion dollars. (2*) And the 2011 figure will continue to climb.

But the economist in me wanted to dig into the data to better understand the damages reflected by the overall numbers. And there were a number of surprises. Most people might expect that – given the severity of the drought in the southern plains – farms with the greatest damages per dollar of premium for insurance would be there. But while farmers in those states did suffer greatly, it was actually the farmers in Vermont, at the other end of the country, who saw the highest loss ratio last year.

Remember when Hurricane Irene slammed into New England? The farmers up there won’t soon forget it.

The surprise of that finding underscores just how vulnerable farmers are and how the federal government needs to have a hand in production agriculture. Indeed, farmers in 2011 were fortunate that crop insurance was available for more than 125 different crops and was purchased for 80 percent of eligible acreage.

But despite the success of the crop insurance program as illustrated last year, there are many in Congress who will be seeking even deeper cuts to this primary risk management tool, despite the fact that program funding has already been reduced by $12 billion since 2008. Congress and the Administration need to remember that farm income stabilization through risk management programs like crop insurance is critical for ensuring continuous and stable growth in overall supplies of food, feed and, increasingly, fuel.

In the not too distant past, when Mother Nature struck America’s agriculture sector, it often resulted in ad hoc disaster packages being born in the halls of Congress to address the damage and help the farming sector recover. While those packages were greatly appreciated by farmers, Congress decided to push to make crop insurance more universally available and affordable, giving farmers the tools they need to manage their own risks while taking some of the burden of the disaster assistance off of the backs of the public and putting it onto the laps of the private sector.

Today’s crop insurance policy makes more sense and works better because it puts the onus of managing risk on producers and farmers, not the government. The private sector crop insurance agent works directly with the producer to help put together an insurance plan that best meets their specific needs and is tailored to their comfort with risk. The outcome is a plan that protects their physical and financial assets in the face of natural hazards and market risks.

Another reason why crop insurance has become the most popular risk management tool in agriculture is that farmers and insurance agents alike recognize the wisdom in making farmers bear some of the risk and costs of the program. In order for a risk management program to work efficiently, it cannot completely remove risk from the equation—risk bearing ensures program accountability and discipline. Crop insurance helps ensure that while it’s in everyone’s best interest when farmers succeed, it’s also in everyone’s best interest to help farmers regain their footing when Mother Nature throws a tantrum.

There are other surprises that can be found when you drill into the 2011 claims data. For example, wouldn’t you expect that the ongoing drought in the southern plains would have meant that cotton and wheat were the most heavily damaged crops last year? But the hurricane that drowned out New England first passed over the Carolinas and severely damaged the flue cured tobacco crop, which, combined with several other weather issues in that area, resulted in the flue cured tobacco crop having the highest loss ratio last year of any crop.

Of course, drought did heavily damage much of America’s cotton and wheat, as $3.7 billion (3) in indemnities have been paid for those crops so far, but with crop insurance in place, farmers are able to bounce back. In fact, wheat growers in Kansas, Oklahoma and Texas sowed 1.7 million more acres this fall than they did last year. Hopefully, the rains will come and we will all see a bounty. But if they don’t, the farmers have something in place to keep the bottom from falling out.

If you were surprised by Vermont, I can assure you that so were those farmers. That simply underscores how unpredictable Mother Nature can be and how almost anywhere in our country, crop insurance is there to help those who purchase it bounce back from these things.

Keith J. Collins is a former USDA Chief Economist who received his Ph.D. in economics and statistics at North Carolina State University in 1977.

This op-ed appeared in the Raleigh News Observer on February 8, 2012.
Since this op-ed ran, these numbers have been updated. The new numbers are:
(1) Indemnities are currently $10.8 billion
(2) Current indemnities have topped the previous record by more than $2.2 billion
(3) To date, indemnities paid for damages to cotton and wheat are $4.2 billion.

Vital Role of Crop Insurance Highlighted at CIRB National Meeting

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Speakers including the Senate Agriculture Committee Chairwoman and Ranking Member, the Risk Management Agency Administrator, and several industry leaders underscored the vital role of crop insurance as the cornerstone of federal farm policy during the 48th annual meeting of the Crop Insurance and Reinsurance Bureau (CIRB). The two-day meeting was held in Scottsdale, Arizona, and featured the following comments:

  • “We have heard loud and clear that crop insurance is one of the most critical risk management tools, embraced by farmers and producers in all parts of the country. We will continue working to strengthen crop insurance to make it available to more producers and to make sure farmers have the tools they need to effectively manage their risk.” –Senate Committee on Agriculture, Nutrition and Forestry Chairwoman Debbie Stabenow.
  • “This program has traveled leaps and bounds from where it first started, and it has now become the most important risk management tool in most producers’ toolboxes. Like CIRB, my goal is to maintain a robust risk management program that is delivered by the private sector, which is critical for providing jobs in rural America and excellent service to producers.” — Senate Committee on Agriculture, Nutrition and Forestry Ranking Member Pat Roberts.
  • “Crop insurance is a vital part of the farm safety net and has become an integral part of business life for a large majority of American farmers and ranchers. In years like this one, the value of this critical safety net is made clear.” –USDA’s Risk Management Agency Administrator William Murphy.
  • “Crop insurance literally saved my operation this year – I seldom have claims of any size, but the Mississippi River flood wiped out a lot of my crop. It’s a critical program that I have faith in, and the private sector delivery system is second to none.” — John McKee, Owner and General Manager, Westside Farms, McKee Planting Co.
  • “Support for crop insurance is at an all-time high – among policymakers and farmers. Without a doubt, crop insurance has a very bright future.” — Jim Wiesemeyer, Senior Vice President, Informa Economics.
  • “While policy development and positions among commodity groups are fluid, there is one point of agreement: crop insurance is a risk management tool that farmers cannot live without.” — Mary Kay Thatcher, Senior Director, Congressional Relations, American Farm Bureau Federation.
  • “In the crop insurance community, weather is at the forefront of everything that you do. Looking ahead at 2012 and what we might expect, it’s possible that volatility is the new standard, and natural disasters are just going to become one of the many expected costs of doing business.” — Drew Lerner, Senior Agricultural Meteorologist, Founder and President, World Weather, Inc.
  • “As a reinsurance intermediary, I can testify that commercial reinsurance is a critical component of the crop insurance program. While the Federal Crop Insurance Corporation provides some level of reinsurance support, the role of the commercial reinsurance community is essential.” — John Reinman, Guy Carpenter & Co., CIRB Board Member.
  • “Government clearly has a role to play in crop insurance by making valuable private sector-backed insurance policies available and affordable for all growers in the United States. Without this public-private partnership, farmers would be unable to meet the challenge should Mother Nature indeed give us another weather year like we just experienced.” — Sam Scheef, chairman, CIRB.

What Does 2012 Hold for Crop Insurance? 

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With 2011 indemnities quickly approaching the all-time record of $10 billion, and farmers preparing to plant another impressive crop just months after the worst weather year in U.S. history, the current crop insurance system is earning high praise from agricultural leaders and lawmakers alike.

But in a new peer-reviewed analysis that appeared in January’s Choices magazine, former USDA Chief Economist Keith Collins and Harun Bulut, National Crop Insurance Services (NCIS) senior economist, explained that many proposals to alter crop insurance policy in the 2012 Farm Bill could hold serious ramifications for farmers and taxpayers, and could weaken the very system that proved so crucial last year.

Among the shortfalls they highlighted: Displacing private-sector crop insurance with duplicative government-run programs; saddling farmers and taxpayers with greater risk exposure; increasing program complexity; increasing taxpayer cost; and reducing farmer participation and coverage levels.

“With deficit reduction in prospect for years to come and insurance so fundamental to risk management in all economic areas, the long-term most sustainable safety net program for farmers may be enhanced crop insurance,” the authors wrote.

Collins, who attended an annual convention sponsored by NCIS, urged people to consider the past and present before writing the future.

“Let’s not lose sight of the fact that the current system took three decades to build and is working as designed,” he said at the conference. “The public-private partnership was created to reduce taxpayer risk by encouraging farmers to purchase insurance from professionals skilled in delivering private-sector payments quickly.”

Since modern-day crop insurance was first created in 1980, participation and coverage levels have grown dramatically. Nearly 265 million acres were insured by $114 billion worth of liability coverage in 2011, up from 45 million acres and $6 billion in coverage in 1981.

“My advice moving forward,” Collins concluded, “consider all consequences before restructuring crop insurance. The unintended consequences could harm three decades of success and upend some of the essential strengths that make the current system so great for farmers and taxpayers.”

 

Nation Cotton Council CEO Says Key Crop Insurance Strength Is Private Sector Delivery

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While a record amount of indemnities – approaching the $10 billion mark – are being paid to farmers for 2011, one of the key aspects of crop insurance that makes it a favorite among farmers is its private sector delivery, which sets crop insurance apart from all other policies, said Mark Lange, president and CEO of the National Cotton Council.

During a recent interview with the National Association of Farm Broadcasters, Lange pointed out that crop insurance’s speed of delivery was well on display in 2011 in West Texas – where many growers didn’t even see their fields sprout – but they had their indemnities in hand quickly, allowing them to farm yet another year. “They are dry land growers, and they are seeing crop indemnities paid prior to Labor Day,” he said.

Lange noted that another strength of crop insurance, from the growers’ perspective, is that “crop insurance policies come in a vast array of styles and coverage and the grower can very closely tailor the specific policy that they are acquiring to their specific farm situation.”

Lange says that Congress has a daunting challenge, since crafting a Farm Bill with elections fast approaching and with budgets declining will not be easy. But he believes that what emerges will preserve the public-private partnership of crop insurance and ensure the long-term viability of America’s food and fiber supply.

“I think it’s clear that the delivery of insurance or revenue programs from the government has a very chilling effect for agricultural producers,” he said, and it takes far too long for help to arrive into the hands of the farmers. “The SURE program, is just now providing benefits for losses that occurred in 2009,” he said. “So here it is in early 2012 and they’re just getting the benefits. That’s just too long.”

To listen to Lange’s interview in its entirety, click here.

$7.1 B and Counting: Indemnities Soar In 2011

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Crop insurance companies have paid out more than $7.1 billion and climbing in claims so far this year, which makes 2011 second only to 2008’s $8.6 billion in the total value of indemnities paid out to farmers. The combination of several large-scale floods in the Central U.S., record droughts in the southern plains, a strong tropical storm in the Northeast and a hard freeze in Florida set the stage for the widespread agricultural losses.

But what is the significance of this? The fact is that despite being one of the worst weather years in recent history, farmers had a policy backstop in place—crop insurance—to preclude major losses from natural disasters or market fluctuations that could lead to widespread bankruptcies and foreclosures.

Thankfully, Congress had the foresight to make decades of significant investments in crop insurance infrastructure, increase the varieties of crops covered and policies available as well as augmenting resources to increase farmer participation. The net result is the resilient and robust modern-day crop insurance policy.

But it hasn’t always been this way. Although the program was originally launched in 1938, it was not particularly successful because program costs were high and participation by farmers was low. In 1980, Congress passed legislation designed to increase participation in the crop insurance program and make it more affordable and accessible for farmers. This modern era of crop insurance was marked by the introduction of a public-private partnership between the U.S. government and private insurance companies. Despite these changes, farmer participation remained low, averaging about 30 percent.

Low farmer participation in crop insurance combined with several large natural disasters set the stage for today’s crop insurance policy. A major drought in 1988 spurred the first of what would be the last costly string of federal ad hoc disaster assistance bills for farmers. Another ad hoc disaster bill was passed in 1989; a third one enacted in 1992 gave farmers the option of claiming disaster losses on a farm-by-farm basis for any year between 1990 and 1992, and then an extremely wet and cool growing season in 1993 caused more losses, and Congress passed yet another ad hoc disaster bill.

Low farmer participation remained a major hurdle. Congress enhanced the crop insurance program in 1994 and again in 2000 in order to encourage greater participation. They accomplished this by combining federal dollars with farmer premiums to make otherwise cost-prohibitive crop insurance policies universally affordable to farmers of all sizes. The changes also expanded the role of the private sector in developing new products that would help farmers manage their risks. With these additional changes, farmer participation in the policy greatly expanded.

By 1998, more than 180 million acres of farmland were insured under the program, representing a three-fold increase over 1988. By 2010, roughly 80 percent of eligible farm land including all major grain crops and cotton, nursery, citrus, rice, potatoes, and livestock, covering more than 256 million acres of farmland and valued at nearly $80 billion, were protected by private crop insurance policies.

As the number of acres covered by crop insurance policies grew, so did the cost of the program along with it. Another factor that has driven up the cost of the policy is the recent dramatic rise in commodity prices. As the value of crops rise, the coverage needed to protect them rises too. For example according to USDA’s Economic Research Service, the average price a farmer received for a bushel of corn in September 2007 was $2.20. In September 2011, that price had nearly tripled to $6.37 per bushel. Soybean prices nearly doubled during the same period, with prices rising from $5.24 per bushel in September 2007 to $9.98 in September 2011.

The success of the agriculture sector due to these record prices has been a major boon to rural America. According to USDA, net farm income is forecast at $100.9 billion for 2011, up $21.8 billion for a rise of 28 percent from 2010. All three measures of farm sector earnings (net farm income, net cash income, and net value added) are forecast to rise more than 18 percent in 2011.

Underpinning this economic boon that has been one of the only bright spots in the U.S. economy has been this nation’s private crop insurance policies…and that’s been a dose of good news for taxpayers.

Keeping Crop Insurance Strong

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This ongoing series presents one of the many strengths of crop insurance per month and details how the sum of the 12 essential crop insurance strengths has given us the successful program we have today. These strengths are especially important as policy makers contemplate further cuts to farm safety net policies.

Strength: Producers do not receive unnecessarily excessive payments.

Crop insurance payments are related to actual crop loss due to price volatility or natural disaster, whereas some farm program payments are not related to need or performance. In addition, a trained crop insurance loss adjuster assesses the producer’s claim, thereby rewarding proper effort and appropriately protecting against events beyond the producer’s control.

To ensure that this safety net policy works properly, crop insurance companies employ more than 4,700 certified crop loss adjusters who are well trained to accurately assess production losses. This ensures the veracity of the policy and helps to reduce waste, fraud and abuse.

To view all of the essential strengths, click here.

Kansas Farmer: One Size Doesn’t Fit All When it Comes to Risk Management

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When it comes to risk management, one size does not fit all, said Kansas farmer Jay Armstrong during a recent radio interview with the National Association of Farm Broadcasters that ran nationally in early December. Armstrong noted that his 2,700-acre family farm is split between upland and bottomland. In years of drought, the upland withers while the bottomland blossoms. In years of wet weather, it’s the opposite.

“So no matter what extreme Mother Nature throws at me I will suffer losses,” he said, adding “my story is the story of many thousands of farmers across this country, who grow our nation’s food, feed, and fuel supply while dealing with Mother Nature’s tantrums, year in and year out.”

Armstrong says most farmers would agree that the single most important item in their risk management tool kit is crop insurance. He says that before federal crop insurance became widely available several decades ago, farming on land like his felt like playing Russian roulette. “It was nearly impossible to get any kind of coverage for managing risks on my farm where flooding or drought was an occasional occurrence because the private sector just wouldn’t offer it.”

“But federal crop insurance took the universality of the public sector and made these important risk management tools available to everyone willing to pay for them,” he said. Armstrong called crop insurance “the quintessential tool” for managing farms risks because each farmer can choose the plan that makes the most sense for their operation

Armstrong also said that crop insurance has made him a better businessman, allowing him to market his grains, including corn, soybeans and wheat, well in advance because they are insured. “If my crop comes up short at the end of the year because of poor weather – or fails altogether – the insurance indemnity is there to purchase the grain to fulfill my marketing contracts at the end of the year.”

Crop insurance was designed by Congress to shield taxpayers from costly weather-induced bailouts that became commonplace in past decades – and Armstrong says it’s working. 2011 might be regarded as one of the worst weather years on record, with crop insurance companies paying out more than $6 billion. But Armstrong points out that with roughly 80 percent of eligible acres covered by crop insurance, there is no need for disaster bills.

Crop Insurance: Private Sector Participation Enhances Policy Efficacy

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Most would agree that the private sector excels at some tasks while the government is better-suited for others. This melding of the private and public sectors has yielded a crop insurance policy with affordable premiums, personalized risk management solutions and a private delivery system that puts needed monies into the hands of farmers when timing is critical.

Crop insurance covers 128 crops, including all major grain crops and cotton, nursery, citrus, rice, potatoes, and livestock. Farmers can cover their crops for all natural disasters, including wildfire, earthquake, volcanic eruptions and even irrigated water issues. Because the policy is personalized, each farmer tailors the policy to match his specific risk and desired coverage.

To date for 2011, the crop insurance program has paid out over $5.7 billion in indemnity payments to America’s farmers and ranchers, and that number will continue to rise over the next few months.

Corn and soybean farmer Quentin Bowen, who operates a family-farm in Humboldt, Nebraska, says that when disaster strikes, the difference in delivery of benefits when comparing government-run programs to the private sector’s handling of crop insurance, is like comparing night to day. “The speed of delivery of crop insurance—because it’s administered by private sector companies—makes it a different kind of animal. In fact, if a natural disaster strikes and I’m covered by a crop insurance policy, typically the payment comes to me in one or two weeks, not in one or two years,” he said in a recent guest column.

Following the submission of recommendations to the Super Committee for cuts in agriculture, major farm groups made clear their strong feelings on crop insurance.

In a letter to House and Senate Ag leaders, The National Association of Wheat Growers (NAWG) stated that “our highest priority for federal investment in agriculture programs is the portion of crop insurance premiums subsidized by the federal government, the public part of one of the most well-functioning public-private partnerships undertaken by our government.” NAWG also reiterated its conviction that crop insurance is the cornerstone policy for risk management, adding, “We believe crop insurance is essential to the farm safety net and the reliable production of an abundant food supply.”

A similar statement from the National Corn Growers Association noted, “the highest priority for NCGA is securing a strong crop insurance program.”

And crop insurance is apparently working quite well this year for America’s farmers, particularly those farming corn, cotton, grain sorghum, soybeans and other crops in drought-ravaged Texas. The October 23 Houston Chronicle reported that more than 41,000 farmers in Texas have received $1.65 billion so far from the national crop insurance program to help compensate for disastrous low yields and other damage caused by the state’s worst drought in history.

“The crop insurance is the linchpin and heartbeat of recovering and muscling through the disasters,” said Karis Gutter, the U.S. Department of Agriculture’s acting deputy undersecretary, who oversees all federal disaster relief efforts and foreign exports. “It will help folks get back to a semblance of normalcy in their lives.”

When farmers are trying to pick up the pieces after disaster strikes, an inefficient payment or delivery system is the last thing they need to be dealing with.

Mid Atlantic Lender Sold On Crop Insurance

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Kenny Bounds feels strongly about crop insurance.

“For ag lenders, crop insurance is portfolio insurance,” says Bounds (56), the Government Affairs Officer for Mid Atlantic Farm Credit, which serves five states. Bounds has been in ag lending for his entire career and lives on Maryland’s Eastern Shore.

“I tell our producers that anyone who self-insures is rolling the dice and may well end up losing the gamble. It can take years to regain the net worth lost in one bad year and years of additional debt service to amortize the loss. Crop insurance protects cash flow, as well as net worth and keeps you credit worthy.”

Bounds not only tells his crop insurance story to producers, he also shares his feeling with state and federal legislators.

He makes the case, that unlike other forms of casualty insurance, like auto or home, the risks in agriculture cannot be spread over many small, widely dispersed events. In agriculture droughts, storms, and other risks are spread over huge regions of the country.

“Crop insurance marries the private interest of the farmer, who has to pay his or her share of the premium, with the national interest in preserving the critical mass necessary to sustain the infrastructure that gives us our ample, and affordable, food supply.”

He also points out that our nation’s economy benefits from the huge positive impact agricultural exports have on our balance of trade. “Crop insurance is good for agriculture, and it is also a pretty good deal for the taxpayers,” says Bounds.

“Crop insurance not only holds a risk management umbrella over producers, but also over rural communities. Rural businesses are affected by the financial well-being, and profitability, of agricultural producers. Businesses such as feed and seed dealers, farm equipment dealers, and automobile dealers… they are all protected by the crop insurance umbrella.”

When Mother Nature Gives You A Jolt, Crop Insurance is There

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By Quentin Bowen

Sitting on a combine for 12 hours a day harvesting corn and soybeans gives a person a certain degree of clarity combined with long blocks of time to think and analyze. Looking at the corn I’m harvesting, I marvel at the fact that somehow, my family farm managed to dodge the many bullets Mother Nature shot at farmers this year. I’m referring to massive droughts in the Southern plains, record flooding in the upper Midwest, wildfires in Texas, a devastating freeze in Florida, and hurricanes and tropical storms that are still on their way.

Unlike me, a lot of farmers in the U.S. were not so lucky. Thankfully, farmers are able to purchase crop insurance, a private-public partnership that is protecting about 80 percent of the eligible crops across the country. And one of the greatest features of crop insurance—and an aspect that has made it a hands-down favorite among farmers of all types—is the speed of delivery of payments, that puts funds quickly into the hands of farmers who have lost everything in a natural disaster. This is possible due to large investments by private companies that have built the infrastructure that makes this delivery possible.

Crop insurance is a critical component of my risk management tool kit, and one that most farmers like me rely on to face the unknown every year. Because I’m a young farmer getting started, should disaster strike and the crops are wiped out, we, like all other small businesses, are in need of capital.

That’s where the speed of delivery component of crop insurance comes in to play. The industry has dramatically invested to make the speed of delivery possible. So while any farmer who has found himself in need of help from the government is thankful when the payment finally arrives, the payment can take a year or two to get into the hands of the farmer. If I had to wait a year or two to recoup the loss of an entire crop from a natural disaster, I’d be in bankruptcy court when the check finally came.

The speed of delivery of crop insurance —because it’s administered by private sector companies—makes it a different kind of animal. In fact, if a natural disaster strikes and I’m covered by a crop insurance policy, typically the payment comes to me in one or two weeks, not in one or two years. Because of that speed of delivery, I can quickly recover from the loss and replant the field, garnering myself some needed income for the year and putting some food on the tables for consumers.

Crop insurance is a key part of my farming operation because my agent and I evaluate in detail, prior to planting, the optimal coverage for what I’m planting. Once I’ve made that evaluation, crop insurance becomes the underpinning for financing from the bank.

Contrast that with some of the other government safety net programs that are conceived in a university laboratory, planned by a government bureaucrat who has never seen a cornfield, and administered by somebody behind a desk whose only connection to corn is his breakfast cereal. Need I say more?

There is another feature of crop insurance that makes this a terrific risk management tool stand out: We as farmers have to write a significant personal check to secure a crop insurance policy; it’s not a handout. Could it be that this public-private collaboration, with the recipient – the farmers – having “skin in the game,” could be the shining example to the Federal Government of the best way to use tax dollars? I think so.

I’m the third generation of my family to farm this piece of land and I strongly believe that a stable, viable, privately delivered crop insurance program holds the key to my future. It provides me the opportunity to efficiently and profitably produce the safest and highest quality food in the world. It doesn’t keep Mother Nature from jolting me with a disaster, but it does give me some protection and piece of mind should my farm take a hit.

—

Quentin G. Bowen is a farmer who raises corn and soybeans and resides in Humboldt, Nebraska.

This op-ed appeared in the Lincoln Star-Journal on October 31, 2011.

Keeping Crop Insurance Strong

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The 2012 budget will likely include modifications and reductions to the farm safety net. Policy makers should consider 12 essential strengths that make crop insurance the corner stone of the farm safety net programs. In this on-going series, we’ll introduce one strength of crop insurance per month and explain how the sum of these strengths has given us the successful program we have today.

Strength: Producers receive crop insurance indemnities in the timeliest way.

Although some farm programs make payments fairly quickly – such as marketing loan benefits – others pay out long after the actual payment is needed.

For example, final countercyclical and Average Crop Revenue Election Program (ACRE) payments for the 2010 spring planted crops will be made no earlier than October, 2011. Payments for the Supplemental Revenue Assistance Payments Program (SURE) may occur about one and a half years after harvest.

Crop insurance, on the other hand, pays out its indemnities very close to when the losses occur – the very time when farmers need the money the most. In fact, companies make indemnity payments usually within 30 days of claim settlement. Losses from natural disasters, prevented planting and replants are sometimes paid before harvest.

Living on a Prayer

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By John Thamert

Agriculture is collectively holding its breath as the “super committee” meets to determine where the $1.2 trillion worth of federal budget funds will be cut. Having already shouldered more than $12 billion in cuts for deficit reduction in the past several years, farmers and ranchers feel the pain that other sectors have yet to experience.

With this massive overhaul on the horizon, the Senate Agriculture Committee traveled to Wichita, Kansas, late last month to hear from farmers, bankers and local elected officials about what they thought were the necessary components of a strong and viable Farm Bill.

Farmers representing every crop from corn to cotton, bankers who loan to businesses of all sizes, and key elected officials all delivered one main message that was eventually heard all the way back to the halls of Congress: Crop insurance is one of the most important components of farm policy—it should not be touched.

Senator Debbie Stabenow (D-MI), the committee’s chair, recognizes that the upcoming farm bill will not only impact farmers and ranchers; it will also affect those workers who process, package and market agricultural products and services.

This is no small item when you consider that there are over 21 million jobs tied directly to the U.S. agricultural industry.
Obviously, crop insurance is not a policy used by every American—particularly those in urban areas who write about it. But as a banker, a farmer, and a resident of rural America, I see firsthand the benefits of crop insurance and its essential place in a farmer’s arsenal of risk management tools. “Some folks question the need for a Farm Bill with commodity prices where they are today,” Senator Pat Roberts (R-KS), the committee’s ranking member said. “I don’t have to tell this crowd that prices can fall much more quickly than they rise.”

So let me explain why farmers and agricultural lenders from all corners of the country are crying out in unison for maintaining crop insurance.

Crop insurance is a public-private partnership that combines the flexibility and efficiency of the free market with the support of the public sector, to ensure that a modest government investment is able to provide an economic “safety net” for a very unpredictable and high-risk industry.

In so doing, when farmers and/or ranchers experience a severe reduction in their cash flow due to a natural disaster they can depend on crop insurance to cover some of the loss. Any claim paid to a farmer or rancher will create dollars that can be used to cover operating loans from their bank, to pay for fuel, crop and machinery costs; all of which flow through the economies of our country’s small towns and rural communities.

Farmers need crop insurance as an economic “safety net”. Consumers need crop insurance so that they can take comfort in knowing that one of our nation’s premier industries, which provides an abundant and affordable food supply, will remain viable. And lenders need crop insurance in order to be confident that their investment in agriculture will be sound—and around it goes.

One other important consideration is helping the next generation of farmers and ranchers continue our nation’s dominance in food production. Finding a lender willing to invest in a young farmer is hard enough as it is. More often than not, they have very little capital. In these times of rising input costs, a volatile world economy and unpredictable weather patterns, the one thing that lenders and their young farm customers are able to rely on is the crop insurance policy.

“Certainly, farmers here in Kansas know the importance of a strong farm safety net,” Senator Stabenow said at the hearing. “You’ve been dealing with a record drought this year that is devastating crops and livestock production. Suffice it to say, if we ever needed a reminder about the risks farmers face, we got it this year.”

She’s right. Without crop insurance, I’m not sure that my operation would still exist—and the same goes for many of my neighbors—not just in Kansas but in the Texas panhandle where they haven’t seen a drop of rain since October 17, and Missouri, where flooding has left thousands of acres under water and unproductive.

The Senate Agriculture Committee asked for our input: “What are the risk management tools that farmers in the great state of Kansas need? What should an effective farm safety net look like? What are your priorities? What programs can we streamline or consolidate?” And the answer was nearly unanimous: No more cuts to one of the few remaining – and in most farmers’ judgment, the best – risk management tools. If you must cut from agriculture, do not cut crop insurance.

To our farmers and ranchers dealing with severe drought or other natural disasters, these are very trying times; to see high prices without any product to sell and yet have to put out next year’s crop with record high input costs. Without crop insurance, these producers would go out of business as well as cause economic harm to a number of their business providers. I would ask my fellow farmers and bankers to contact their senators and representatives and convey the magnitude of our concerns. Farming without strong farm policy, is nothing but living on a prayer.

John C. Thaemert is a Vice President & Trust Officer at Citizens State Bank & Trust Co. in Ellsworth, Kansas as well as past president of the National Association of Wheat Growers. Thaemert is a third generation farmer who resides in Sylvan Grove, Kansas.

This op-ed appeared in Agri-Pulse on September 6, 2011.

As World Population Hits 7 Billion, Agriculture Feels The Pressure

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October 31, 2011 will mark the first time in history that seven billion humans will populate the planet, according to a recent United Nations report. The Executive Director of the UN’s Population Fund called the prediction “both a challenge and an opportunity,” noting that “globally, people are living longer, healthier lives and choosing to have smaller families.”

Commodity markets were already feeling pressure far in advance of the announcement as China placed record orders for feed grains to meet the demands of growing domestic protein consumption. The U.S. Grains Council projects that China will need to import 5-10 million tons of corn for the 2011/12 season, a huge increase from USDA’s estimate of 2 million tons for that period.

About the same time, the UN also updated its grain supply forecasts, noting that world markets remained remarkably tight. So while it seems that the world will slide by with enough food to accommodate its seven billionth inhabitant, the world population is expected to increase by another third by the end of the century.

No respected authority is arguing whether or not we’ll need more food. That’s a certainty. But farmers in the U.S. might have been surprised that the very policy that is in place to help ensure that America’s food production system is efficient and effective – crop insurance – is again under the microscope and was recently targeted by the White House for an additional $8 billion in cuts in the next decade.

That suggestion received a chilly, bi-partisan reception on the Hill by crop insurance champions of all stripes. U.S. Representative Frank Lucas (R-OK), Chairman of the House Agriculture Committee, and U.S. Senator Pat Roberts (R-KS), Ranking Member of the Senate Agriculture Committee, responded quickly, noting that although agriculture has and will continue to do its part to help balance the budget, “The President’s policy priorities reveal a lack of knowledge of production agriculture and fail to recognize how wholesale changes to farm policy would impact the people who feed us.”

“For example,” they said, “cutting $8 billion from the crop insurance program puts the entire program at risk. We have heard again and again from producers that crop insurance is the best risk management tool available. In jeopardizing this program, the President turns a deaf ear to America’s farmers.”

South Dakota’s Senator John Thune (R) agreed and stressed the importance that agricultural budget-cutting decisions should be left to those who understand how each program works, urging that the cuts “can’t be tilted and weighed too heavily against our farmers.”

But Democrats had a lot to say about crop insurance as well. Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) reiterated the view of Roberts and Lucas in a recent statement. “Agriculture will do its fair share in helping to reduce the deficit, but as I’ve always said, decisions on where those cuts come from should be made by the Agriculture Committee, where we constantly receive input from farmers and others in the agriculture community,” she said. “Farmers across the country have made it very clear that maintaining crop insurance and responsible risk management tools are critical, especially as droughts, floods, and devastating storms have battered farms across the country.”

Arkansas Senator Mark Pryor (D) was even more blunt during his weekly conference call with reporters. “Rural America is going to take it on the chin, and that is what you see with the Obama plan,” Pryor said.

Rep. Collin Peterson (MN), the top Democrat on the House Agriculture Committee, was likewise critical, especially when it came to one component of farm policy, which he considers essential to rural America’s success. “I’m very opposed to cutting more from crop insurance,” Rep. Collin Peterson (D-MN) said, explaining that a program this important cannot withstand cuts of that magnitude again, the way it did in 2008.

Despite its broad coattails of political support, crop insurance is again under scrutiny. The question becomes how much more can the budget committee take before the policy itself becomes impotent when calamity strikes the farm?

And the answer to the question will hold serious ramifications, not just for the U.S. farmers and ranchers, but also for the growing number of hungry mouths to feed.

A Broad Spectrum of Voices from All Corners of Agriculture Sing the Praises of Crop Insurance

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The recent Farm Bill hearing in Wichita, Kansas has been called “a crop insurance pep rally” by some who point to the fact that when a panel of farmers and producers were asked by Senate Ag Committee Chairman Debbie Stabenow (D-MI) what they thought was the most important farm policy, the answer was “crop insurance.”

This panel isn’t the exception but the rule. In fact, over the last six months, a large swath of rural America has praised the farm policy that has truly become rural America’s most cherished tool for hedging risk: crop insurance.

These quotes are just a sampling from the opinion pages, newswires and radio stations from coast to coast.

National Farmers Union President Roger Johnson explains in an Omaha World Herald op-ed on May 31, 2011 why crop insurance is so important in a time of tight budgets and serious fiscal constraints:
“Crop insurance — which is the most important component of the farm safety net for specialty crop producers and growers of most major crops — was specifically created to ensure that private insurance companies, not taxpayers, shoulder the burden of funding payouts following crises.”
In an op-ed appearing in The Hill on June 8, 2011, Congressman Larry Combest and reigning Miss America Teresa Scanlan spoke about the role of farm policy in shielding farmers from what is otherwise a very risky business:
“That is where our nation’s farm policy comes into play — to provide some stability for our farmers and for the country’s food and fiber supply while limiting taxpayer exposure. A good example of this is crop insurance. Farmers buy policies, made possible with government investment, to act as a cushion. When disaster strikes, private insurance companies cover the bulk of the losses, shielding taxpayers from tremendous risk exposure. But, without the public partnership, multiple peril insurance on a crop — something we take for granted on our cars and homes — would not be possible.”
During an interview on Agri-Pulse’s Open Mic on June 13, 2011, USDA’s Chief Economist Joseph Glauber notes the importance of crop insurance to the nation’s farmers:
“Most farmers now see [crop insurance] as a primary tool for risk management. An important tool for risk management.”
The Dallas Morning News recently featured an op-ed by Texas farmer Matt Huie that says lenders require the type of assurance found in strong farm policies to make loans to farmers, particularly young ones like him.
“Because of the many challenges, all young farmers depend on components contained in the 2008 Farm Bill—most notably crop insurance—to provide lenders with the confidence and collateral they need to extend loans. Politicians continue to put these components to the test, even though without crop insurance, farmers throughout the South, Midwest, and various other parts of the country, would have been left with no crop—and no starting point on which to rebuild—due to the range of floods, droughts, tornadoes and frosts, this year alone.”
Former Agriculture Secretary and Nebraska Senator Mike Johanns (R) recently told an agriculture policy group that although crop insurance has been cut by more than $12 billion in the last several years, there is no telling what policies will be slashed during the on-going budget discussions:
“Crop insurance is the real safety net,” he said. Johanns explained that with the government not having to make loan deficiency payments and counter-cyclical payments due to higher crop prices, the key component to the Farm Bill, especially as a safety net, is crop insurance. He added that,“the battleground here is to keep crop insurance in place and do everything we can to improve it.”
In an op-ed appearing in the Fargo Forum on April 24, 2011, Roger Widner, Chairman of American Crystal Sugar Co. in Minnesota discusses federal spending on farm policies and what Minnesota farmers rely on most for hedging their risk:
“Meanwhile, the policies in place to help the state’s corn, soybean and wheat growers hedge risk continue to operate under budget and represent less than one-quarter of 1 percent of federal spending. Then there’s arguably the most important tool to Minnesota farmers: crop insurance. Crop insurance was specifically designed to shield taxpayers from mega-payouts that could result from catastrophic situations such as commodity price collapses and weather disasters.”
The American Farm Bureau Federation’s Mary Kay Thatcher explains to radio listeners across the country on May 13, 2011, the value that farmers place in their crop insurance policies:
“It’s just a real good risk management tool. We’re able to have famers pay part of the premium and have government pay part of the premium to make it affordable and it just ensures that if we have tough weather – especially like we’re having now – lots of wildfires in Texas and a lot of flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.”
After touring a drought-ravaged part of his home state of Kansas, Sen. Pat Roberts commented about the need to ensure that the 2012 Farm Bill contains effective farm policies:
“If there is anything we want to preserve and strengthen, it is crop insurance.”
Alan Rosendahl, a Senior Vice President at Iowa State Bank and a farmer in Iowa wrote an op-ed in the July 13, 2011 edition of the Cedar Rapids Gazette which detailed the value that banks place on crop insurance when making loans to farmers:
“As a banker and a farmer, I can tell you that federal crop insurance is the only thing that makes it possible for us to loan money to small farmers in Iowa. Banks, like other businesses, need to turn a profit to stay in business. But loaning money to small and beginning farmers can be very risky, because they often have less net worth, and tighter cash flows. Coupled with the fact that small banks are inherently risk-averse, particularly after the banking implosion of 2008, and you can see the dilemma.”
A reporter with the Argus-Leader noted that at a regional meeting, South Dakota farmers told Senator John Thune (R) that access to reasonably priced crop insurance is their safety net and is necessary to safeguard their futures:
“It makes sense to make this the centerpiece of ag policy.”
USDA’s Risk Management Agency notes the importance of the crop insurance program to farmers on their website:
“More farmers and ranchers participate in and have more at stake in the crop insurance program than any other USDA program.”
As Mother Nature wreaks havoc on the U.S. this year, with hurricanes on the East Coast, droughts in the Southwest and floods throughout the heartland, it’s no wonder America’s leaders are speaking out about the importance of crop insurance. A plan to manage risk is something that farmers in the U.S., and everywhere else for that matter, will always need.

Crop Insurance Takes A Disproportionate Share of Cuts

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In the President’s budget reduction proposal released yesterday, crop insurance and the farmers who both support it and depend on it are once again being asked to shoulder a disproportionate portion of the budget cuts.

In response to being asked to take more than $8 billion in budget cuts over the next decade, Tom Zacharias, President of National Crop Insurance Services, released the following statement:

“The crop insurance industry shares the President’s goal of deficit reduction, but we are deeply concerned that the President’s debt reduction proposals seriously threatens the viability of the crop insurance program, and with it the vital safety net it provides the nation’s farmers.

“We do not need to look to the past to know how important crop insurance is to agriculture today and in the future. This crop year is not even over yet and farmers have experienced extremely volatile commodity prices and devastating weather events — from droughts in Texas and Oklahoma to devastating floods in the Northeast and Midwest.

“The tragic irony in this proposal is that it may hamstring the nation’s primary risk management program that it is already contributing at least $4 billion towards deficit reduction as a result of program changes made last year – and $12 billion overall when changes made in the 2008 Farm Bill are taken into account. This is happening at a time when the industry is providing coverage on approximately 260 million acres at a value of over $110 billion. Congress needs to give the President’s proposals a very close examination and reject those elements that truly threaten the federal safety net on which farmers and our rural economy can rely.”

The Lone Star State Is Unfortunately Exceptional

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By Dee Vaughan

Texas is an exceptional state, and most Texans will be happy to explain why that’s so. Unfortunately, for this year, that term also applies to the bone-dry conditions that we’ve seen unfold over the last 12 months. Texas, it seems, is locked in what weather experts call “an exceptional drought,” something many parts of the state haven’t experienced since the dustbowl era.

Here in the Panhandle, it’s barely rained since October. And it’s been over 100 degrees for more days than most of us can count. I’ve heard there’s even a sign in Texas that says “Satan called, he wants his weather back.”

At times like this, with droughts here in Texas and historic flooding elsewhere, it’s not difficult to comprehend the inherent risks we face in agriculture. Luckily, Congress recognized long ago that in order to ensure a stable and safe food supply for the country, there needed to be farm policies in place to serve as a safeguard against damaging weather or wild market fluctuations.

Agriculture groups from throughout the state, representing banks, farm input providers, wheat, corn, cotton, rice and sorghum growers gathered in Lubbock recently to discuss the future of farm policies. The consensus of those of us in the room was that one of the most important of those policies — and the one that most farmers believe serves agriculture the best — is crop insurance.

Crop insurance is a great example of a public-private partnership that combines the strengths of both sectors and greatly amplifies the amount of good done by a modest government investment. For skeptics who thought that the flexibility and efficiency of the free market could never be combined with the universality and affordability of the public sector, this policy proves them wrong. In 2010, crop insurance was purchased for more than 80 percent of U.S. principal crop acreage, with 256 million acres under policies worth $80 billion in total coverage.

The government’s main role is to underwrite a portion of the individual premiums, making coverage more affordable and practical for farmers who greatly need tools to hedge their risks. The actual insurance policy agreement, however, is between the farmer and a private insurance company, ensuring that if disasters caused by Mother Nature or wildly fluctuating markets strikes, it is the private insurance company that is verifying the loss and paying the claim.

The program also contains the flexibility of private-sector solutions, because it allows farmers to tailor policies that fit their specific crops, location, and land conditions. This is a hands-on risk management tool tailored to the needs of the guardian of the land – the farmer – insured by private companies and delivered by private-sector agents.

But perhaps most importantly for those of us who farm, the crop insurance program has the efficiency and speed of the private sector when it comes to getting payments into the hands of those who have suffered economic loss. The crop insurance policy recognizes that farmers are often over-extended after planting and will be very short of cash in hand if a crisis hits until the harvest season comes.

We heard at the meeting this week from bankers that crop insurance not only hedges risk, but makes agriculture a more attractive investment for banks. In fact, banks love the crop insurance program, because it makes loans to farmers – a group who share a very high-risk occupation – much less risky. If it was not for the availability of crop insurance, many banks would be less inclined to offer farm loan programs, which could put many food and feed producers out of business.

One cotton grower in attendance noted that without the confidence crop insurance and other farm policies provide his lender, he would be unable to pursue his life’s dream: farming. And he’s glad those policies are in place right now. “This is a crop insurance year for Texas,” he told the group.

While it’s important for agriculture to shoulder its fair part of the pain, we need to recognize that it’s not only in farmer’s best interest, but in the best interest of consumers and the nation as a whole that farm policies remain adequately funded, and viable.

Hopefully, this exceptional drought will end exceptionally soon. If not, it’s good to know that most of us are covered by crop insurance and that food security programs will ensure that the harshness of nature that might steal our state’s harvest won’t also steal our farms.

Dee Vaughan is the current president of the Southwest Council of Agribusiness and the former president of the National Corn Growers Association. Vaughan farms corn, cotton, sorghum, soybeans, and wheat in the Texas Panhandle near Dumas, Texas.

This op-ed appeared in the Southwest Farm Press on August 29, 2011 and in the Lubbock Avalanche-Journal on September 11, 2011.

To listen to Vaughan’s interview discussing the need for crop insurance with the National Association of Farm Broadcasters, click here.

Matt Huie – A Personal Face On The Farming Crisis

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My grandparents’ children left the farm in pursuit of city jobs, but I loved everything about that life. So when I got the opportunity to move in with my grandparents at age 16, I didn’t hesitate.

After college, I made the decision to become a full-time farmer. Today, I live on a ranch about a mile from my grandfather—who is still operating part of his cattle ranch at 89—and hope to be able to one day pass on the skills that he passed on to me.

But many farm families are unable to compete with the lure of the city and are finding it harder to locate that member of the next generation willing and able to bear the torch. Without a new generation of farmers stepping forward, the world’s food supply, and Texas’ economy, will be challenged.

The average age of farmers in America is 58, the oldest at any time in our country’s history. Assuming most Americans retire at 65, that puts us about seven years away from real problems unless more young people shun lucrative desk jobs for riskier, and often lower paying, jobs on farms and ranches.

It sounds scary, and it is. But the idea of investing a future in farming is equally as scary for most young people. The expense of raising crops and cattle, the high risks faced every day, and the low returns on investment, is enough to make anyone run in the other, more secure direction.

Keeping Crop Insurance Strong

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The 2012 budget will likely include modifications and reductions to farm policy. Policy makers should consider 12 essential strengths that make crop insurance the cornerstone of the farm safety net programs. We’ll introduce one strength of crop insurance per month and explain how the sum of these strengths has given us the successful program we have today.

Strength: Producer indemnities are not capped by arbitrary payment limits.

All farm programs have limits on a producer’s annual adjusted gross farm and off-farm income to be eligible for payments. Farm programs also have annual payment limits for all programs except marketing loans.

There are no income caps to be able to buy crop insurance and crop insurance premium subsidies and indemnities are not limited by income or net worth. Additionally, because crop insurance is tailored to the individual’s specific needs, farmers pay a share of their premiums in proportion to the amount of risk they face.

Issue Brief: Crop Insurance

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Issue Summary:

Having a strong agricultural sector that provides an abundant and affordable supply of food and fiber is key to any country’s security, which explains why most countries have farm policies in place to help promote and sustain domestic production.

A key component to America’s food, fiber, and farm policy is crop insurance, a public-private partnership that has constantly evolved and improved over the years. Today’s crop insurance system marries the best of government and the business community to speed assistance to farmers when they need it the most while limiting taxpayer exposure.

Recent weather disasters underscore crop insurance’s importance and explain why many farmers consider it their most important risk management tool. In fact, for producers of many specialty crops, crop insurance is the only risk management tool available.

Policy Overview:

There are 15 private sector insurance companies that currently sell and service policies through the federal crop insurance program. These companies are regulated by law and through a contractual agreement with the government that ensures coverage is available to any grower who wants insurance regardless of geographic location or risk.

Altogether, these companies issued more than 1.1 million policies in 2010. To make sure premiums are affordable and policies are abundant, the federal government helps underwrite a portion of the premiums for policies purchased by individual farmers. Without some government involvement, there would likely be little or no multiple peril crop insurance available today.

Should damages occur during a growing season, losses are determined by private loss adjusters, quickly followed by policyholders receiving their payments from private insurance companies.

Approximately 80 percent of U.S. principal crop acreage was enrolled in crop insurance, with 256 million acres under policies worth $80 billion in total coverage.

Federal funding for crop insurance has been drastically trimmed in recent years, with more than $12 billion in cuts made since the 2008 farm bill. Many in the crop insurance business worry that additional cuts would so weaken the infrastructure that the program could not function as Congress intended or as farmers need.

And without an effective risk management structure in place, taxpayers would wind up footing the bill for expensive ad hoc disaster packages following adverse events. Most experts agree that without some government support, there would be little or no multiple peril crop insurance available today.

Policy Strengths:

Crop insurance ensures that producers share in risk management decisions and program costs: Because producers pay part of the premium and purchase the specific type of policy that exactly fits their needs, crop insurance ensures a very tailored approach to risk management.

Crop insurance is important for securing loans: Banks can be hesitant in making loans to farmers, particularly to smaller producers, because the risks are inherently high. Banks regard a crop insurance policy as collateral in making what might otherwise be a very risky, and costly loan to farmers who need to raise capital.

Crop insurance benefits from efficient private-sector delivery: Crop insurance combines the accessibility of the public sector with the efficiency of the private sector in ensuring that covered farmers who face catastrophe receive the proper level of payments in a timely manner. This can mean the difference between staying in business another year or going under for many farm families.

Proponents of Crop Insurance:

Crop insurance has enjoyed widespread public recognition and support. In fact, its biggest detractors seem to be libertarians, who argue for the end of most government programs.

Unfortunately, without some government involvement, crop insurance policies would be too expensive for farmers to purchase, and it would be too costly for insurance companies to offer universally available multi-peril coverage.

What They’re Saying:

“Failure to anticipate an imminent downturn in the agricultural economy by not maintaining farm policies through the farm bill and crop insurance… would, in time, prove penny wise and pound foolish.”
— A letter to House Budget Committee from nearly 30 farm groups.

“Most farmers now see [crop insurance] as a primary tool for risk management. An important tool for risk management.”
— USDA Chief Economist Joseph Glauber

“It’s just a real good risk management tool. We’re able to have famers pay part of the premium and have government pay part of the premium to make it affordable and it just ensures that if we have tough weather – especially like we’re having now – lots of wildfires in Texas and a lot of flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.”
–Mary Kay Thatcher, American Farm Bureau Federation,
Senior Director of Congressional Relations.

“Farm policy in general, and crop insurance in particular, will help weather-ravaged growers pick up the pieces and farm another day. It does so for less than one-quarter of 1 percent of the federal budget..”
— Roger Johnson, President, National Farmers Union

“Farmers like me need to have access to affordable risk management tools to better mitigate the impact of significant crop losses and sharp price declines. This is why the upcoming farm bill is so important. It is not about providing income to the less than 2% of the American population. It is about insuring that the same 2% can continue to provide affordable food for the other 98% of Americans who rely on them.”
— Testimony Of Clark Gerstacker,
Michigan Farmer, Before the U.S. Senate Agriculture Committee

“For 80 years now, we’ve been providing a safety net that helps people stay in business so that they’ll have a chance to try again next year. Without it, there’s no doubt we would have higher food prices.”
— Joe Outlaw, co-director of the Agriculture and Food Policy Center,
Texas A&M University

Useful Links:

National Crop Insurance Services

Leading Lawmakers Laud Crop Insurance

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As the recent budget deal is interpreted and the Farm Bill debate heats up, important members of the House Agriculture Committee are singing the praises of crop insurance and underscoring its prominence as a necessary risk management tool that helps farmers weather adversity.

Both the Chairman and top Democrat on the Subcommittee on General Farm Commodities & Risk Management – which has jurisdiction over farm policy and crop insurance – addressed the sugar industry’s annual conference – The International Sweetener Symposium – held July 29 until August 3 in Stowe, Vermont.

Chairman Mike Conaway (R-TX) outlined some key principles that should guide the writing of the 2012 Farm Bill. The first principle on his list was that the policy must not undermine federal crop insurance. “There is one thing besides faith in God that is keeping Texas producers afloat right now during the worst drought we have seen in years, and that is federal crop insurance. We cannot afford to mess that up,” he said.

The chairman went on to explain just how important a strong farm policy is right now. “Agriculture is the one bright spot in an otherwise grim economic picture,” he said. “We shouldn’t take it for granted and we certainly shouldn’t gamble with it. We need good farm policy. Good farm policy doesn’t cost a lot. However, what history teaches us is that bad farm policy costs too much.”

Congressman Leonard Boswell (IA), the top Democrat on the subcommittee, gave crop insurance his own boost in the arm. Boswell recounted that when he retired from the army and returned to Iowa to farm, he quickly realized that farming had really changed in the 20 years that he had been away. He explained that in the old days, in order to farm, a producer needed access to land and a place to buy and sell a product, like a co-op or an elevator.

“After surviving the farm crisis in the late ‘70s and early ‘80s, I realized the importance of a good crop insurance agent to help me manage my risk,” said Boswell. “I work closely with my agent to ensure that I will never be put in a position that I was during the 1980s farm crisis.”

Boswell echoed Conaway’s sentiment that farm policies are important to ensuring the health and vitality of the nation as a whole. “I share this because I understand the importance of crop insurance in the country and safety net programs across the country that enable producers to provide for their families and feed those across the nation,” he said.

Joining the leadership in speaking out about the importance of crop insurance was Ohio freshman member Bob Gibbs (R), who is a farmer and also a member of the House Agriculture Committee. “I believe that in this next farm bill, the vehicle to protect farmers from weather and price disruptions will be a viable crop insurance program,” he wrote in a recent op-ed in The Hill. “Crop insurance, along with other initiatives such as the ACRE program, can be tailored to reduce risk and protect the viability of our farming infrastructure,” he said.

Gibbs explained that in the next Farm Bill, Congress needs to ensure that risk management tools are in place to help farmers hedge their risks and in turn, ensures a stable food supply for U.S. consumers. “These programs provide farmers with some level of certainty and confidence as they make their management decisions to risk a tremendous amount of capital by putting that seed in the ground,” he said.

House Agriculture Committee ranking member and one of the lead architects of the 2008 Farm Bill, Collin Peterson (D-MN) recently said that there should be no changes to the crop insurance program in the upcoming Farm Bill. “I am against making any cuts in crop insurance…any changes in crop insurance,” he recently told a group of Minnesota farmers. He added that “crop insurance for me is the bottom line,” adding that he fears that at some point in time, it may be the only viable farm policy left.

It’s the Farm Safety Net That Makes Our Success Possible

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By Alan Rosendahl

What could possibly be scarier than being a farmer who stakes his yearly income on getting the divine cooperation of Mother Nature? Being the banker who makes the loan to the farmer every year to take that risk.

In a year when both the Mississippi and Missouri rivers have left their banks and Iowans are sandbagging levees while the Southern Plains bake in drought, it’s not hard to understand the risks associated with farming.

Recognizing the inherent and yearly risk in agriculture and the need for the country to have a stable food supply, years ago Congress assembled a set of policies known as “farm safety net programs” to ensure that farmers weren’t knocked out of business because of bad weather or wild market fluctuations. The most important of those policies—and the one that serves agriculture the best—is crop insurance.

As a banker and a farmer, I can tell you first-hand that federal crop insurance is the only thing that makes it possible for us to loan money to small farmers here in Iowa. Banks, like other businesses, need to turn a profit to stay in business. But loaning money to small and beginning farmers can be very risky, because they often have less net worth, and tighter cash flows. Coupled with the fact that small banks are inherently risk-averse, particularly after the banking implosion of 2008, and you see the dilemma.

But federal crop insurance bridges the risk problem because the policy itself serves as the collateral that the farmer needs to secure the loan, lowering or eliminating the risk to the bank altogether and ensuring the loan is made. Crop insurance establishes the floor for the farmer under which he can fall no further, ensuring that although he is small, he will be here to farm yet another year, and perhaps, pass the family farm on to his or her children.

During my long career in the banking business, I have noticed that the most profitable and successful farmers carry the most crop insurance. Why is this? Because successful farmers must be good businessmen, and good businessmen manage their risks. And it’s precisely their ability to manage risks and ensure continuity of production that explains the abundance and affordability of the American food supply. Food is plentiful here in the U.S. because our system is working.

But it doesn’t stop there. A side benefit of crop insurance is that is also serves as a much needed capital lifeline for small towns and rural America. This happens because crop insurance policies establish a cash flow from the farmer to the bank, in what will be the first of many times those dollars change hands.

So how does this happen? The bank takes the money it brings in from farmers and invests it in the local community or makes the funds available as loans to others seeking growth or investment capital. In fact, I’d argue that these dollars turn over multiple times and have major rippling effects benefitting the vast majority of the residents of small towns throughout the Hawkeye state.

The beauty of crop insurance from the taxpayer’s point of view is that it is a public-private partnership where the public helps fund a portion of the premiums yet the bulk of the risk, and the costs associated with that risk, is shouldered by the private sector, not taxpayers.

Unfortunately, farm safety net programs, like other parts of the federal budget, are on the chopping block. That’s why it’s critical that Iowa’s congressional delegation ensures that agriculture is not forced to shoulder a disproportionate part of the burden. Despite its success, crop insurance has already sustained over $12 billion in cuts over the last three years. Any more cuts to the crop insurance delivery infrastructure could undermine the viability of the program, and its benefits to Iowa and all of rural America.

Thankfully, because of federal crop insurance, it’s not scary for banks to make loans to farmers. There are no federal policies that can eliminate all risks to farmers or anyone else. But there are policies, like federal crop insurance, that make risk manageable. And the fact that banks aren’t forced, year in and year out, to take a leap of faith when they make the loan to the small or large farmer is one of those little known facts that makes America’s agricultural abundance the talk of the world.

——

Alan Rosendahl is a Senior Vice President at Iowa State Bank and a farmer who resides in Kesley, Iowa.

This op-ed appeared in the Cedar Rapids Gazette on July 13, 2011.

USDA to Congress: “Crop insurance is a vital part of the farm safety net”

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“Crop insurance is a vital part of the farm safety net and has become an integral part of business life for a large majority of American farmers and ranchers,” said USDA’s Risk Management Agency (RMA) Administrator William J. Murphy in testimony before the House Subcommittee on General Farm Commodities and Risk Management.

“[Farmers] would find it difficult to continue providing the United States and the world with an abundant supply of food, fiber and fuel without the protection provided by this part of the farm safety net,” he said in his June 24, 2011, appearance before Congress.

With droughts, floods and other disasters affecting crop production across many parts of the U.S., “this year is an excellent example of how important the farm safety net has become,” said Murphy. “Food security is important to this country. I’d hate to be put in a position where we don’t have these [crop insurance] programs and have widespread losses across the country.”

Murphy detailed the unique public-private partnership which makes the crop insurance program unique and how RMA works directly with its private partners—the 15 approved insurance companies—and the agents who deal directly with farmers and ranchers.

“Producers purchase Federal crop or livestock insurance from insurance agents operating in their communities, who sell the insurance on behalf of the 15 insurance companies,” he explained, noting that “this relationship leverages the respective strengths of the public and private sectors.”

Murphy also explained how participation in the crop insurance program has increased significantly, following changes enacted in 1994 by Congress when fewer than 100 million acres of farmland were insured under the program. “Today, over 250 million acres of farm and ranch lands are covered by Federal crop insurance, for an overall participation rate exceeding 80 percent for the major crops.”

“As the amount of insured acreage has increased, so too has the liability, or value of the insurance in force,” said Murphy. For example, in 1994, program liability was less than $14 billion, compared to the 2011 liability which is estimated to exceed $100 billion. But the program has seen sustained growth as demonstrated by the increasing proportion of acres insured at buy-up levels over the last decade. “Today, over 90 percent of all policyholders purchase buy-up levels of coverage,” he added.

Additionally, Murphy explained to Congress that one of the most important considerations for the Federal crop insurance program is the premium cost for producers. “If premium rates are too high, producers will not participate in the crop insurance program. If premium rates are too low, actuarial performance will deteriorate,” he added.

That is why government involvement is necessary. Without it, affordable and widely available coverage wouldn’t exist. And without crop insurance, farmers would be hard pressed to obtain necessary operating capital from lenders.

Murphy explained many lenders now require crop insurance coverage in order to make operating loans to crop and livestock producers, and many producers use crop insurance as collateral for the loans.

AFBF’s Thatcher Discusses Crop Insurance as a Key Part of Farm Safety Net

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There are going to be more challenges to the writing of the 2012 Farm Bill than agriculture has ever seen, said the American Farm Bureau Federation Senior Director of Congressional Relations Mary Kay Thatcher, during a recent interview with the National Association of Farm Broadcasting that ran nationally.

“We don’t have as much money to write the Farm Bill as we did in 2008,” noted Thatcher, who added that another challenge is the large number of urban members of Congress who believe that farmers are getting rich off of strong crop prices this year.

Thatcher explained that good prices come and go and inclement weather can strike at any time, which is why it is important to remember that Farm Bills cover a number of years and that crop insurance is a very important component of the legislation. “It’s just a real good risk management tool. We’re able to have famers pay part of the premium and government pay part of the premium to make it affordable,” she explained.

Thatcher pointed out that crop insurance ensures that if we have tough weather like “wildfires in Texas and flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.”

Thatcher urged all areas of agriculture to come together during the upcoming debate, using all of our voices to push for as much political influence as possible. “We don’t just compete with the farmers down the road, we compete with the farmers of the world,” she added.

The 2011 Crop Year is Off to a Challenging Start

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The hopes of the largest and most profitable harvest in U.S. history are being placed into question by a series of historic weather events that are inflicting major damage to America’s agricultural heartland.

A cold spring followed by heavy, constant rain and flooding in the corn belt has resulted in extensive delays in plantings with only about 63 percent of the U.S. corn crop being planted to date – considerably less than the five year average of nearly 75 percent – according to the May 16th USDA Crop Progress report.

Illinois, the second largest corn producing state, is still lagging behind the national average with only 69 percent of the crop being planted, compared to the average of 74 percent over the last five years.

In other states, the news is much worse. In Minnesota, the fourth largest corn producing state, only 47 percent of the crop has been planted compared to the historic average for this date of 81 percent. Indiana, the fifth largest corn producing state only has 29 percent of its crop planted. Ohio, the seventh largest corn state is still in the single digits at seven percent compared the historical average of 70 percent and North Dakota finally broke into the teens at 14 percent.

The National Agricultural Statistics Service shows that more than half the winter wheat in Kansas – the nation’s largest wheat producer – is now rated in poor to very poor condition. Reports are even worse to the south, where 80 percent of the Oklahoma winter wheat crop and 75 percent of the Texas crop are in poor to very poor condition. Among the 18 major winter wheat-growing states overall, 44 percent of the crop is rated in poor to very poor condition.

The flooding that has swept through the Midwest and is moving south will result in further damage to this year’s crop.

Underpinning the vast majority of these crops is crop insurance, which according to estimates by National Crop Insurance Services (NCIS), would be written for at least $110 billion worth of crop insurance liability this year, the largest amount in U.S. history. Farmer participation in crop insurance continues at historically high levels. In fact, in 2010, nearly 80 percent of the U.S. crop – 256 million acres of farmland – were protected by crop insurance.

“The advantage of protecting our farmers with crop insurance is that when Mother Nature strikes as she is doing this year, it will be private industry working with USDA to ensure that we maintain financial stability for our agricultural production sector, ” said Tom Zacharias, NCIS president.

“The crop insurance industry is deeply concerned about the recent flooding situations and damage to this year’s crop. At this time, it is too early to tell how severe the damage will be, but in partnership with USDA, the industry stands ready to assist insured farmers in assessing the damage to their crops and farmland,” said Zacharias. “The federal crop insurance program is designed to provide protection for farmers affected by natural disasters, which unfortunately occur in the unpredictable and volatile business of agricultural production,” he added.

2012 Farm Bill Should Hold The Thin Green Line

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Minnesota has more at stake than most in 2012 farm bill.

Rural America has been abuzz lately about a term coined by retired Army Gen. Wesley Clark to describe the challenge of feeding more and more Americans with fewer and fewer farmers. His phrase, “hold the thin green line,” sums up what many of us have spent a lifetime trying to convey.

“If we cannot feed, fuel and clothe ourselves, then we cannot defend ourselves. If this one bright spot in our economy is choked off, then recession recovery will certainly stall,” Clark said.

Here in Minnesota, we have more at stake than most when it comes to holding the thin green line.

Almost half of the state’s land is devoted to food production, one-quarter of our residents are employed by agriculture, and we are national leaders in producing staple crops such as corn, wheat and sugar. So how does Minnesota build on this success story? It all starts in the halls of Congress with debate of the 2012 farm bill, and that debate is about to get under way.

Some lawmakers are already taking aim at agriculture. Some are pointing to federal budget deficits as an excuse to cut gaping holes in the farm safety net and leave Minnesota’s economy vulnerable to the whims of Mother Nature and the roller-coaster rides of current commodity markets.

Such attempts are as foolish as they are disingenuous, especially when you consider the current state of farm budgets. The sugar policy that underpins the state’s Red River Valley, for example, costs taxpayers $0. Some policy replacements that have been proposed in the past would cost $1.3 billion a year or more.

Meanwhile, the policies in place to help the state’s corn, soybean and wheat growers hedge risk continue to operate under budget and represent less than one-quarter of 1 percent of federal spending.

Then there’s arguably the most important tool to Minnesota farmers: crop insurance. Crop insurance was specifically designed to shield taxpayers from mega-payouts that could result from catastrophic situations such as commodity price collapses and weather disasters.

By helping farmers afford insurance policies that would otherwise be cost-prohibitive, the government is able to stretch tax dollars much further. The 2010 crop is a prime example – every dollar spent by the government yielded $20 worth of protection for farmers. And this divide is expected to grow in 2011.

If you doubt the need for crop insurance, just look at recent data from the National Weather Service, which shows that excessive snow in the Great Plains and Midwest may leave more of the state’s valuable crops under water than the 2009 record-setting floods.

Now is not the time to weaken crop insurance and put taxpayers – instead of private insurance companies – on the hook for picking up the pieces. If anything, discussions should be centered on ways to strengthen crop insurance and the rest of the safety net. After all, there’s far more at stake than farmers in the next farm bill.

Widner is chairman of the American Crystal Sugar Co. and grows sugar beets, wheat and soybeans in Stephen, Minn.
This article appeared in the Fargo Forum on April 24, 2011.

Keeping Crop Insurance Strong

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As lawmakers place farm policy under the microscope again, they should consider 12 essential strengths that make crop insurance the linchpin of the farm safety net programs. In this on-going series, we’ll introduce one strength of crop insurance per month and explain how the sum of these strengths has given us the successful program we have today.

Strength: Producers receive an individualized risk management solution.

Crop insurance is specifically tailored to each individual policy holder, covering the expected yield and revenue risk of each individual producer. The producer is free to select alternative levels of coverage, based on their historic or projected yield. Different rules govern new lands brought into a coverage plan or covering “risky” land. In addition, the producer may also receive coverage for prevented planting, planting losses and lower quality yields.

Crop insurance is an excellent tool for producers who want individual protection specifically matched with the risks they face and the character of their operation. In general, other safety net programs are structured to be the same, across the board, because of easier delivery and wider application. Unfortunately, with the one-size-fits all approach, payments received by producers may not adequately reflect the full degree of damage to their crops.

Crop Value, Crop Insurance Coverage At Record High

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At least $110 billion worth of crop insurance liability – the largest amount in U.S. history – will be written this year, underscoring the popularity of crop insurance and the growing value of agricultural commodities, according to National Crop Insurance Services (NCIS).

“The value of our agricultural output is at an all-time high,” said NCIS President, Tom Zacharias, at a March 8 news conference. According to the Federal Reserve Bank this is helping to fuel the overall economic recovery in the U.S.

Best of all, Zacharias noted, “If disaster strikes and puts the valuable 2011 crop at peril, it is the private sector delivery system, and not the U.S. taxpayer, who will be the first line of defense to ensure that America’s farmers do not suffer severe financial hardship due to events out of their control.”

In a recent guest opinion article in the Traverse City (Michigan) Record-Eagle, Zacharias noted that it is easy to see why crop insurance has gained so much popularity with farmers, pointing out that more than 1.1 million policies covering 256 million acres across the U.S. were written in 2010 to deal with risks. “Nationally, this public/private partnership enabled the government to turn a modest investment into nearly $80 billion in protection in 2010,” he added.

Crop insurance was designed by lawmakers to combine the strengths of the government and private sector to best leverage taxpayer investment. The government’s main role is to regulate the business and subsidize farmer premiums making coverage more affordable and practical for farmers who greatly need tools to hedge their risks. Farmers purchase the policies and pay for a portion of the premiums out of their own pockets. The policies are sold by licensed agents and serviced by private insurance companies.

“Without the crop insurance program that we have in place today, U.S. agriculture could be facing a liability of $110 billion, should farmers get hit with a catastrophe in 2011,” noted Zacharias. “That would be unsustainable. Congress should be applauded for structuring a system that achieves so much return on investment,” he added.

Every dollar of investment achieved $20 of protection last year – a gap that should grow substantially in 2011. Zacharias says that he hopes Congress will consider this return on investment as it begins writing the 2012 Farm Bill.

Michigan Senator and Chair of the Senate Agriculture Committee, Debbie Stabenow (D-MI), recently outlined her principles for the upcoming Farm Bill, urging us not to look at the 2012 Farm Bill under the lens defined by budget concerns or specific programs but instead from principles like “creating the best safety net and the best tools possible for managing risk.” She added, “We need an effective safety net so that we aren’t watching family businesses go under because of a few days of bad weather or market factors outside of their control.”

Michigander and crop insurance agent, Mike Gaynier, echoed the importance of the farm safety net to the state’s diverse agriculture sector during a recent national radio interview. “Crop insurance provides protection to producers of Michigan’s lucrative specialty crops — like the well-known tart cherry crop, or important grains like corn, wheat and soybeans — should prices crash or Mother Nature deal an unwelcome blow. In fact, it is the only safety net tool available for most fruit and vegetable growers,” he concluded

Farm Bill Principles and Crop Insurance

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America’s abundance of affordable and nutritious food is the envy of the world. This is not an accident, as our long history of investment in agricultural infrastructure has made this possible. Underpinning this system is crop insurance’s modern public/private partnership that provides a safety net for farmers, helping them manage price and weather risks.

USDA’s Agricultural Outlook conference speech by Sen. Debbie Stabenow of Michigan, chair of the Senate Agriculture Committee, outlined her principles for the upcoming Farm Bill. She urged us not to look at the 2012 Farm Bill under the lens defined by budget cuts or specific programs but instead from principles like “creating the best safety net and the best tools possible for managing risk.”

Ask any Michigan farmer — or any American farmer — what fits this bill, and crop insurance will be among the first responses. Crop insurance provides protection to producers of the Great Lakes state’s lucrative specialty crops — like the well-known tart cherry crop — should prices crash or Mother Nature deal an unwelcome blow. In fact, it is the only safety net tool available for most fruit and vegetable growers.

It is easy to see why crop insurance has gained so much popularity with farmers. In fact, more than 1.1 million policies covering 256 million acres across the U.S. were written in 2010 to deal with risks. Nationally, this public/private partnership enabled the government to turn a modest investment into nearly $80 billion in protection in 2010.

Stabenow wants the Farm Bill to be based on the notion that farmers know better than anyone else what works for them. A major strength of today’s crop insurance program is that it allows farmers to create individualized risk management solutions tailored to their specific risks.

When catastrophe hits, the only thing protecting many producers from bankruptcy is crop insurance, which is streamlined by the efficiency of private sector delivery. And banks are increasingly relying on crop insurance, knowing fully that the money they loan farmers for food production is partially secured by this program.

Unfortunately, this risk management tool has been put under the budget-cutting microscope in recent years. Lawmakers in search of budget offsets for other, often non-farm priorities, have already substantially reduced funding.

Bill Murphy with USDA’s Risk Management Agency recently cited an agency report that indicated current investments in crop insurance are delivering a significant bang for the buck. The persuasive attributes of crop insurance, despite the funding reductions already taken, underscore a program that is cost effective and sustainable.
The U.S. agricultural sector is a source of deep economic strength and stability. As weather-driven crop failures globally cause price fluctuations and food shortages we should be heartened by our fiscally sound crop insurance policies. As Stabenow also noted, “We need an effective safety net so that we aren’t watching family businesses go under because of a few days of bad weather or market factors outside of their control.” Indeed, crop insurance is attempting to meet this need not only in Michigan, but nationwide as well.