Midwest Loss Ratios Soar as Indemnities Continue to Rise

Twelve states have loss ratios of at least 1.1 — meaning crop losses paid are $1.10 for every dollar received in premiums for the 2012 crop year — according to the January 21 data from the Risk Management Agency. The highest loss ratio states are in the heartland, with the top five states including Illinois at 2.36, Missouri at 2.24, Kentucky at 2.16, Nebraska at 1.83 and Iowa at 1.66.

To date, most of the crop losses are to corn and soybeans, with corn producers accounting for 59 percent of all indemnities paid and soybeans accounting for roughly 12 percent. Cotton, wheat and grain sorghum make up the other top five crop losses.

While most of the losses nationally can be attributed to the record drought of 2012, other parts of the country suffered from other weather anomalies. The spring freeze that damaged crops in New England and the upper Midwest resulted in high losses in many apple orchards, with loss ratios in New Hampshire coming in at 1.24 and Massachusetts at 1.1. Nationally, the loss ratio is 1.12 and rising.

In 2012, farmers paid more than $4.1 billion in premiums to purchase crop insurance. To date, more than $12.3 billion has been paid out to farmers, easily surpassing 2011’s old record of $10.8 billion in indemnities paid. Unlike disasters of the past however, the private sector is paying for a significant portion of the bill.

In fact, past natural disasters – prior to the widespread availability of crop insurance – cost taxpayers $45 billion from FY1989 to FY2001, according to the Congressional Research Service. And while the data is still not in, private sector losses from 2012 will almost certainly be in the billions of dollars.

What’s worrying many producers is that there are early indications that 2013 could be even drier than 2012. More than 60 percent of the continental U.S. – including a good portion of the nation’s breadbasket – remains in some stage of drought, compared to roughly 32 percent a year ago, according to the January 8 U.S. Drought Monitor.

Every county in the states of Iowa, Minnesota, Missouri, Oklahoma, Kansas, Nebraska, South Dakota, Colorado, Wyoming, New Mexico, Arizona and Utah are either abnormally dry or in some level of drought. USDA has already designated 597 counties in 14 states as primary natural disaster areas due to drought and heat, making all qualifying farm operations eligible for low interest emergency loans.