Shrinking the Crop Insurance Deductible
(DTN) “One thing you don’t take for granted in south Texas is risk,” quipped Jimmy Dodson, a dryland cotton grower at this week’s Farm Foundation panel on the future of risk management in agriculture. The climate can be so inhospitable that when Zachary Taylor spent time in Corpus Christi during the Mexican American War, he reportedly said “he would rather live in hell and rent Texas out, ” Dodson added for emphasis.
The heightened weather and price risks in today’s agriculture mean revenue-based crop insurance will certainly be the centerpiece of the next government safety net, even as Congress shaves federal spending, the Farm Foundation panel concluded. Eight out of the nine farm bills pending in Congress retain that base level of risk management and the concept may find favor with the Super Committee charged with meeting budget goals.
Another key component is that farm groups like Dodson’s American Cotton Producers (part of the National Cotton Council)—as well as the National Corn Growers Association and American Soybean Association-- are asking for the government to cover “shallow” revenue losses not protected by conventional insurance. That’s the deductible before insurance kicks in—typically 15% to 25% depending on the state where you live and the type of policy you purchase. ( For example, Mississippi and Texas corn growers can only insure a maximum 75% revenue coverage, whereas growers across the state line in Arkansas and in most of the rest of the country can buy 85%.)
“ You can’t lose 25% of your potential income every year and stay in business,” Brian Montgomery, a crop insurance agent with Alliance AG Risk Management, Starkville, Miss., told me last summer. That’s especially true considering the 10-year formulas that keep actual production histories lagging reality.
Cotton growers have asked for a federal revenue program similar to a Group Risk Income Protection (GRIP) policy that can layer on top of a grower’s base insurance buy. They use a county-based system for estimating county yields, so the program would be a closer match to yield disasters than the current ACRE program. An American Soybean Association plan uses actual farm records, but it’s extremely expensive to deliver.
The so-called ARRM farm bill (backed by sponsors Brown, Thune, Lugar and Durbin) bears many similarities to the National Corn Growers Association’s farm bill plan. It would also supplement crop insurance to protect against “shallow” revenue losses in the 75% to 90% range. It echoes some of the existing ACRE program, but addresses complaints growers have had about long payment delays and the use of a statewide yield trigger.
Under ARRM, payments would be made on 85% of a growers’ planted acres if revenue for the crop dropped below 90% of the crop’s revenue guarantee (5-year Olympic average crop reporting district yield multiplied by 5-year Olympic average crop insurance harvest price.) That means payments could be made much closer to harvest rather than at the end of the marketing year 10 months later.
Why are farm groups so obsessed with covering these revenue gaps? Studies of Illinois farm business records between 1978-2008 show 73% of Illinois’ revenue losses fall in that “uninsurable” category, according to Carl Zulauf, an Ohio State University economist. In Kansas, 57% of corn grower losses failed to hit the insurance threshold.
Some private companies have attempted to offer insurance for these gaps. The concept may work well in Illinois, but private groups consider underwriting crop risks in Texas a losing proposition. The problem is without federal subsidies, they can face problems adequately protecting growers in the midst of extreme disasters like the current Great Plains drought now entering its second year.
For example, the Climate Corporation, formerly known as WeatherBill, offers weather insurance policies that supplement federal crop insurance coverage. Because long-term drought prospects worsened for Texas and Oklahoma this year, premiums for Climate Corporation’s 2012 winter wheat policies there at least tripled between June and early August, becoming uneconomical for those who did not purchase their policies early. A company spokesman admits that “nobody is going to pay $90 for $100 of coverage.”
Zulauf doubts private companies have the wherewithal to insure crops against the systemic losses like the historic droughts of 1988 or 1983. “If everything else is held constant, it’s very hard for unsubsidized products to compete,” he says. So if growers like Dodson want “shallow” revenue coverage for Texans, it’s likely they’ll need a federal program to deliver.
http://www.dtnprogressivefarmer.com
The heightened weather and price risks in today’s agriculture mean revenue-based crop insurance will certainly be the centerpiece of the next government safety net, even as Congress shaves federal spending, the Farm Foundation panel concluded. Eight out of the nine farm bills pending in Congress retain that base level of risk management and the concept may find favor with the Super Committee charged with meeting budget goals.
Another key component is that farm groups like Dodson’s American Cotton Producers (part of the National Cotton Council)—as well as the National Corn Growers Association and American Soybean Association-- are asking for the government to cover “shallow” revenue losses not protected by conventional insurance. That’s the deductible before insurance kicks in—typically 15% to 25% depending on the state where you live and the type of policy you purchase. ( For example, Mississippi and Texas corn growers can only insure a maximum 75% revenue coverage, whereas growers across the state line in Arkansas and in most of the rest of the country can buy 85%.)
“ You can’t lose 25% of your potential income every year and stay in business,” Brian Montgomery, a crop insurance agent with Alliance AG Risk Management, Starkville, Miss., told me last summer. That’s especially true considering the 10-year formulas that keep actual production histories lagging reality.
Cotton growers have asked for a federal revenue program similar to a Group Risk Income Protection (GRIP) policy that can layer on top of a grower’s base insurance buy. They use a county-based system for estimating county yields, so the program would be a closer match to yield disasters than the current ACRE program. An American Soybean Association plan uses actual farm records, but it’s extremely expensive to deliver.
The so-called ARRM farm bill (backed by sponsors Brown, Thune, Lugar and Durbin) bears many similarities to the National Corn Growers Association’s farm bill plan. It would also supplement crop insurance to protect against “shallow” revenue losses in the 75% to 90% range. It echoes some of the existing ACRE program, but addresses complaints growers have had about long payment delays and the use of a statewide yield trigger.
Under ARRM, payments would be made on 85% of a growers’ planted acres if revenue for the crop dropped below 90% of the crop’s revenue guarantee (5-year Olympic average crop reporting district yield multiplied by 5-year Olympic average crop insurance harvest price.) That means payments could be made much closer to harvest rather than at the end of the marketing year 10 months later.
Why are farm groups so obsessed with covering these revenue gaps? Studies of Illinois farm business records between 1978-2008 show 73% of Illinois’ revenue losses fall in that “uninsurable” category, according to Carl Zulauf, an Ohio State University economist. In Kansas, 57% of corn grower losses failed to hit the insurance threshold.
Some private companies have attempted to offer insurance for these gaps. The concept may work well in Illinois, but private groups consider underwriting crop risks in Texas a losing proposition. The problem is without federal subsidies, they can face problems adequately protecting growers in the midst of extreme disasters like the current Great Plains drought now entering its second year.
For example, the Climate Corporation, formerly known as WeatherBill, offers weather insurance policies that supplement federal crop insurance coverage. Because long-term drought prospects worsened for Texas and Oklahoma this year, premiums for Climate Corporation’s 2012 winter wheat policies there at least tripled between June and early August, becoming uneconomical for those who did not purchase their policies early. A company spokesman admits that “nobody is going to pay $90 for $100 of coverage.”
Zulauf doubts private companies have the wherewithal to insure crops against the systemic losses like the historic droughts of 1988 or 1983. “If everything else is held constant, it’s very hard for unsubsidized products to compete,” he says. So if growers like Dodson want “shallow” revenue coverage for Texans, it’s likely they’ll need a federal program to deliver.
http://www.dtnprogressivefarmer.com
Posted by Colvin & Co. at 10/19/2011 5:30 AM 
Categories: Farmland
Tags: agriculture farmland corn farming soybeans wheat Weather Drought Flood
Categories: Farmland
Tags: agriculture farmland corn farming soybeans wheat Weather Drought Flood
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