WHAT'S CROPPING UP
Beginning farmer Cody Bornholdt returned to the family farm in 2011 in Inman, Kansas, after finishing college to find himself in the middle of what would be a multi-year drought in the southern plains. Bornholdt said that given the amount of risk that farmers face to put a crop in the ground, crop insurance is an invaluable risk management tool. “As a beginning farmer, it is essential for me to cover my investment as I take on a big risk with a lot of capital investment into these crops,” he said.
Bornholdt noted that his decision to purchase crop insurance yearly gives him peace of mind, even in the worst of times. “It’s nice to know and it makes it easy to sleep at night when you are in a year like this year when it’s a catastrophe or a drought,” he said. “Not knowing if you’re going to have a crop in the fall … knowing that you have your crops covered and you’ll be able to make ends meet at the end of the year and get that note paid off is a huge relief,” he said.
As we continue pressing forward in the 2013 Farm Bill debate, the success of the crop insurance program and the benefit that it has had to the American taxpayer is the subject of a recently released NCIS video.
“Over the last decade, overall taxpayer spending on farm policy as a whole has steadily declined,” notes Tom Zacharias, president of National Crop Insurance Services. “That’s no accident,” he adds, explaining that commodity prices have strengthened and the country began shifting to an insurance system that reduced the need for traditional subsides and limited taxpayer exposure.
On the heels of the worst drought in decades, Americas farmers — and the rural economies they support — bounced back and are expecting a record corn crop this year, due in part to the fact that 86 percent of planted cropland was protected by crop insurance last year.
“America’s breadbasket rebounded after a punishing drought and farmers have shown that with the right risk management tools in place, they are among the most resilient and productive workers in the nation,” said Tom Zacharias, president of National Crop Insurance Services (NCIS).
Over the last several years as the future face of U.S. farm policy has been debated, crop insurance has emerged as the best and most cost-effective risk management tool for farmers, ranchers and taxpayers. The debate over crop insurance, however, has not been confined to the halls of Congress. It has happened on the airwaves, in the newspapers, in academia and on tractors in the fields.
As a public-private partnership, crop insurance is a new hybrid risk management tool whereby farmers purchase policies that are partially discounted by the federal government. As Senate Agriculture Chairwoman Debbie Stabenow pointed out during the recent Farm Bill debate, when a farmer signs up for crop insurance, “the farmer gets a bill, not a check.”
Americans will spend only two cents per meal on crop insurance – the risk management tool most used by farmers to protect themselves from the whims of Mother Nature – through FY 2023, according to CBO’s latest 10-year budget projections. That figure is up from one cent per meal, which was the average cost for the period of FY 2000 to 2011.
Those estimates might come as a surprise to many Americans, who are watching ongoing Congressional action surrounding the five-year, $100 billion per year Farm Bill. But most of that money actually goes towards spending on domestic food programs, with roughly 15 percent directed to farm programs and crop insurance.
The Senate overwhelmingly passed the 2013 Farm Bill with a very strong of vote of 66 to 27, with 93 senators voting. The passage of the bill represents an historic pivot in U.S. farm policy, away from the era of direct payments to large numbers of commodity farmers to crop insurance, which must be individually purchased by each farmer and offers financial support – in the form of a crop insurance indemnity payment – only when they incur a verifiable loss, including weather damages or commodity price fluctuations.
The issue is now in the House of Representatives where the debate continues. Both bills pare overall Farm Bill spending, with the Senate version projecting $24 billion in savings over ten years and the House version projecting $40 billion in savings over the same period of time. Eighty percent of Farm Bill expenditures will go to food assistance programs and roughly 20 percent goes to farm programs, including conservation, renewable energy, commodity programs and crop insurance.
Before farmers received a single dime in crop insurance indemnity payments, they shouldered $12.7 billion in losses as part of their deductibles to crop insurance policies, according to a guest editorial by Tom Zacharias, president of National Crop Insurance Services (NCIS).
“When combined with the $4.1 billion farmers paid out of their own pockets to purchase crop insurance last year, total farmer investment neared $17 billion,” explains Zacharias in the May 6 edition of Roll Call/CQ.
As the nation’s crop insurers prepare for the Farm Bill and funding deliberations in the future, National Crop Insurance Services (NCIS) has released a detailed question-and-answer resource laying out the facts about crop insurance and dispelling some of the most common arguments against crop insurance put forth by its critics.
“Crop insurance is the single most important risk management tool available to farmers today, and the public needs to understand why it is so valuable, how it benefits taxpayers and how it helps maintain a stable agriculture for the benefit of consumers,” said Tom Zacharias, president of NCIS.
Critics who said that farmers who purchased crop insurance were “praying for drought, not praying for rain” or were “laughing all the way to the bank” during last summer’s historic drought were strongly rebuked by farmers, crop insurance agents and claims adjusters in a new video released by National Crop Insurance Services (NCIS).
Marvin Andris, a farmer from Milford, Illinois, responded to Environmental Working Group’s accusations, noting that their comments underscored how little they know about farmers. “They obviously haven’t brushed shoulders with any farmer,” he said. Andris said he didn’t know a single farmer who farmed for an insurance check. “We’re into this because we want to raise crops, and the more bountiful, the more excited we become,” he said.
The area of the continental U.S. plagued by drought has more than doubled since February 2011, according to the U.S. Drought Monitor. Even more disturbingly, the portion of the country locked in a level of drought considered “severe, extreme, or exceptional” has increased by more than 400 percent over that same period of time, according to archived data and maps from the first week of February 2011 through the first week of February 2013.
Although one of the biggest stories in agriculture in 2011 was the intense drought and heat wave in the southern plains that seared crops and eventually led to widespread wildfires, only about 24 percent of the continental U.S. was experiencing drought on February 8 of that year, with nine percent of that sample facing “severe, extreme, or exceptional” drought.
Twelve states have loss ratios of at least 1.1 — meaning crop losses 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.
Eighty-six percent of all planted U.S. farmland – some 281 million acres – is protected by crop insurance this year, up 2 percent from 2011 and a nearly three-fold increase from the late 1990s when only about 30 percent of farmers purchased policies, according to data from USDA’s Risk Management Agency.
The growth in coverage has been fueled by a number of factors, including fewer federal risk management alternatives for farmers, many farmers’ desire to have increased control of their risk management choices, federally-funded premium subsidies for those who purchase policies, a wide array of policy options and the value banks place on crop insurance when making loans.
“Some of the same people who had to deal with the floods last year along the Mississippi and Missouri rivers are now dealing with the opposite – extreme drought,” says Calamus, Iowa, claims manager David Bousselot, in a new NCIS video.
The video highlights the critical role that many of the 5,000 claims adjusters play in helping farmers pick up the pieces after the worst drought in decades, with $6.3 billion already in the hands of farmers. “The adjuster is the connection with the producer,” says Bousselot.
Throughout most of the summer, more than 60 percent of the continental U.S. was locked in drought, which sent corn and soybean yields plummeting.
Support for crop insurance is especially strong in rural America after this historic drought. A new NCIS video focuses on the overall training, continuing education and primary role adjusters play in getting crop insurance claims processed efficiently and accurately. Adjusters have already processed more than 146,000 claims so far this year, resulting in more than $2.2 billion worth of indemnity payments reaching farmers in need.
The arrival of heavy rains from Hurricane Isaac made some farmers happy and others worried to death, depending on where they were located and what they were growing.
In Louisiana and Mississippi, most of the cotton crop was two to four weeks from harvest when Isaac made landfall. That was the same situation as 2008 when Hurricane Gustav ruined that crop. Louisiana corn harvest had been delayed as well, leaving much of that crop in the field and farmers scrambling when the winds and torrential rains came.
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 24.14 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.
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.
Three new educational videos on the importance of crop insurance were released by National Crop Insurance Services: ”Crop Insurance 101;” “2011 Southwest Case Study;” and, “2011 Midwest Case Study.”
Several witnesses representing key agricultural lending institutions and credit agencies told members of the House Agriculture Committee’s Subcommittee on Department’s Operations, Oversight, and Credit that access to credit is essential for farmers and crop insurance plays an important role in that access.
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.
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.
“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.
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.
With claims still streaming in — only an estimated 81 percent of expected claims have been finalized — crop insurance companies have already paid out a record $9.1 billion in indemnity payments to America’s farmers in 2011.
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.
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.
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.”
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.
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.
“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.
The 2011 crop year continues to face a trifecta of weather-related anomalies that have hit America’s heartland and have cast a long shadow over the highly optimistic projections for crop yields and farm incomes.
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.
This inaugural issue of the National Crop Insurance Services’ monthly newsletter provides the latest developments in the industry and information on why crop insurance is essential to America’s farmers, ranchers and agricultural economy.
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