Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 08/29/12

Farmers Play Crop Insurance Roulette

INDIANAPOLIS (DTN) -- For philosophical or even practical reasons, about 15% of Grain Belt acres won't be covered by crop insurance in 2012 -- a year that suffered the most searing heat and drought in more than a century. But with a surprising number of crop revenue policies on corn expected to generate claims as high as $40 for each $1 of farmer premium, this will be a year that haunts the self-insured.

Producers who farm more acres spend more money per acre on crop insurance.

More than half of all crop insurance policies nationwide are expected to trigger claims this year, and in some locales, 100% of policy holders can expect checks, insurers tell DTN.

In fact, because of the trend-adjusted yield option and the chance for $7 or $8 corn at harvest, a number of insured could collect somewhere close to $1,200-per-acre indemnities with a 200 bpa actual production history and 85% coverage level, one insurance company estimated.

More common claims might run only a few hundred dollars per acre. Still, that buffer, along with record prices for 2012 crops, will generate the highest farm incomes ever, even beating 1973 in inflation-adjusted terms. Once insurance claims are counted, corn cash receipts could top 2008's record receipts by 44%, USDA estimated this week. Soybeans receipts could surge 60% and wheat 7% vs. their all-time highs.

So imagine the guilt of a father who never gave insurance consideration, Chrisman, Ill., farmer John Phipps told an insurance agent meeting last week. He had never purchased multi-peril coverage, nor encouraged his son to do so when the seventh-generation farmer came back to succeed him several years ago. Phipps expects that will change for him and other self insureds in 2013.

Other Midwest corn-soybean operators without debt, those with irrigation who rarely lose 15% of a crop or those who have rented new farmland and lack yield history may also have opted to go solo in the past. In fact, a study of more than 300 operators by the financial consulting firm AgriSolutions found huge differences in farmers' risk management habits in 2011. That year, more than a few operators spent nothing or minimal amounts on crop insurance; at the other extreme some spent more than $80 an acre on premiums, depending on the mix of coverages, experience rating, and purchasing efficiency.

Larger operators appear more willing to buy more coverage than their smaller peers, according to AgriSolutions' Sam Bachman. On average, trendlines show a 250-acre farmer spent about $20/acre on 2011 crop insurance while a 15,000-acre operator spent about $40/acre.

"It is part of being human that when we think of the future we emphasize the positive and downplay the negative," says Bachman. "My hope is that this weather year teaches everyone that spending money to insure against catastrophic losses is not up for debate."

Read and comment all DTN Ag Business Benchmarks on the Minding Ag's Business blog.

Follow Marcia Taylor on Twitter@MarciaZTaylor.

Marcia Taylor can be reached at marcia.taylor@telventdtn.com

Posted at 1:56PM CDT 08/29/12 by Marcia Zarley Taylor
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