Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Monday 10/15/12

Bracing for the Crop Insurance Tab

Policymakers are closely watching daily futures prices this month. The average of Dec futures for corn will not only determine individual farmer compensation on revenue policies, but will influence just how much this summer's disaster will cost the federally subsidized crop insurance program.

Though there are two weeks left to count for the harvest guarantee on corn, Kansas State University economist still thinks the final tab could set a new high water mark for insurance claims.

As of today, Dec corn futures are averaging $7.51/bu. That's nearly $2/bu. higher than the $5.68/bu. guaranteed most of the Corn Belt last spring, most operators with Revenue Protection or GRIP policies will receive the higher price on their lost bushels, whatever that price turns out to be.

By Barnaby's latest calculations, growers could file $24 billion of insurance claims this season, fueled in large measure by record harvest prices for corn and other commodities. For perspective, that is more than twice the record claims of 2011 --and 30 times the claims back in 1988. It's led some critics at the American Enterprise Institute and elsewhere to question whether the volatility in today's commodity prices makes rules for revenue protection too generous. Another contention is that growers only pay 37% of their premiums today, versus 62.6% as recently as 2000.

Pro-insurance advocates like Barnaby point out that farmers paid about $3.8 billion in insurance premiums this year and the federal government another $6.5 billion in premium subsidies, so the total underwriting loss will run only $14 to $15 billion. Some of that will be shared with private companies and their reinsurers, although their exposure is capped and varies by state

Still that's a mountain of cash for the federal government to bear and it continues to make crop insurance a target for cost savings in the next round of the Farm Bill. From an individual farmer point of view, though, thank God for insurance.

Historical corn insurance prices
Year Projected Harvest
2012 $5.68 ?
2011 $6.01 $6.32
2010 $3.99 $5.46
2009 $4.04 $3.72
2008 $5.40 $4.12
You can also check out a running tally of RMA's harvest prices and prices recently in discovery here:



Follow me on Twitter@MarciaZTaylor

Posted at 5:35PM CDT 10/15/12 by Marcia Zarley Taylor
Comments (1)
So where are the premium dollars and all the profits and reserves from the last few years when claims were minimal.... yachts? J.P.Morgan? Private jets? There should be reserves like crazy in these companies' portfolios considering countless years with negligible claims experience or do insurance companies spend it as fast as they collect it? Need regulation? Did it get lost on Wall Street? On those hot mortgages? Toxic Assets? Where are the managers? Off shore? Switzerland?
Posted by Bruce Hanson at 8:40PM CDT 10/19/12
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