Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 12/26/12

Crop Insurance Got You Covered?

 

High crop insurance guarantees (in light green) have helped to cover production costs for corn in recent years, but big spikes in land costs are exposing operators to more risk. In 2013, a typical Indiana farmer needs an insurance guarantee of about $6.30/bushel to breakeven.

Not since the 1950s has the U.S. experienced severe drought on the scale of 2012. So even if soil moisture levels begin to recharge, it could take at least 18 months to return to normal in drought afflicted regions, DTN Ag Meteorologist Bryce Anderson told attendees at the DTN-Progressive Farmer Ag Summit earlier this month. No wonder growers in the parched Corn Belt already are keeping a close eye on whether 2013 crop insurance will cover their production costs should severe or extreme drought linger through another growing season.

In early December, it looked like corn's 2013 crop insurance guarantee could average $6.30/bu., based on Dec 2013 futures at the time. If that price held through February 2013, crop insurance guarantees would just cover estimated costs before family living or labor for a typical Indiana farmer, pointed out Erick Schminke, John Deere Insurance Co. He assumed the producer had a 170-bu. yield guarantee for insurance purposes, and a 75% Revenue Protection policy with a trend-adjustment option.

Those calculations used Purdue University estimated costs and returns for a typical corn grower on high productivity soil, but do not include costs for family or hired labor.

Now that Dec 2013 futures have tumbled about 25 cents/bu., however, growers may need to consider higher levels of insurance to cover their costs. At guarantees of $6 for corn and $12.50 for soybeans, many farms could insure positive incomes by taking 80% or 85% Revenue Protection policies. But as University of Illinois Economist Gary Schnitkey wrote in a recent farmdoc daily post, farms most at risk for low and negative incomes are grain farms that cash rent a large portion of their farmland at above-average rent levels. In many cases, typical cash rents throughout central Illinois now exceed $300 an acre and some top-dollar cash rent auctions bring in excess of $500.

High-rent farms "cannot assure themselves positive incomes in 2013 even if they take high levels of crop insurance," Schnitkey said.

For perspective, crop insurance guaranteed about $766/acre in 2011 when a record spring price hit $6.01. But as input prices and cash rents have escalated, crop insurance isn't always able to keep pace. As one Summit attendee told the crowd, "I don't buy crop insurance to cover my banker. It's net worth insurance--I buy it because it costs so much to put a crop in the ground."

To see Purdue's estimated costs and returns go to http://www.agecon.purdue.edu/…

To see Schnitkey's University of Illinois analysis go to http://farmdocdaily.illinois.edu/…

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

Follow Marcia Taylor on Twitter@MarciaZTaylor.

(SK/CZ)

Posted at 2:43PM CST 12/26/12 by Marcia Zarley Taylor
Comments (21)
Just another government rathole - networth insurance for multimillionaires. And where does the constitution cover networth insurance for millionaires paid for by the taxpayers? Have you ever heard of crony capitalism Marcia?
Posted by Lon Truly at 11:59PM CST 12/26/12
Kind of like FEMA building new homes for multi-millionaires every few years in hurricane lanes on the coastlines,Lon?
Posted by Bonnie Dukowitz at 6:33AM CST 12/27/12
Some who are wealthy enough deserve benefits worth millions everyyear (millions in insurance subsidies every year and millions in financial security blankets every year such as multimillion dollar investment/profit guarantees) . Others that are not very wealthy don't deserve much at all in benefits to compete with those who are more eligible for the best in government benefits. Certainly sounds like a bad case of crony capitalism to me.
Posted by Lon Truly at 8:04AM CST 12/27/12
Lon, I have hundreds of (less than 1500 acre) clients who are sure glad they had that "networth insurance" this year. Kept them farming another year... (Their words, not mine) I'm guessing you're A) not a farmer or B) had a bad experience with a bad agent? Not trying to be confrontational, just my observation sir.
Posted by Jarrod Bennett at 10:17AM CST 12/27/12
or, C) one of the farmers who is receiving subsidy money, but has elected to self insure, and will be losing dirct payments after the new farm bill is passed, and doesn't want to go to the work of getting his paperwork ready to get enrolled in the crop Insurance Industry. I am like you Jarrod, I do not know of anyone who after the last two years in western Kansas aren't glad that they had crop insurance to get them through, and help get more loans from bankers who require some sort of assurance that their investment will not be lost to mother nature.
Posted by Aaron Cross at 11:58AM CST 12/27/12
And the Saga of the fiscal slope continues. Steer your sled, rather than depending on a parachute. It may not open. .
Posted by Bonnie Dukowitz at 12:08PM CST 12/27/12
A major reason that margins in ag are tight is because of government not only assuming nearly all the production and marketing risks for many of the major ag crops, but also government guaranteeing a profit to many farmers with current prices and current government insurance schemes. Current farm bill proposals double down on these government risk assumption schemes with new and crazier shallow loss income guaranteeing schemes. When farmers have to budget for more of the production and marketing risks they are not as crazy about driving profitability margins below zero. If the purpose of fci is to keep small farmers in business why don't we target only them with the benefits? Interesting how farmers small and large are more than willing to spend government guarantees available to them.
Posted by Lon Truly at 12:32PM CST 12/27/12
Crop insurance is just one of the many tools the United States government uses to ensure the American populace is the recipient of a safe, stable, abundant supply of food and fiber. I don't think crop insurance was/is designed to "keep small farmers in business", it's to keep ALL farmers in business to achieve above said objective. Farmers large and small benefit (proportionately) the same from this program. The subisdy and premium rate is exactly the same for a 800 acre corn farm as that of a 250,000 acre corn farm; disputing this point only demonstrates ignorance on the issue. Here is the link, anyone can check it out for themselves to validate: http://webapp.rma.usda.gov/apps/ActuarialInformationBrowser2013/CropCriteria.aspx
Posted by Jarrod Bennett at 11:38AM CST 12/28/12
Government giving more to those who have more (greater crop investments & greater probability of larger incomes)steals from those with lessor incomes and assets a fair opportunity to compete in the highly competitive business of agriculture.
Posted by Lon Truly at 1:35PM CST 12/28/12
See http://static.ewg.org/pdf/Crop_Insurance.pdf
Posted by Lon Truly at 1:37PM CST 12/28/12
Congress needs to be prohibited from engaging in the selective agricultural investment and profit guaranteeing business. Their sorry record of targeting select farmers with highly discriminatory multimillion dollar investment/profit guaranteeing policies has destroyed countless rural communities by neutering the ability of smaller farmers to compete. To guarantee that the largest and obviously potentially most profitable business always will have a vastly superior incomes renders the smaller farmers incapable of competing in this highly competitive business. If congress is going to be involved in the safety net business all farmers are equally deserving of comparably valued safety nets.
Posted by Lon Truly at 6:31PM CST 12/29/12
Lon, in regards to crop insurance you're just wrong sir, factually incorrect. I don't know any other way to say it politely.
Posted by Jarrod Bennett at 7:18AM CST 01/02/13
Man don't be disrespectful to Marcia, be grateful she gives us a platform to discuss issues. Please follow my link and from the drop downs select corn, 2013, Revenue Protection, then your state and county. Then examine the two tabs, rates and subsidy factors. You will find by doing this that at 800ac and above, the subsidy and premium rate is exactly the same. Mega-farms receive the same insurance subsidy rate as 'average' size (above 800ac) farms do. It's just a fact. I can't demonstrate it any differently than by using an RMA actuarial document that we use to issue policies from...
Posted by Jarrod Bennett at 12:39PM CST 01/02/13
Get a clue Bennett. My point is about the total fair market value of the federal crop insurance benefit per farmer received (fair market value of investment/profit guarantees and subsidies received) not per acre insurance or subsidy rates.
Posted by Lon Truly at 10:18PM CST 01/02/13
Get a clue Lon, Everyone who reads these posts got your point a long time ago. Your obstinacy on a very narrow perspective is only becoming annoying and is very redundant. I also agree with Jarrod, leave Marcia and Chris alone. As no-one ever has all the answers, clean the wax from your ears and you may learn to refine your perspective.
Posted by Bonnie Dukowitz at 5:24AM CST 01/03/13
Bonnie - Sorry your attachment to the FCI sow has limited your ability to deal with reality. It appears to me that your attachment to FCI has produced a variation of the Stockholm Syndrome where you are actually acting to promote the very force FCI that is destroying small farms such as yours. Jarrod certainly has had a difficult time grasping the devastation FCI has produced in rural America. It also appears that his attachment to FCI is liimiting his ability to come to an unbiased view of FCI.
Posted by Lon Truly at 8:04AM CST 01/03/13
There you go again Lon, I could care less if government programs disappeared. However I am not possessed with my opinions nor have I closed my mind.
Posted by Bonnie Dukowitz at 8:53AM CST 01/03/13
Lon I will make it easy for you. I am a beginning rancher. 8 years ago I bought 640 acres of pasture in Kiowa County Kansas. I am not sure what state you are from, but I would guess one of the I states. In south western KS a typical stocking rate is 10-13 acres per cow calf pair for a 6 month grazing season, so as you can see I only have room for around 50 cows (without using leased pasture). I would not consider myself a big Farmer/Rancher by any means. I receive a little government money for rotational grazing, and some farmland base on my pasture. I work two other jobs to help pay for my "hobby" and am happy to do it because I was always taught that you get what you work for. I would have had a terrible time getting a loan to purchase my ground had it not been for the Beginning Farmer Loan available at FSA. I am all for the Insurance Subsidy, and think that the Direct payments are a waste of money(I will not go into the rest of the farm bill due to limited space). I do plan on owning more ground in the future, but believe that everyone should have the same skin in the game when it comes to subsidies. If you use the same subsidy rate per entity, it just means that if you insure more you get more subsidy because you are paying a total premium that is more. I hope to be a so called "big farmer" some day Lon and maybe you should aspire to be more instead of trying to drag everyone down with you.
Posted by Aaron Cross at 3:59PM CST 01/04/13
Aaron - try reading http://static.ewg.org/pdf/Crop_Insurance.pdf I don't suppose it has occurred to you that some of us who oppose congress mindlessly throwing billions in all directions are in fact large farmers who have decades of successful experience farming USDA programs as well as growing crops.
Posted by Lon Truly at 7:50PM CST 01/04/13
So Lon, what you are saying is that you are taking advantage of the system, and you don't want to be able to do that anymore? I think getting rid of direct payments was a start in the right direction. I know crop insurance is something that has returned a profit to the government in the past, and even thought the last two years the government has lost money, overall the government is ahead of the game.
Posted by Aaron Cross at 2:50PM CST 01/08/13
Aaron - check out http://www.rma.usda.gov/aboutrma/budget/fycost2003-12.pdf I don't think there has ever been a government program where the taxpayer comes out ahead. So if you are loosing money farming you are not taking advantage of the system and if your farm is profitable you are taking advantage of the system?
Posted by Lon Truly at 7:07PM CST 01/08/13
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