Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 08/13/14

Debate Rages Over APH Forgiveness

Great Plains wheat growers were howling over USDA's decision to postpone a big promise in the 2014 farm bill, as DTN's Chris Clayton and Jerry Hagstrom reported last week (see "Vilsack Resists APH Update" http://online.dtn.com/…).

Growers victimized by years of severe Great Plains drought had fought for a provision to update their crop insurance Actual Production History, or APH, to exclude years in which county yields fell more than 50% below the 10-year average. Under such dire countywide conditions, growers were supposed to be able to delete their own low performance year from their APH history and divide their averages by nine. This was a way for grain producers with near zero yields to retain some semblance of insurance coverage, but prevent fraud since the county would need to suffer a disaster before an individual could erase low yields. Growers in adjacent counties would also be eligible for yield forgiveness.

That county trigger assures there's not an individual management issue or a some moral hazard trying to game the system, points out Kansas State University economist Art Barnaby. At the same time, he thinks it's fair to forgive yields when there's a widespread weather disaster. "If you've made crop insurance the national safety net, you can't drive it so low that as [Iowa State University's] Bob Wisner used to say, it's 2 inches off the floor," Barnaby argues.

Failure to implement the rule in 2015 will affect both crop insurance coverage and the new Supplemental Coverage Option (SCO) available to producers who elect Price Loss Coverage, he adds. SCO is triggered by county yield but payments are then based on the individual's APH.

USDA counters it didn't have enough resources to implement the crop insurance rule for 2015, and calls the county and individual calculations "complex" and IT intense. Barnaby suspects crop insurance companies objected that insurance rates would need to be adjusted to take the relaxed APH formula into account, something he thinks could have been accommodated administratively.

What's more, it's not just Texas, Oklahoma, Kansas and Nebraska that have suffered significant yield osses, he argues. More than 40 Illinois counties would have triggered the provision after 2012's drought, he says. Excess heat and drought at pollination meant near-zero corn yields in some southern Illinois counties.

Compare that to Finney County, Kan., a bellwether of the Great Plains. The county's nonirrigated wheat has experienced below average yields the last four years, but none slipped below a 50% loss. In fact, the last time yields fell that low was 1996, Barnaby says.

Steve Griffin, a West Des Moines, Iowa crop insurance expert with CVision Corp. and a frequent expert witness in legal suits, believes the calculations in APH forgiveness should be relatively simple. "If RMA sits on its hands, there could still be a lawsuit to force crop insurance companies to comply with the Federal Crop Insurance Act, as amended by the Farm Bill," he says.

So I welcome your opinion: Is there good reason to postpone the APH provision for another year? What difference does that make to your farm safety net?

Note: This entry was corrected to reflect that Bob Wisner is from Iowa State University, not the University of Illinois. My apologies.

Follow me on Twitter@MarciaZTaylor

Posted at 3:23PM CDT 08/13/14 by Marcia Zarley Taylor
Comments (15)
Let's side aside the promise part of the issue for now and just look at the logic of the promise... During a ten-year period, crop yields fluctuate mainly due to weather. Farmers buy crop insurance to protect themselves during the bad weather years. Taxpayers subsidize crop insurance for farmers to lower the premiums for farmers. The actual costs/payouts of crop insurance is directly related to weather. Farmers would like to be able to insure and be paid out for yields that would occur if we didn't experience bad weather. If we ignore bad weather in the equation, are we not setting up taxpayers for higher insurance costs subsidies for crops that may no longer be suited to be planted county-line to county-line for certain areas of the country? Farmers understand risk and they understand it very well when some sucker takes it away for them. Sure it is a lot more fun to drive up land rent costs to $400/acre than to pay full insurance costs of $45/acre. But all that whining sure does knock down the integrity bar for the American Farmer. Or did I miss something and we just threw the whole gadget away?
Posted by Timothy Gieseke at 8:13AM CDT 08/14/14
Tim, you have a legitimate argument, but in the past growers were able to plug a bad year in their individual APH with 60% of the county's 10-year average. The Senate bill would have raised that to 70%. During the Farm Bill debate, critics argued the current rule rewarded those who were "farming crop insurance." CBO actually argued the "forgiveness" provision would save money, Barnaby says. I'm not taking sides, I'm just pointing out this was supposed to limit taxpayer exposure, if CBO is accurate.
Posted by Marcia Taylor at 9:17AM CDT 08/14/14
I think Tim got a it pretty much right. You cannot take the variable of weather and throw it out the window. If we do not account for the worst years of weather, be it drought, excess moisture, frost, etc., then we set up our insurance program to be actuarial unsound and pay out more than necessary with our APH's to high. We already have the trend line yield adjustment. I think we have a good crop insurance program. Why do we continually look for more ways to lessen the risk of farmers, by off loading that risk on the taxpayer in the form of higher subsidy, artificially higher APH's, program expansion (i.e. corn in western plains). Farming is a risky business. Make farmers put more skin in the game, otherwise we will be nothing more than Wall Street, reckless and unsound because we know the government will bail our butts out!!!
Posted by Pedro Sanchez at 10:30AM CDT 08/14/14
I think if it was promised it should be delivered.
Posted by Unknown at 1:39PM CDT 08/14/14
Crop insurance providers would like RMA to stall implementation because it would raise coverage (amounts of insurance) without an increase in premium over the current status quo. When the APH yields go down, the premium cost per acre stays the same for the same coverage level. If farmers need to increase their coverage to cover operating loans or cash rent they will have to crease their coverage levels, say from 75% to 80%, at significantly higher premium cost per acre.
Posted by Steven Griffin at 10:47PM CDT 08/14/14
The purpose of the APH is to establish a realistic estimate of the productive value of the crop going into a crop year. It is not to discount the riskiness of that productivity, that is done by the rate itself. Reducing coverage simply because you have had a catastrophic event is like not being able to insure your new car at its value just because you had an accident with a previous car. Of course you don't want to over-insure the car. Otherwise there is the hazard of people having wrecks just to collect the insurance. Risky drivers and riskier parts of the country should pay higher premiums.
Posted by Steven Griffin at 10:55PM CDT 08/14/14
Then I guess the govt needs to let farmers install drainage in the prairie pothole region. We are riskier not by choice but because of govt regs. Let us be on the same playing field as everyone else. Let's next time have all of the rules written before a law
Posted by Unknown at 9:31AM CDT 08/15/14
passes. How is it even legal to pass these laws then write the law after it passes? Crazy!
Posted by Unknown at 9:34AM CDT 08/15/14
There appears to be some lack of understanding of how the APH adjustment will work and why it is necessary to have it in some parts of the country. The southwest region of the US suffered with a drought of record from late 2010 till mid year 2014. Actually, there are still areas that are considered in drought despite recent rainfall. You have to go back to the early-mid 1950s and the Dust Bowl of the 1930s to find anything corresponding to this recent situation. It is not like this is an every other year weather situation. The current APH rules and yield plugs were not constructed to deal with a weather cycle that only occurs every few decades. Compounding the problem along the Texas coast, a hurricane destroyed production once prior to the drought years. Producers, even with the yield plug, have seen their APH and thus the amount of coverage available decline dramatically. Depending on the county and individual producer's yields, by as much as 25-40%. This has become problematic to ag lenders trying to finance producers. I believe there are producers in the Midwest and northern Plains who may also benefit from the APH adjustment due to the combination of too much rain in some years and the drought of 2012. In Texas growers cannot simply buy up coverage to a higher level for two reasons. First, coverage is not offered above 75% and second, it is very expensive to buy above 65%. For corn, the counties of the Texas Panhandle have loss ratios very comparable to the best corn producing counties of Illinois and Iowa yet our cost per acre is 2-3 times higher for the same coverage. Producers who use the APH adjustment will not pay less premium for coverage. Actually they will pay the same as they would have without the adjustment or perhaps will even see higher premiums since the adjustment only applies to the APH yield. The APH yield determines the amount of coverage a producer can purchase. There is also a rating yield which determines the cost of insurance. The rating yield will not be adjusted so the producer will still pay an insurance premium reflecting his actual history. This is potentially a very expensive situation for the producer because cost of insurance is affected by both the rating yield and dollars of coverage. Low yields from the past few years will make the rating yield expensive while the APH adjustment will increase coverage, also adding to the cost of insurance. The APH adjustment needs to be implemented for the 2015 crop, including wheat that will be planted this Fall. RMA is delaying implementation till 2016, the third year of the farm bill. RMA is busy patting itself on the back for having SCO and STAX available for the majority of counties for 2015. It would never be tolerated for FSA to announce it will have ARC, PLC, and the ability to update bases and yields available in the majority of counties. My question then is why does RMA get a pass to delay some counties for SCO and STAX and the APH adjustment for another crop year. It was clearly Congressional intent that all of the new crop insurance provisions be available for the 2015 crop year. This intent is obvious not only from the language of the farm bill but also the fact Congress added millions of dollars in new funding for USDA to implement the farm bill. RMA can use those funds to hire outside contractors to help with the data collection and research necessary to implement the new provisions. Sadly, while RMA dithers on this issue, some producers will not be able to get financing for 2015. Dee Vaughan
Posted by MICHAEL D VAUGHAN at 3:41PM CDT 08/17/14
I scratch my head when I see all the destruction going on in farming now. Farmers farming land that should NEVER be touched(but yet getting tax payer money to do it) Drain Tiling land that is used to filter out the chemicals out of the water. And then that water is put in sloughs or rivers and that leds to more or worse flooding and then the tax payer has to pick up that bill to. Example red river valley and devils lake and northeast South Dakota. I have NO issue helping farmers on declared bad years( declared floods or drought, has to be a total wipe out). But why should we put the bill for their "risky" practices? Side note we farm, but we do a balance of conservation and farming since 1886. We have seen many farmers(still some balanced farmers out there) plow up pastures and hill sides and plant beans and corn and the beans last yr didn't even make 10 bushel, but yet they are paying over 180 per acre to rent it. now tell me, how is that even possible to maintain, easy, they falsified the yields they carried over, thus get the government check. this yr, the corn isn't even putting on ears on most of the plants, and it was a good yr for weather in that part. erosion is horrible in that field but yet they just put culverts in to cross...this is becoming the norm now,, Truly sad
Posted by ryn bohr at 4:33PM CDT 08/20/14
Scratch your head a little more. Research a little science and get by your uneducated opinion corrected a bit. Proper drain tiling will actually decrease the net run-off of chemicals, nutrients and solids. Todays Ag drain tiling is unlike the common storm sewer principles used in a curb and gutter practices. There is much info out there, take a look at facts, rather than the fabricated info which supports your opinion.
Posted by Bonnie Dukowitz at 8:33PM CDT 08/20/14
Great article and real interesting comments. Thanks
Posted by G. Sean O'neill at 8:41PM CDT 08/20/14
according to the University of Iowa , the chemical treatment on corn seed is filling the rivers and steams(which leads to the drinking water of iowa) at a alarming rate, in fact the chemical company themselves have said the amount in the water sources is 5 times!! the recommended leval for safe drinking water. They said, every since 2000, the amounts have ski rocketed so fast that they started to find the source. and according to them, they put sample monitors by the pipes of drain tiles( most of them drain into the ditchs which led to rivers,public land) and they found the rapid run off of phosphates, nitrates AND the chemical treatment on corn seed. I find it funny how the "agi companys" always use study's done by the chemical,seed, or drain tile companys themselves . Geee I wonder what they will say..lol,, remember when you mess with mother nature, she hits you right back. But then again, when you get gov. checks, what do they care about the land and environment. remember we got a farm to of over 700 acres.
Posted by ryn bohr at 12:45PM CDT 08/21/14
Let us consider this: If we (farmers) are allowed to pull our extreemly low yields should the insurance companies be allowed to pull the highest yields? I would argue it may be a way to get to the "real" average yield of an individual farm. You may pull as many low yields as you desire and the insurance company pull the same amount of high yields and average the rest.
Posted by DORAN ZUMBACH at 9:40PM CDT 08/21/14
There are many different departments and many different sources of funding in all University's Ryn. If the funding came from an anti-ag group, the results were in the computer prior to any research being conducted. I did try to describe the difference in the open tile inlet drain tile and a subsurface system. Remember such things as according the U.S. Geological survey indicates the Greater Chicago area is the largest single source of hypoxia issues in the gulf. I am not defending the reckless abusers on both sides of the issue. You mention UofI placing sensors. If they did, as these systems are mostly private, it was with cooperation of the land owner who is trying to improve the practices used on their land, rather than just whining about it, pointing their finger at someone else. If all the Enviro's would clean up their own curb and gutter, many issues and problems would correct themselves. In our watershed, several lakes were declared "Impaired" do to high concentrations of chlorine. I assume the source is not ag related.
Posted by Bonnie Dukowitz at 4:30AM CDT 08/22/14
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