November 29, 2012

Crop Insurance Kept Farmers' Revenues From Drying Up in 2012 Drought

Farmers covered by federal crop insurance may not only have had their losses covered and avoided financial devastation during this year's drought, but might have made more money than they had predicted in March, said a University of Missouri Extension economist.

"Insured farmers had a pretty good year," said Ray Massey earlier this month at the MU Extension Agriculture and Natural Resources Annual Conference at the MU Bradford Research Center.

According to the November production forecast released by the United States Department of Agriculture, Missouri's corn yield was expected to come in at 75 bushels an acre. That marks the lowest total since 1983 when farmers only averaged 53 bushels an acre statewide from corn fields.

Northeast Missouri, the state's second largest producing region, saw harvest numbers around 52 bushels an acre (compared to 104 bushel an acre in 2011). The southern three regions of the state along with the northwest region saw production at or above triple digits, helping bring the state level up to 75 bushels.

Soybean yield across the state was projected at 31 bushels an acre, the lowest total since 2003's harvest average of 29.5 bushels an acre. The northeast region's projected harvest average was 28.5 bushels an acre.

In 2012, approximately 70 percent of Missouri farm acres were revenue-protected by the Federal Crop Insurance Corporation (FCIC), Massey said. Another 13 percent had insurance based on yield protection.

"In a tough year like 2012, crop insurance is the difference between financial hardship and getting the crop into the ground next year," said FCIC manager William J. Murphy.

Over a 10-year period in Missouri, $1.80 in federal crop insurance indemnities was paid out for every $1 paid in premium by farmers, said Ron Plain, MU Extension economist and professor of agricultural economics at MU's College of Agriculture, Food and Natural Resources. "For the state of Missouri, it's a good investment."

While not all farmers have settled crop insurance claims for 2012, as of Thursday, November 15, 2012, the Risk Management Agency reports that Scotland County farmers received $4,250,538 in indemnities for 2012 losses in corn. Another $722,184 in indemnities was paid out for soybeans with wheat indemnities in the county at just $2,650. That represents a grand total of $4,975,372.

The report shows that premium amounts paid to insurance companies for the 2012 crop coverage in Scotland County were $1,239,389 for corn, $930,068 for soybeans and $14,096 for wheat for a grand total of $2,183,553.

That means that Scotland County farmers have received $2.29 for every dollar they paid in insurance premiums for the 2012 crop.

"It is important to understand that not all farmers received indemnities," said Massey. "This is the total for the county - some farmers received more, others less. It is also important to understand that not all 2012 claims have been settled. More claims will undoubtedly be settled within the next six months."

Massey said most farmers did not take crop insurance until after 1990, when participation was a prerequisite to take part in other federal programs.

The federal government subsidizes crop insurance to give farmers an incentive to purchase it and to reinsure insurance companies that might have large losses from years like this one.

The USDA Risk Management Agency sets the costs, which vary by the level of coverage the farmer chooses. Because the cost is the same from agent to agent, Massey recommends that farmers choose an agent based upon their service.

Farmers who receive indemnities totaling more than $200,000 should expect to be audited by FCIC, he said.

FCIC, administered under the USDA Risk Management Agency, decreases production risk associated with adverse weather conditions, fire and pests in addition to price risks associated with fluctuating commodity markets.

Federal crop insurance is a public-private partnership that allows farmers to manage risk while shielding taxpayers from farm disaster bailouts by guaranteeing farmers a percentage of predicted crop revenue.

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