The 2011 Crop Year is Off to a Challenging Start

The hopes of the largest and most profitable harvest in U.S. history are being placed into question by a series of historic weather events that are inflicting major damage to America’s agricultural heartland.

A cold spring followed by heavy, constant rain and flooding in the corn belt has resulted in extensive delays in plantings with only about 63 percent of the U.S. corn crop being planted to date – considerably less than the five year average of nearly 75 percent – according to the May 16th USDA Crop Progress report.

Illinois, the second largest corn producing state, is still lagging behind the national average with only 69 percent of the crop being planted, compared to the average of 74 percent over the last five years.

In other states, the news is much worse. In Minnesota, the fourth largest corn producing state, only 47 percent of the crop has been planted compared to the historic average for this date of 81 percent. Indiana, the fifth largest corn producing state only has 29 percent of its crop planted. Ohio, the seventh largest corn state is still in the single digits at seven percent compared the historical average of 70 percent and North Dakota finally broke into the teens at 14 percent.

The National Agricultural Statistics Service shows that more than half the winter wheat in Kansas – the nation’s largest wheat producer – is now rated in poor to very poor condition. Reports are even worse to the south, where 80 percent of the Oklahoma winter wheat crop and 75 percent of the Texas crop are in poor to very poor condition. Among the 18 major winter wheat-growing states overall, 44 percent of the crop is rated in poor to very poor condition.

The flooding that has swept through the Midwest and is moving south will result in further damage to this year’s crop.

Underpinning the vast majority of these crops is crop insurance, which according to estimates by National Crop Insurance Services (NCIS), would be written for at least $110 billion worth of crop insurance liability this year, the largest amount in U.S. history. Farmer participation in crop insurance continues at historically high levels. In fact, in 2010, nearly 80 percent of the U.S. crop – 256 million acres of farmland – were protected by crop insurance.

“The advantage of protecting our farmers with crop insurance is that when Mother Nature strikes as she is doing this year, it will be private industry working with USDA to ensure that we maintain financial stability for our agricultural production sector, ” said Tom Zacharias, NCIS president.

“The crop insurance industry is deeply concerned about the recent flooding situations and damage to this year’s crop. At this time, it is too early to tell how severe the damage will be, but in partnership with USDA, the industry stands ready to assist insured farmers in assessing the damage to their crops and farmland,” said Zacharias. “The federal crop insurance program is designed to provide protection for farmers affected by natural disasters, which unfortunately occur in the unpredictable and volatile business of agricultural production,” he added.

2012 Farm Bill Should Hold The Thin Green Line

Minnesota has more at stake than most in 2012 farm bill.

Rural America has been abuzz lately about a term coined by retired Army Gen. Wesley Clark to describe the challenge of feeding more and more Americans with fewer and fewer farmers. His phrase, “hold the thin green line,” sums up what many of us have spent a lifetime trying to convey.

“If we cannot feed, fuel and clothe ourselves, then we cannot defend ourselves. If this one bright spot in our economy is choked off, then recession recovery will certainly stall,” Clark said.

Here in Minnesota, we have more at stake than most when it comes to holding the thin green line.

Almost half of the state’s land is devoted to food production, one-quarter of our residents are employed by agriculture, and we are national leaders in producing staple crops such as corn, wheat and sugar. So how does Minnesota build on this success story? It all starts in the halls of Congress with debate of the 2012 farm bill, and that debate is about to get under way.

Some lawmakers are already taking aim at agriculture. Some are pointing to federal budget deficits as an excuse to cut gaping holes in the farm safety net and leave Minnesota’s economy vulnerable to the whims of Mother Nature and the roller-coaster rides of current commodity markets.

Such attempts are as foolish as they are disingenuous, especially when you consider the current state of farm budgets. The sugar policy that underpins the state’s Red River Valley, for example, costs taxpayers $0. Some policy replacements that have been proposed in the past would cost $1.3 billion a year or more.

Meanwhile, the policies in place to help the state’s corn, soybean and wheat growers hedge risk continue to operate under budget and represent less than one-quarter of 1 percent of federal spending.

Then there’s arguably the most important tool to Minnesota farmers: crop insurance. Crop insurance was specifically designed to shield taxpayers from mega-payouts that could result from catastrophic situations such as commodity price collapses and weather disasters.

By helping farmers afford insurance policies that would otherwise be cost-prohibitive, the government is able to stretch tax dollars much further. The 2010 crop is a prime example – every dollar spent by the government yielded $20 worth of protection for farmers. And this divide is expected to grow in 2011.

If you doubt the need for crop insurance, just look at recent data from the National Weather Service, which shows that excessive snow in the Great Plains and Midwest may leave more of the state’s valuable crops under water than the 2009 record-setting floods.

Now is not the time to weaken crop insurance and put taxpayers – instead of private insurance companies – on the hook for picking up the pieces. If anything, discussions should be centered on ways to strengthen crop insurance and the rest of the safety net. After all, there’s far more at stake than farmers in the next farm bill.

Widner is chairman of the American Crystal Sugar Co. and grows sugar beets, wheat and soybeans in Stephen, Minn.
This article appeared in the Fargo Forum on April 24, 2011.

Keeping Crop Insurance Strong

As lawmakers place farm policy under the microscope again, they should consider 12 essential strengths that make crop insurance the linchpin of the farm safety net programs. In this on-going series, we’ll introduce one strength of crop insurance per month and explain how the sum of these strengths has given us the successful program we have today.

Strength: Producers receive an individualized risk management solution.

Crop insurance is specifically tailored to each individual policy holder, covering the expected yield and revenue risk of each individual producer. The producer is free to select alternative levels of coverage, based on their historic or projected yield. Different rules govern new lands brought into a coverage plan or covering “risky” land. In addition, the producer may also receive coverage for prevented planting, planting losses and lower quality yields.

Crop insurance is an excellent tool for producers who want individual protection specifically matched with the risks they face and the character of their operation. In general, other safety net programs are structured to be the same, across the board, because of easier delivery and wider application. Unfortunately, with the one-size-fits all approach, payments received by producers may not adequately reflect the full degree of damage to their crops.

Crop Value, Crop Insurance Coverage At Record High

At least $110 billion worth of crop insurance liability – the largest amount in U.S. history – will be written this year, underscoring the popularity of crop insurance and the growing value of agricultural commodities, according to National Crop Insurance Services (NCIS).

“The value of our agricultural output is at an all-time high,” said NCIS President, Tom Zacharias, at a March 8 news conference. According to the Federal Reserve Bank this is helping to fuel the overall economic recovery in the U.S.

Best of all, Zacharias noted, “If disaster strikes and puts the valuable 2011 crop at peril, it is the private sector delivery system, and not the U.S. taxpayer, who will be the first line of defense to ensure that America’s farmers do not suffer severe financial hardship due to events out of their control.”

In a recent guest opinion article in the Traverse City (Michigan) Record-Eagle, Zacharias noted that it is easy to see why crop insurance has gained so much popularity with farmers, pointing out that more than 1.1 million policies covering 256 million acres across the U.S. were written in 2010 to deal with risks. “Nationally, this public/private partnership enabled the government to turn a modest investment into nearly $80 billion in protection in 2010,” he added.

Crop insurance was designed by lawmakers to combine the strengths of the government and private sector to best leverage taxpayer investment. The government’s main role is to regulate the business and subsidize farmer premiums making coverage more affordable and practical for farmers who greatly need tools to hedge their risks. Farmers purchase the policies and pay for a portion of the premiums out of their own pockets. The policies are sold by licensed agents and serviced by private insurance companies.

“Without the crop insurance program that we have in place today, U.S. agriculture could be facing a liability of $110 billion, should farmers get hit with a catastrophe in 2011,” noted Zacharias. “That would be unsustainable. Congress should be applauded for structuring a system that achieves so much return on investment,” he added.

Every dollar of investment achieved $20 of protection last year – a gap that should grow substantially in 2011. Zacharias says that he hopes Congress will consider this return on investment as it begins writing the 2012 Farm Bill.

Michigan Senator and Chair of the Senate Agriculture Committee, Debbie Stabenow (D-MI), recently outlined her principles for the upcoming Farm Bill, urging us not to look at the 2012 Farm Bill under the lens defined by budget concerns or specific programs but instead from principles like “creating the best safety net and the best tools possible for managing risk.” She added, “We need an effective safety net so that we aren’t watching family businesses go under because of a few days of bad weather or market factors outside of their control.”

Michigander and crop insurance agent, Mike Gaynier, echoed the importance of the farm safety net to the state’s diverse agriculture sector during a recent national radio interview. “Crop insurance provides protection to producers of Michigan’s lucrative specialty crops — like the well-known tart cherry crop, or important grains like corn, wheat and soybeans — should prices crash or Mother Nature deal an unwelcome blow. In fact, it is the only safety net tool available for most fruit and vegetable growers,” he concluded

Farm Bill Principles and Crop Insurance

America’s abundance of affordable and nutritious food is the envy of the world. This is not an accident, as our long history of investment in agricultural infrastructure has made this possible. Underpinning this system is crop insurance’s modern public/private partnership that provides a safety net for farmers, helping them manage price and weather risks.

USDA’s Agricultural Outlook conference speech by Sen. Debbie Stabenow of Michigan, chair of the Senate Agriculture Committee, outlined her principles for the upcoming Farm Bill. She urged us not to look at the 2012 Farm Bill under the lens defined by budget cuts or specific programs but instead from principles like “creating the best safety net and the best tools possible for managing risk.”

Ask any Michigan farmer — or any American farmer — what fits this bill, and crop insurance will be among the first responses. Crop insurance provides protection to producers of the Great Lakes state’s lucrative specialty crops — like the well-known tart cherry crop — should prices crash or Mother Nature deal an unwelcome blow. In fact, it is the only safety net tool available for most fruit and vegetable growers.

It is easy to see why crop insurance has gained so much popularity with farmers. In fact, more than 1.1 million policies covering 256 million acres across the U.S. were written in 2010 to deal with risks. Nationally, this public/private partnership enabled the government to turn a modest investment into nearly $80 billion in protection in 2010.

Stabenow wants the Farm Bill to be based on the notion that farmers know better than anyone else what works for them. A major strength of today’s crop insurance program is that it allows farmers to create individualized risk management solutions tailored to their specific risks.

When catastrophe hits, the only thing protecting many producers from bankruptcy is crop insurance, which is streamlined by the efficiency of private sector delivery. And banks are increasingly relying on crop insurance, knowing fully that the money they loan farmers for food production is partially secured by this program.

Unfortunately, this risk management tool has been put under the budget-cutting microscope in recent years. Lawmakers in search of budget offsets for other, often non-farm priorities, have already substantially reduced funding.

Bill Murphy with USDA’s Risk Management Agency recently cited an agency report that indicated current investments in crop insurance are delivering a significant bang for the buck. The persuasive attributes of crop insurance, despite the funding reductions already taken, underscore a program that is cost effective and sustainable.
The U.S. agricultural sector is a source of deep economic strength and stability. As weather-driven crop failures globally cause price fluctuations and food shortages we should be heartened by our fiscally sound crop insurance policies. As Stabenow also noted, “We need an effective safety net so that we aren’t watching family businesses go under because of a few days of bad weather or market factors outside of their control.” Indeed, crop insurance is attempting to meet this need not only in Michigan, but nationwide as well.