As someone who has spent more than four decades managing a fourth-generation farm and the past 10 years building my family’s crop insurance agency, I believe I have valuable perspective worth sharing regarding how essential today’s federal crop insurance policies are to America’s farmers and consumers.
Specifically, I would like to explain how essential the Harvest Price Option has become to the modern agricultural producer. The Harvest Price Option insures a crop at its actual harvest-time value. Think of it like a homeowner’s insurance policy. If your home appreciates in value after you purchase it, you are protected at the home’s current value if it burns down and you have to rebuild.
Unfortunately for agriculture, this policy that makes rebuilding possible has come under fire from those who misunderstand the unique risks for farmers who are constantly exposed to the ravages of Mother Nature. It is important to note that farmers pay an additional premium for this type of protection and it supports their risk management in two distinct ways.
First, a farmer often prices a large percentage of his anticipated – or before harvest – crop using forward price contracts with a local elevator. If a natural disaster strikes causing production to fall short of the quantity sold, the farmer would need to purchase enough of the crop to fulfill his contractual obligation. But, the price of the commodity is likely to have increased because of the overall drop in production due to the disaster. Consequently, the remaining crop available to purchase is priced much higher than what was covered under the spring contract.
By purchasing the Harvest Price Option as part of his crop insurance policy, the farmer is able to meet his contractual obligations either by buying grain to deliver under the contract or by making a financial settlement with the purchaser.
A second way the Harvest Price Option becomes essential to producers is if the grain being produced is intended to support the farm’s future animal feed needs. If a natural disaster destroys the grain that is to be harvested, then the producer will be forced to purchase feed instead. If there is a widespread short crop, the feed costs will be much higher. With the Harvest Price Option on the producer’s crop insurance policy, the farmer will be paid the actual harvest price on his lost production. This, in turn, allows him to purchase the feed needs for his livestock operation and still maintain a viable business.
In fact, allowing farmers to maintain a viable business when the unexpected happens is what crop insurance is all about. The beneficiary is not just the farmer, but also the American consumer. Crop insurance enables farm families like mine to pick up the pieces after a disaster and continue to produce food and fiber without significant price increases or supply shortages for consumers. The fact that Americans spend less of their disposable income for food than any other country speaks volume as to how critical it is that farmers have risk management tools like crop insurance. The critics would do well to try to understand the link between a viable crop insurance program and an affordable, stable food supply before proposing measures that would destroy it. In other words, before biting the hand that feeds them.
Gary Riekhof is a farmer and crop insurance agent from Higginsville, Missouri. This op-ed appeared in the Columbia Tribune on June 6, 2015.