The following statement is in response to the August 10 USDA Crop Report. The statement should be attributed to Thomas P. Zacharias, president, National Crop Insurance Services.
“As expected, the Agriculture Department lowered the corn and soybean production forecast in its August 10 crop production report released today, due to heat stress and extreme drought throughout much of the Corn Belt.
“Although this was the largest corn crop planted since 1937, production is projected to be down 13 percent, the lowest output since 2006. Corn yields are expected to average 123.4 bushels per acre, down nearly 24 bushels from last year, which would be the lowest average yield since 1995. Soybeans tell a similar story. Soybean production is forecast to be down by 12 percent from last year, and if realized, would have the lowest average yield since 2003.
“Thankfully, the vast majority of the farms in these drought-ravaged areas are protected by crop insurance. Farmers purchase crop insurance polices to protect themselves against situations just like this. Some of the farmers in these affected areas have purchased crop insurance policies for years and have never collected an indemnity. This year, their decision to purchase crop insurance confirms their practice of sound risk management.
“Obviously, there will be continued speculation about the ultimate cost of the 2012 drought. Even with today’s report, it is still too early to provide precise estimates of the losses. We are analyzing the August 10 report and will compare that with reports from the field along with the crop insurance policy data that is still being processed and reported to RMA. Again, we do not yet have a complete picture of the situation and final outcomes will vary by state, crop and types of policies purchased.
“What is certain is that the crop insurance industry is on the ground in the drought-stricken areas, mobilizing loss-adjuster teams. Farmers can be assured their claims will be paid, and that the companies will move as quickly and as efficiently as possible, given the expected volume of claims, to assess damages and get indemnity checks into the hands of farmers.
“In order to be approved to sell federal crop insurance, companies must have adequate surplus and reinsurance at their disposal so that even if a catastrophe of this magnitude strikes, and then one strikes again the next year, the company is still capable of paying indemnities on the policies they sell.
“In addition to company surplus and reinsurance, the federal government, serves as the backstop reinsurer for all companies that sell crop insurance. As such, the federal government shares in the gains and the losses of the program. Gains in prior years can and will be used to offset losses in years like this one.
“In terms of the industry’s ability to handle the claims load that will be generated over the next several months, the industry has 5,000 claims adjusters and 15,000 agents working tirelessly right now to help growers cope. These adjusters are working hard to get money to farmers who have suffered losses, already paying out $822 million in indemnities to date. Companies are also mobilizing adjusters away from other parts of the country that have not been affected by drought and sending those adjusters to the hard-hit states.
“With their crop insurance policies in hand, farmers will not only survive this drought but plant again next year, ensuring a continuity of the food, feed, fiber and fuel supply for this nation and an increasingly hungry world.”