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Economist: Farmers can’t afford costlier crop insurance

Farmers cannot afford to spend more on crop insurance than they are spending now, and if federal crop insurance premiums were reduced, farmers would reduce their coverage levels, the chief agricultural economist of Wells Fargo said here during the crop insurance conventions that ended today.

During a speech to the Crop Insurance and Reinsurance Bureau meeting last Thursday, Michael Swanson, the chief agricultural economist at Wells Fargo, said farmers spend about 4 percent of their budgets on crop insurance premiums.

Wells Fargo is a commercial bank that serves farmers throughout the country.

In an interview afterward, Swanson said the 4 percent is what farmers directly spend, and does not include the 62 percent of the premium that the government pays.

Asked what farmers would do if the premium subsidy were reduced or eliminated, he said, “Coverage would be reduced. I don’t think they could spend more.”

Swanson explained that a typical crop farmer’s spending includes 30 percent of the budget for land rents, 26 percent on manufactured inputs including machinery, 10 percent for seed, 10 percent for farm labor and 6 percent for crop chemicals.

The net margin — meaning money for living or profits — is often only 10 to 15 percent. In a bad year there may be a loss and, especially for smaller farmers, only off-farm income allows them to survive.

Although farmers complain to bankers about the cost of crop insurance, it is not “mispriced,” Swanson said, because the cost has been about the same for the past 15 years.

He said he has told his farm clients, “Success in farming is not about minimizing your minor expenses.”

Over the past 60 years, Swanson added, there has been a “phenomenal” change in agriculture as the industry has become more capital intensive and modern inputs such as machinery and seeds have raised yields. Farmers are spending more money on “intermediate inputs” such as machinery and seed because they increase productivity.

“Farm accounting is way more of an art than a science,” Swanson said, adding that even if returns signal that cash rents should be reduced, farmers do not like to renegotiate their cash rents because their landlords are often their neighbors.

–The Hagstrom Report


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