Farmers say crop insurance a good thing
June 6, 2013
A Philip, SD, crop farmer said he wouldn't want to be without crop insurance especially in a drought year like 2012. "We use it as a risk management tool. I don't think my banker would let me in the door if I didn't have it," said Tyrone Moos, who raises winter and spring wheat, grain sorghum and proso millet. Moos also backgrounds calves and occasionally takes in cows.
"If it hadn't been for crop insurance last year, I don't know what we'd have done, sold out I guess," commented the 75-year-old. He said he actually would have "struggled along," but he'd rather avoid such a situation.
Sixty percent coverage is "manageable and affordable" for Moos. "Crop insurance has gotten more expensive but the coverage is better." He sometimes buys additional hail insurance to cover the remaining 40 percent if the crop looks good.
Last summer, Moos collected on his winter and spring wheat. His other crops didn't qualify for payment. He appreciated the payment. "If we'd had a crop, we have been way better off, though."
“If it hadn’t been for crop insurance last year, I don’t know what we’d have done, sold out I guess.”
Tyrone Moos, farmer
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The policy-holder is paid for the percentage difference between the actual crop and the insured amount. For example, if Moos's wheat is insured for 20 bushels, but the adjuster calls it a 10-bushel crop, he will be paid for the 10 bushels not produced, at the level of insurance he purchased – 60 percent in his case. The yield for each producer is based on APH or actual production history, determined by the past 10 years of production on that particular piece of property. Moos explained that after the adjuster finalizes his estimate, the grower must decide what to do with the crop. It can be hayed, grazed or combined if there is enough to justify firing up the harvesting equipment. "If we get a 10-bushel crop, we usually harvest it because we have our own equipment but if we were hiring combiners, we probably couldn't afford it." He said if the crop is harvested, the grain is weighed and the insurance payment is adjusted to reflect the actual yield. The running 10 year average APH is affected too.
"I wish ranchers had it [insurance] too, I really do, I feel sorry for them. But I think it might be coming in the future," Moos said. "I don't think crop insurance is driving up land prices, though," he added. He believes the ballooning land values are more likely caused by outside investors who buy land for non-ag uses such as hunting and other recreational purposes.
Scot Eisenbraun, crop farmer and cattle rancher from Wall, SD, said he utilizes crop insurance for his wheat, corn and sunflowers, and forage insurance like Noninsured Crop Disaster Assistance Program (NAP) and the new rainfall index for pasture.
"There are policies for both farmers and ranchers," he said. "Last year I probably made more money off my pasture insurance on about 25,000 acres of grassland [than on crop insurance]."
The rangeland insurance is protection for those bad years when a rancher has to sell cattle, Eisenbraun said. Plus they'll have income from selling cattle, he pointed out.
"Ranchers have at least equal opportunities for insurance as farmers, and I do both," he said. "With farming you've got more inputs so your insurance payouts might be more but you've got more risk and expense too."
Eisenbraun said he was paid for a droughted out corn crop last year but his insurance check, on a 70 percent coverage level, didn't even cover expenses. He also explained that if he is paid for a total crop failure, and he decides to spray it and plant a later season crop, he can't insure the second crop.
It is true, he said, that farmers can afford to pay more for rent but "it's been that way since the beginning of time," and unless cattle prices triple it probably won't change.
"I do think because there has been so much money made over East for the guys that raise corn that they are pushing land prices up here. They'll come over here on our end of the state and they can't make it and go back, I've seen it more than once," he said.
Senator John Thune (R-SD) said in a telephone interview that he prefers federally subsidized crop insurance over "fixed target price subsidy." Insurance products are more defensible to politicians who are not ag-minded. "I can explain to those Senators even though it is subsidized, the farmers pay some premium. They are more supportive when they understand that it helps cover expenses but doesn't guarantee a profit like some farm programs."
The Senator said that, historically, livestock producers have resisted the concept of long-term federal subsidies and have generally been satisfied with indemnity programs that kick in when disaster strikes.
"I think the thing that has impacted land values in eastern South Dakota, anyway, is strong commodity prices. I suppose it could be argued that crop insurance figures into that somewhat, but I think it's more about the ultimate use of the ground, world commodity prices, and outside interests like hunting and other types of recreation."
Grady Crew of Crew Crop Insurance Agency, Philip, SD, said that farmers can't take advantage of the system very long without shooting themselves in the foot. "They might milk it for a couple of years but if they put in four or five bad years the yield they insure will drop substantially and they won't be able to collect near as much in the future."
"So the argument that farmers are getting richer and richer on crop insurance can't be true."
Crew, who "has been at it since 1984," said crop insurance was never designed to ensure a profit, but was intended to cover expenses. There isn't a subsidized insurance product that provides full coverage, he said. On policies with higher than 65 percent coverage, subsidies drop and farmers pay a higher share of the premium. Many crops can be covered at 85 percent but most farmers find these policies cost prohibitive.
Crop insurance "is a good program and it's been good for farmers," said Crew. "It has gotten realistic; the amount of coverage is relative to expenses. More than half of the premiums are paid by the government." The products for ranchers are also around 50-60 percent subsidized, he explained.
According to Crew, in the beginning of the 2000s, the Bush administration mandated pilot programs to benefit stockmen. Out of that came the vegetative insurance and rainfall insurance for pasture and hayground. Getting the perfect product is slow-going, he said. "This is the first year with rainfall insurance in place, where you pick a two month interval, and are paid on the percent below normal that the moisture measures," he explained.
"I do see that farming has been very lucrative for the past few years but I can tell you there was a time when it wasn't. Cycles happen and we can't just kibosh the farming industry's risk management tool because they are making money. You can't mess with economic cycles. Crop insurance is liked by farmers and Congress knows that now. That is why Congress supports crop insurance and is working to eliminate some farm programs," Crew explained.
Editor's note: If you missed last week's article "Federally funded crop insurance affects entire ag industry" read it online at http://www.tsln.com to get the other perspective on federally subsidized insurance programs.
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