FARM SECTION: Crop insurance a safety net in devastating years

Doug Yoder, Illinois Farm Bureauís senior director of affiliate and risk management, speaks to area farmers during a recent crop insurance and trucking regulations seminar in Quincy. Yoder said last yearís drought proved that crop insurance is necessary t
Posted: Feb. 11, 2013 11:57 am Updated: Mar. 11, 2013 12:15 pm

Herald-Whig Staff Writer

Area farmers may be adding something to the list of "must haves" for spring planting.

Crop insurance "will be a definite necessity, maybe maximum coverage," said Quincy farmer John Schmitt. "It sure made a difference this year for a lot of guys."

Some 80 percent of Midwestern farmers had some form of crop insurance in 2012 when hot, dry conditions slashed corn and soybean production in many areas, and the percentage could increase this year as dry weather continues into planting season.

The spotty nature of last year's crops only reinforces the need for a safety net.

"A mile or two would make a huge difference sometimes in yield," said Schmitt, who raises grain and cattle. "There were pockets where guys had outstanding yields. If you caught one isolated rain, standing in the right place at one time, it could make a huge difference. We were just on the verge of having a bumper crop, but it wasn't enough to make it happen."

Chalk it up as one more thing out of the farmer's control.

"Farmers are used to this sort of thing. This is nothing new. It's part of the job," Schmitt said. "You just make provisions for what you can, and I'd say at this point, crop insurance is definitely one of the tools we need in our toolbox."

Doug Yoder, Illinois Farm Bureau's senior director of affiliate and risk management, said last year's drought proved that crop insurance is necessary to help farmers stay in business and to maintain the nation's stable, safe and abundant food supply.

"The drought allowed us to realize the program does work," Yoder said. "Without it, there would be a massive need and request for disaster assistance to make sure the food system still functions."

Federal crop insurance is sold and serviced by private companies.

"Risk is not borne 100 percent by taxpayers. Farmers have a lot of skin in the game. Illinois farmers invest tens of millions of dollars a year," Yoder said. "This is not a freebie. This is not a handout. This is farmers investing in a program to protect their production."

Disaster programs, on the other hand, are 100 percent funded by taxpayers and typically long payment delays could be "too little, too late" to prevent farm bankruptcies or foreclosures.

With crop insurance, Congress made "a conscious decision to support agriculture" and the nation's food supply, Yoder said.

Crop insurance, like any insurance policy, provides a safety net for unexpected losses.

"Guys are throwing a lot more money into putting a crop in and have got a lot more risk involved. Based on that, insurance has almost become a must," said David Hoskins, an agent with Prairie View Insurance Agency in Payson. "Most of the midsize to larger operations already carry crop insurance. They could not afford to lose what they've got invested in their inputs."

With dozens of policies and coverage options available, farmers have plenty of choices A provision of the 2008 farm bill requires crop insurance to have a 1.0 loss ratio, Yoder said, which means claims paid out should equal premiums paid in. "With something this volatile, you don't hit it every year," Yoder said.

Last year brought big losses, but Illinois typically is a low loss state thanks to its good soils, productivity cycles and weather. "All the good years, the low losses, the companies and government share in the gain. They keep the premium and don't have a large payout which helps offset the total cost of the program," Yoder said.

Even with dozens of policies and coverage options available, crop insurance still may not fit every producer.

"It's working for row crop farmers, but that does not mean it's a cure-all for all commodities out there even in Illinois," Yoder said. "For specialty crop growers, livestock, it's not as effective or affordable. Continued work does need to be done."

The 20 percent of producers now uninsured include landowners whose livelihood doesn't depend on the farm but have other sources of income and some with "good black dirt" who don't expect a loss big enough to have a claim to justify paying large premiums.

"Some good black dirt will remain outside the program," Yoder said. "We have other areas where the ground may be so poor, the rates will be so high they can't afford it."

No matter what this growing season brings, "the grain producers probably will be OK, those that have crop insurance, because the guarantees should be good enough to not make them have a devastating year," Schmitt said. "The livestock guys really don't have any insurance to cover high feed cost or high input costs. Really the livestock guys are hoping for improved weather conditions."

A livestock guy himself, Schmitt hopes for a year with decent rainfall and moderate crop prices.

"When you're dealing with high volatility, it's hard to have a game plan of what to do," he said. "I'm hoping for good conditions and a good crop. That's what we're all hoping for."

In the meantime, farmers will do what they've always done.

"We'll plant like we always have, hope for the best and plan for the worst," Schmitt said.

"I think we don't expect a bumper crop. Everybody hopes for that, and you hear a lot of complaints when you don't get it, but I don't know that anybody really thinks that's what is expected," he said. "We don't have any control over most of the things that impact our yields. It's Mother Nature. It's a gift whatever we get."