#farmpolicy

[riskmatters]

Impact of Crop Ins Subsidy Cap

Is a $125k subsidy cap for crop insurance an attack on family farms?

Depends.

It’s well known that a family farm is the same size or less than the operator being asked, while a corporate farm is easily defined as one acre larger.

Unprepared to make the family farm debate, the impact of this subsidy cap would vary largely on cropping practices, geography, etc...

Example:  In Southwest Nebraska, most producers carry optional units at the 65% to 75% level.  These elections are driven by practice (irrigated), primary risk exposure (hail) & the ability to cover that risk with private products (production & companion hail).

Example:  A producer carrying an 80% Enterprise unit would max the subsidy out at 5,208 acres while a producer carrying a 65% Optional unit would hit the $125k cap at 12,500 acres.

In other words, locations who rely heavily on Enterprise units will see this subsidy cap as a very large issue.  Regions that rely more heavily on private products would see a much smaller impact.

My bet is this cap will see strong resistance for two reasons

1 - “If you give an inch, you’ll end up giving a yard.”

2- Corn belt states leverage the Enterprise Unit more heavily & ag policy is driven by their interests.

(Example on an irrigated farm in Chase County, Nebraska below.)

[riskmatters]

ARC & PLC Payments

In the words of Donald Trump, ARC-CO payments are going to be ‘YUGE’!  Maintaining the true spirit of this election season, I will promise ‘YUGE’ payments and then glide over the fact that these payments will be sequestered by close to 7%, are only on 85% of base acres, carry $125,000 payment limits per person ($250,000 for a married couple) and will be drastically reduced in 2016.  (But wait, isn’t it 2016 now?  Yes, but ARC payments have a year drag.  The payments made this fall are for the 2015 crop year as the marketing year began in September of 2015 and ended in August of 2016. I’m expecting the 2016 payments to be half or less of 2015 payments.)

Moral of the story:  These payments are going to help producers keep things together, but don’t plug big ARC-CO payments into your 2017 cash flow.

Chase County Corn: $87.81 IR & NI

Hayes County Ir Corn: $95.75 IR, $31.21 NI

Perkins County Corn: $97.34 IR, $35.44 NI

Dundy County Corn: $93.10 IR, $23.57 NI

Phillips County (CO) Corn: $102.63 IR, $33.86 NI

Yuma County (CO) Corn: $95.22 IR & NI

What about PLC?  PLC triggered a $0.09/bushel loss.  However, if prices remain at current levels, PLC will trigger a much larger payment in 2016 as the guarantee is $3.70.

Links:

ARC/PLC Fact Sheet

ARC MYA Prices

PLC Prices

ARC Payment Map

For full worksheet with payments for all counties and all crops, contact me at 308.883.0803 or [email protected]

[riskmatters]

Crop Insurance in Crosshairs

Summary & Opinion: I don’t think it is likely that federal crop insurance will be eliminated or replaced at this time.  However, I do believe it is likely to see premium subsidy caps & reduced premium subsidies in the upcoming farm bill.  In other words, farmers will pay more for their crop insurance.

Link to Article 

In general, most farmers don’t give me the impression that Washington, D.C. has their back.  Lot’s of dirty looks and four letter words.  I understand why, but I’m going to ask farmer’s to engage with D.C. as the next Farm Bill approaches, because crop insurance will be directly targeted in the 2019 Farm Bill.  Below is a brief summary of potential changes to federal crop insurance as we know it.

1 - Status Quo: Farmer’s best option, but farmers will really have to make their voices heard.

2 - Free Crop Insurance Through FSA: Crop insurance critics (& FSA lobbyists) favor this option as it would eliminate private sector delivery, loss adjusters & leverage underutilized FSA employees (no additional operation costs).  This is free, but it would also be county based and for that reason, would perform more like the current farm bill.  In other words, it will provide no field level protection and will likely force producers to purchase much more hail insurance to protect their farm’s risk exposure.

3a - Eliminate Subsidy on Harvest Price Option: This protects producers from having to replace forward contracted bushels at higher prices in fall should prices increase & producers experience a federal crop insurance loss.  Federal crop insurance only covers about half of expected production, so the value of the Harvest Price Option only kicks in when farmers have large losses.

3b - Cap Subsidy Dollars a Producer Can Receive: Much like the ARC program has a $125,000 payment cap per person, crop insurance could employ similar methodology to cap premium subsidies.  

3c - Reduce RMA Share of Cost:  Pretty simple, if premium subsidy is 55%, cut it to 45% and move forward with program.

4 - Eliminate Federal Crop Insurance & Move to Free Market:  Private insurance would be simple for producers to navigate as much regulation would be removed.  However, a 75% policy would likely jump from $17/acre to $38/acre.  Ouch!

[riskmatters]

LDP Updates

Daily LDP Rates Here

More Information on LDP from K-State’s Art Barnaby.

[riskmatters]

Updated ARC Payments

Remember, ARC payments are on 85% of base acres.  Planted acres are irrelevant.  ARC payments are also dependent on county yields.  This is probably most important for dry land as there is greater yield variability.  For example, I would not expect a payment on non irrigated wheat in Chase County.  The trigger yield for an ARC payment is 51.6 bushel per acre wheat.  Aside from a small number of acres that were hailed out, most yields were a lot closer to 80 bushels per acre than 50.)

Bottom line - excluding some non irrigated acres, large ARC payments can be expected on all crops not named grain sorghum.

Corn

Wheat

Soybeans

Sorghum

If you are interested in seeing historical yield data from NASS, email me with crops and counties of interest.  I will forward a spreadsheet with relevant data.  [email protected]

NASS Statistics

[cropinsuranceinamerica]

Crop insurance and farm policy enables everyone – from the farmer to the banker to the taxpayer – to plan for those disasters and overcome them when they happen. If lawmakers continue to try and chip away at this safety net, farmers will not have the ability to survive. This is especially true for young, beginning farmers that have less access to credit and capital.

Larry Kummer, Market President of Northeast Indiana at Horizon Bank, February 29, 2016.

[riskmatters]

Let’s Make a Deal

Part 1 - Matt the farmer.

Part 2 - Matt the crop insurance agent.

Part 3 - Matt the coffee shop patron.

Part 1 - Matt the farmer.

  I just bought a dry land farm and my wife wants to kill me.  I mean she is really excited.  Federal crop insurance locks in a maximum loss of $60,000 on 3,000 acres.  Oops.  Did I say 3,000?  I meant 300.  Eliminating crop insurance subsidies will impact the largest farms.  It will also impact beginning farmers who lack the capital resources to survive downturns in prices and/or yield.  Policy is discussed in terms of Iowa, Illinois and Ohio.  Crop insurance is the only risk management tool that functions with any efficacy outside of the corn belt.  (Full disclosure.  It’s possible to make money on this business venture as well.  I just want people to understand that crop insurance does not eliminate risk.  Not even close.)

Part 2 - Matt the crop insurance agent.

  Hey!  I’ve got kids to feed!  Honestly, if crop insurance transitions to an expanded ARC program, I’ll need to get a new job.  My premium volume will drop by 25% I’m guessing.  As a countywide program, this new crop insurance would basically result in producers purchasing more hail insurance because banks don’t loan on county-wide revenue.  It turns out, banks want to protect the farm they are actually lending on.  Listen, federal crop insurance is a big part of my business.  It is also a bureaucratic nightmare when compared to private hail products.  If there were no federal crop insurance, I’d have no excuse for being a terrible golfer.  I’d take a pay cut, but it is not proportionate to the decrease in benefits farmers would experience.

Part 3 - Matt with ears

  My discussions with farmers are pretty blunt.  Republicans agreed to save $5 trillion over the next 10 years.  Crop insurance cuts of $3 billion are 0.06% of the promised cuts.  These cuts disproportionately target farmers and rural communities.  Let’s make a deal.  If you want to cut crop insurance benefits, cut programs that benefit the rest of American business owners proportionately.  Are you ready to make a deal?  I didn’t think so.  Until these cuts are equitably distributed, farmers have a responsibility to oppose them.

[riskmatters]

In the Weeds

I’m going to write a terrible blog.  As a matter of fact, you should just stop reading after the next paragraph UNLESS you want to really get into farm policy, the SRA and politics.  Happy Thanksgiving.

Summary Sheet from Farmers Mutual Hail Here

First paragraph summary.  Big cuts to insurance companies, agents and producers are being proposed.  These pressures are not going away.  These cuts are bad for all of us and could end with things looking something like this.

No crop insurance program due to private companies exiting business.

Either a government run program through FSA (think ARC) or private insurance (think double premiums).

It’s bad for companies, because they are out of the business.

It’s bad for producers because the FSA office will only be able to administer county-wide programs.  This results in what would be a ‘free’ program, but would not provide the kind of protection bankers want to see.  In our area, this probably means that you’re buying a lot more hail insurance.  In other areas, it may force producers to take on less leverage while still owning more risk.

It’s bad for agent’s if they only sell crop insurance because they can’t sell federal crop insurance.  What kind of idiot would only sell crop insurance?  Oh wait.  I’m that idiot.

Onto the dirty details.  (I’m going to post contact information below and I’d be really interested in discussing further.)  I’m going to post a link to Art Barnaby’s article that refutes criticism here.  Information regarding dissenting opinions is below.

1 - This isn’t new.  While we think of the farm bill as being the big policy event every 4 (ish) years, that’s not the case.  The Standard Reinsurance Agreement is crop insurance.  Article from 2014 discussing potential uncertainty.

2 - Seriously, this isn’t new.  Policy is all about compromise.  As direct payments were eliminated, concessions were made specifically regarding conservation and the expansion of crop insurance towards smaller, under served markets.  The ARC program is going to be expensive for the first two years of the bill, but the cost will drop drastically as county revenue guarantees plummet should prices remain at current levels.  Article from Crop Insurance Critic Here.

3 - AFFIRM is here!  Remember how expanding crop insurance and the ARC/PLC election were designed to effectively eliminate the need for ad hoc disaster aid for farmers? This really starts to feel like it’s never going to end.  It probably feels that way because it’s true.  The reality is that crop insurance is being targeted by the left who would like to see the government take it over as well as the right who would like to see no government subsidies of any kind.  If you feel like crop insurance support is on a roller coaster, you’re not alone.  Another article here.