Increase in Midwestern Insured Crop Acres Eases Drought Threat

<*C> By Laura Mazzuca Toops
Farmers in Midwestern states like Kansas have more than doubled the acres they insure and tripled their dollar amount of coverage since 1989, according to recent statistics. It’s a trend that could mitigate financial hardships arising from spring and summer drought conditions in several Midwestern states.

In a study conducted by G.A. “Art” Barnaby Jr., agricultural economist at Kansas State University, insured farmland in Kansas has even surpassed Texas in the number of acres covered in 2002, 2003 and 2004, with nearly the same amount of dollar coverage.

The study used 17 years of statistics compiled by the Risk Management Agency, an arm of the U.S. Department of Agriculture, to examine the extent of recent crop losses suffered by farmers, using each state’s loss ratio–premiums collected compared with the amount of losses paid out–as one measure.

Since the federal crop insurance program was reformed in 2000, the average number of insured acres in the country increased each year, from 153 million acres to 215 million acres, the report noted. The law expanded federal subsidies to cover more of the premium farmers pay to insure their crops. This made it more cost effective for farmers not only to insure more acres, but to do so at higher coverage levels.

Over the past five years, American farmers have insured 1.07 billion acres for $195.7 billion in coverage, paying $16.03 billion in premiums, which includes an $8.98 billion government premium subsidy. The government paid out $16.05 billion to cover agricultural losses over that time, according to the study.

Several years of bad weather are also increasing insured acres, said Dennis Daggett, president of John Deere Risk Protection Inc. in Johnston, Iowa. This year’s spring and summer drought conditions are reminiscent of 1988, when weeks of hot, dry conditions shrank corn harvests 31 percent. Farmers who typically only insured their soybean crops are considering insuring the typically hardier corn crops, too. “It will give farmers and their agents something to consider in spring 2006,” he said.

According to a survey by the U.S. Department of Agriculture, 55 percent of the Illinois corn crop is in “very poor” or “poor” condition, as is 34 percent of the soybean crop and 74 percent of pastures where livestock graze.

Even so, the most recent predictions call for a 10 billion bushel corn crop in Illinois this year, so if Illinois has an underwriting loss, it will be the first in years, Barnaby said.

Midwestern states performed fairly well over the 17-year period, with some of the lowest loss ratios in the country. Indiana, Missouri, Iowa and Illinois were among the 10 states with the lowest loss ratios. Midwestern states also had some of the most highly insured acreage in the country. The 10 states with the highest dollar amount of protection include Iowa, Minnesota, Illinois, North Dakota, Kansas and Indiana, with Iowa ranking first with total coverage of $48 billion over the 17-year period.

The Risk Management Agency is now looking at initiatives to address multiyear crop failures and considering extending insurance coverage to pastures, forages and rangelands.

For a complete copy of the study visit Kansas State University’s agriculture economics department at http://www.agmanager.info.