Crop Insurance Notebook

Compiled by Tracy Sayler

“More Blue Than Ever This Year”
Plans and ideas for the next farm bill are already underway, and Kent Olson, executive director of the Professional Insurance Agents of North Dakota, wants to make sure crop insurance doesn’t get lost in the debate.  “It’s one of the legs in the stool for managing risk on the farm.  We need the subsidy to the farmer, we need the program to operate at a profit, and we need a delivery service.  And we always have to be aware of funding.”

Needs of Northern Plains producers must be kept in mind as well. “RMA keeps coming out with products that’ll work fine in Indiana or North Carolina, but not here.  Farmers in North Dakota by and large don’t want GRP or enterprise units, they want optional units. We shouldn’t chase programs if the farmer isn’t willing to buy it.” Quality loss adjustment that better reflects actual market discounts is another change that’s needed.

This year, an attractive malting barley option, with almost a dollar spread between the feed and malt barley price, should help make malting barley attractive as a crop.  And a $7.38 price election will be supportive for flax. Says Olson: “you’re going to see more blue than ever this year, in my opinion.”

Feb. Price May Favor Revenue Products
Keep your eye on Feb. ’06 grain prices, as the monthly average closing price during this month for Mpls Sept. ‘06 spring wheat, Chicago Nov. ‘06 soybeans, and Chicago Dec. ’06 corn, will be used to calculate the base price for crop insurance revenue products Revenue Assurance and Crop Revenue Coverage.  K-State extension ag economist Art Barnaby tracks the prices online at www.agmanager.info/crops/insurance/price_risk - go to the link “Est. 2006 Corn, Milo, Soybean & Spring Wheat RA & CRC Price Election.”

Building Personal T Yields
Personal T (transition) yields – the option of using one’s own crop yield history on similar land for insuring the crop on another unit that doesn’t have a yield history – won’t be available until 2007. The suggestion was put forth by the U.S. Durum Growers Association. Crops and geographic areas covered by the personal T yield option aren’t yet known, but agent Dan Weber of Casselton, N.D. is encouraging his clients to think about how they might use it.  “Let’s say you planted durum, for example, in 2001 and it performed poorly, say 22 bu/acre.  So if you’re interested in growing durum again, maybe you consider planting it in 2006, hoping for a better yield that will replace that lower yield in 2001 and put you in a better spot for building your personal T yield,” says Weber.  “For certain growers, they might be able to help themselves.”

AGR-Lite Not Available Until ‘07
Adjusted Gross Revenue-Lite (AGR-Lite) is a whole-farm revenue protection package based on the 5-year average revenue reported on IRS Schedule F. There has been increasing awareness about the new program, but growers should note that it won’t be available in Minnesota or elsewhere in the Northern Plains this year, says Gary Hachfeld, University of Minnesota farm business management educator.  Hachfeld says AGR-Lite might want to be considered by growers next year who:

• Grow otherwise uninsurable crops.
• Want umbrella protection over selected individual crop coverages.
• Desire to simplify your risk management program, with coverage based on your operation’s history.
• Wish to protect the bottom line of your operation from severe economic loss.
• Have poor yield records.
• Know your gross income has survived droughts better than actual production history (APH).
• Consider other plans too expensive.
• Want catastrophic animal health protection as part of your risk management program.

NDSU Crop Insurance Conference Presentations Online
Presentations from the 13th annual Crop Insurance Conference held Jan. 16, 2006 in Fargo sponsored by NDSU are posted at www.ag.ndsu.nodak.edu/aginfo/cropmkt/cic.htm - scroll down to the Powerpoint presentations, with topics that include Livestock Gross Margin for Cattle, Common Land Units Update, Malt barley strategies, Quality adjustment and sampling grading overview, Northern Region compliance, and 2006 corn changes.

“Western N.D. Corn Grain Coverage Needs Improvement”
“Western N.D. counties can only get crop insurance on silage corn, not grain corn.  Here we have an ethanol plant being built but can’t get insurance on the corn,” laments one Morton County, N.D. crop insurance agent. “The only way a farmer can get insurance is through a written agreement and RMA has told us they will approve few requests for written agreements.  We have two we are working on right now, one from Richardton and another from Bismarck.  Both have a history of raising grain corn. Farmers need to be able to insure grain corn in this part of state.  Equipment and corn varieties are making it possible to grow this corn successfully where they weren’t able to in the past.”

Online Premium and “What-If” Calculators
The University of Illinois Farmdoc (farm decision outreach central) Project has useful online calculators to estimate insurance premiums per acre as well as insurance payments, premium, and gross revenues for revenue insurance products.  Go to www.farmdoc.uiuc.edu/cropins/index.asp.

Ways in Which RMA Combats Fraud and Abuse
The USDA Risk Management Agency has a spot check list that keeps tabs on producers whose patterns appear atypical compared with others in their region. RMA compliance offices review the list of names, and drops and adds producers from the list based on field observations and other factors. RMA provides the list to local Farm Service Agency (FSA) offices and insurance providers, and FSA conducts growing season inspections based on their knowledge of producers in their area. FSA will send letters to producers identified in the spot check process, informing them they were on the list and had been identified for a growing season inspection. 

As a result of this process, RMA statistics show a substantial reduction in indemnities paid to producers in the year following their spot check listing. Producers named on the 2004 spot check list claimed $222 million in 2003 indemnity payments, but only $151 million dollars in 2004 after notification that their operations were under review, according to the RMA. This trend in reduced indemnities has repeated itself every year for five years, indicating there is a sustained impact to performing the checks on those individuals meeting the spot check criteria, according to the RMA.

“Data mining” –  analyzing existing data records to compare policies and/or detect individual producers whose policies demonstrate atypical patterns, can be effective in indicating fraudulent activity.

Remote sensing and satellite imaging is fast proving to be effective for flagging atypical production patterns as well, such as isolated prevented plant. It can even be used for detecting excessive yield in a field compared to the land around it (i.e., 300 bu/ac corn when surrounding acreage yields half that), which could trigger an audit.

One of the most effective tools in combating fraud and abuse is farmers themselves – RMA officials will tell you that most farmers won’t tolerate other farmers cheating the system, and will anonymously report suspicious behavior.