By Tracy Sayler

Home

E-Mail

Back

Prairie Grains is the official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat, Inc., and the Minnesota Barley Growers Association.

• The option for farmers to buy up to 85% coverage of their proven yield for wheat and barley (in SD, corn and soybeans as well).

• A premium price reduction of 25% for enterprise (whole farm) coverage.

• Expanded coverage under the Income Protection (IP) program, which protects against income loss due to the combined effect of low yield and price. Limited previously to only spring wheat in a few counties in the northern Red River Valley, the 85% spring wheat IP pilot plan will be available for all "spring wheat only" counties in MN, ND, and SD and Daniels, Roosevelt, Sheridan, and Valley counties in MT.

• IP coverage is also available in 1999 on feed and malt barley in MN, ND, SD, and MT, as well as Oregon and Washington.

• The option to increase yield floors for wheat and barley based on actual production history (APH) from 80% up to 100% in MN, ND, and SD.

• Due to strong producer demand, a new 3-year pilot program was developed for use in ND offering crop insurance coverage of crambe statewide and mustard in 11 counties (Bottineau, Burke, Dunn, Golden Valley, Hettinger, Nelson, Ramsey, Renville, Stark, Ward, Towner).

• Among several prevented planting rule changes, the RMA deleted the requirement that the minimum amount of PP acreage required to qualify for a PP payment (20 acres or 20% of the insurable crop acreage in the unit) be contiguous.

• More counties are now eligible this year to receive written agreements for crop insurance coverage not offered for a crop in a particular county. Such crops include canola, forage production, potatoes, dry beans, and sunflower.

• The separate market price for durum as opposed to hard red spring wheat will now also be taken into account for price coverage.

Combined, the buy-up options will result in increased coverage, said USDA Secretary Dan Glickman, when the changes were announced last year. For example, a wheat producer suffering multiple years of loss may have a yield guarantee of only 27 bushels per acre. Purchasing the 100%-yield floor option could increase the guarantee to 36 bushels per acre. If the goal is to acquire the highest dollar value of coverage using multiple-peril crop insurance, this same producer could raise the insurance guarantee from $98.55 per acre at the 75% coverage level to $111.69 per acre at the 85% coverage level.

The USDA earmarked $400 million for discounts on crop insurance premiums nationwide this year. Funding for the buy-down was included in the disaster provision of the $6 billion farm economic relief package approved by Congress last fall. The discount will be between 25% and 35%. Thus, if you insured 1,000 acres of your 1,500 crop acreage, at an average premium of $5.00 per acre and an average discount of 30%, the discount would be $1.50 per acre or $1,500.

Another $30 million earmarked by the USDA for scab-related losses in wheat in the Northern Plains may be applied to a further discount on crop insurance premiums for producers who qualify. Scab-related barley losses may also qualify: rules were still being written at this writing. In essence then, some producers in the area will be able to buy crop insurance this year at half price.

Less expensive crop insurance this year may prompt some to try enhanced programs such as the IP or Crop Revenue Coverage, which protects a producer’s revenue whenever low prices, low yields, or a combination of both causes revenue to fall below a guaranteed level selected by the producer.

In fact, to ensure a viable level of protection to meet financial obligations, some lenders may require participation in a crop insurance product with a higher revenue guarantee.

Offsetting improvements in crop insurance this year are price elections that for most crops are lower compared to 1998. Wheat in 1999 is $3.30, down 35 cents from the 1998 price election for wheat of $3.65, which means producers will be losing $10 or more per acre wheat coverage in 1999. The 1999 price election for soybeans is $5.25 ($6.00 in 1998), barley, $1.80 ($2.20 in 1998) and $2.10 for corn ($2.60 in 1998). Canola remains the same at 11 cents. The price election for sunflower will increase over last year: 10 cents for oil (9 cents in 1998) and 13 cents for confectionery (12 cents in 1998).

Reform a priority for many

This year will bring a minor crop insurance tuneup. It will also bring debate for a major program overhaul for 2000 and beyond.

Tim Dufault, past president of the Minnesota Association of Wheat Growers, and a Crookston, MN, farmer, says federal crop insurance is failing wheat growers in the Northern Plains due to several reasons:

• Inadequate price elections that are not keeping pace with rising premium costs;
• Spring wheat quality adjustments that do not reflect actual marketplace discounts;
• A declining Actual Production History (APH) caused by multiple disaster years that is eroding coverage guarantee for standard multi-peril policies.

"The bottom line is that more funding and focus is needed to build a better risk management program that is affordable and offers more adequate coverage of crop production costs," says Dufault.

"We need more than crop insurance bandages. We need real reform, and soon. We may need to realize that the federal crop insurance program might not be able to meet the mandate of being actuarially sound to work adequately for farmers and that an infusion of new funding is needed," says Mark Gage, president of the North Dakota Grain Growers Association and a Page, N.D. farmer.

Doug Hagel, director of the RMA’s Regional Service Office in Billings, MT, says farmers have made it clear that they prefer a program that more closely mirrors cost of production or crop value. "Talking with commodity groups, agents, and others, we’re all working toward the same concepts. It’s just a matter of getting others to understand the need for change."

Hagel says such a program would vary in cost depending on crop type and land productivity. In fact, that’s a key issue: flexibility to apply a program by production area. "We can’t make one size fit all," he says. The Northern Plains is much different than the central or southern parts of the U.S., with production differences even within counties. Yields in eastern Walsh County of N.D., for example, are 10% to 15% higher than the county average, while the western part of the county is 10% to 15% lower.

Many farmers take the 65% multi-peril coverage level only because they cannot afford buy-up coverage. They want individual unit protection, because with such a low level of coverage, they need spot loss protection, says Hagel, who understands what farmers want from risk management: he maintains sharecrop interest in his family’s farming operation near Rugby, ND.

"If we can get to the point where we are covering more of the cost of production, 85% to 90%, at an affordable price, it will go a long way to improve coverage. It will be come closer to covering the risk a farmer assumes when producing a crop. There’s such a slim profit margin, a farmer can’t afford to cover more than 10% to 15% risk. Until then we’ll continue to have calls for reform and ad hoc disaster."

The key to making any proposal work is to evaluate its performance and effectiveness through a pilot program. Hagel would like to see a pilot program based on cost of production in the 2000 crop year involving 10 to 12 counties in each state. "At least pilot it so we can determine if it works," he says.

Hagel himself has written a pilot program proposal that would allow a farmer to select a dollar amount of coverage per acre by crop within a production area designated by RMA. Farmers would be able to select a maximum (or less) dollar per acre revenue guarantee equal to 85% of the RMA-established maximum crop value in the production area or areas their farm operation is located.

Under Hagel’s proposal, the RMA could reduce additional program risk, and farmers would be able to reduce premium costs, by taking whole farm or enterprise unit coverage, and pooling crops into one revenue guarantee. Harvest value of each crop in the combination would then be determined and totaled before an indemnity would be paid.

Some pilots with a similar premise are underway. One pilot, the Adjusted Gross Revenue (AGR) program, will be launched this year on a limited basis in Florida, Maine, Massachusetts, Michigan, and New Hampshire. The AGR program will guarantee a percentage of gross revenue for multiple commodities, including a small amount of livestock revenue, under one policy. The AGR protection is conceived to use a 5-year average derived from the revenue stated on the producer’s Schedule F tax form as the basis for establishing the revenue guarantee.

Also this year, Revenue Assurance (RA), a product of American Farm Bureau Insurance Services, for corn and soybeans, was expanded into Illinois, MN, and SD. The product was also expanded into ND for corn, soybeans, and spring wheat. Previously, the program was only available to producers in Iowa. RA is another product that protects a producer’s revenue whenever low prices, low yields, or a combination of both causes revenue to fall below a guaranteed level selected by the producer.

USDA Secretary Glickman reportedly is recommending $1 billion more in funding in the FY2000 federal budget for federal crop insurance reform. That’s a good start, especially for trying pilot programs. But Hagel believes nationwide reform will require about $4 billion to $5 billion. Coincidentally, that’s about the same as transition payment costs under the Agricultural Market Transition Act, and indeed, there is discussion of converting AMTA spending into federal crop insurance reform, after the farm program ends in 2002, and maybe even before. To achieve reform will require the same fervor as the 1998 federal disaster relief package, he says.

Reform needs specific timelines, less red tape

The 1994 Federal Crop Insurance Reform Act included authorization language by Congress directing the Federal Crop Insurance Corporation to offer an 85% multi-peril coverage plan. This option will finally be offered to producers in 1999- five years later. This is a prime example why any crop insurance reform legislation must have specific guidelines, spelling out changes to be implemented, and when. "The key to making new program changes work is legislation with definitive language, specific action timelines and most importantly, adequate funding appropriations," he says.

Another impediment to accelerated reform is a regulatory review process of crop insurance rules that can take up to 18 months, involving as many as a dozen different layers of government. The RMA has proven that it can act much faster, especially on "hot issues." Recent changes to prevented planting rules, for example, were accomplished in about 6 months.

Hagel would like to see the crop insurance regulatory system reformed at the same time as the program itself. "The process could be simplified by reducing many of the regulatory processes and writing interpretations or proposed changes more from a procedures perspective standpoint. Let’s provide the product as interpreted by the law, and make changes and adapt along the way," he says.

USDA-RMA Publication Helps Farmers Build Risk Management Plan

"Building A Risk Management Plan," is available through the USDA’s Risk Management Agency, which developed the free publication in cooperation with the USDA’s Economic Research Service and Farm Futures magazine. Among its contents, some of which is written tongue-in-cheek:
• A wealth of risk management and market information sources (both print and electronic).
• Quizzes to test your financial strength and management skills.
• Articles meant to help growers start building a risk management plan. Topics include: "Stuck: Change Is Good, You Go First," "Taking Stock of Your Options: Things To Do When You’re Not in the Field," and "Proven Ways To Protect Your Price."

It may be found on the Internet at: http://www.act.fcic.usda.gov/pubs/html/mp_36/index.html. To order otherwise, write: FSA-KCMO Warehouse, 9240 Troost, Kansas City, Missouri 64131-3055. You may also fax your request to 1-816-363-1762. Request "Building A Risk Management Plan," number (MP-36). The publication is also available through your state wheat association office.