In Iowa, crop insurance will be more of a safety net

Projected high yields and low guaranteed prices suggest negligible crop insurance payments for corn and soybean producers this year.

'Most corn growers will not get a payment, and soy will have hardly any payments this year,” said Iowa State University economics professor Bruce Babcock, a critic of the federal crop insurance program.

'Low prices, big yields, little if any payment - that's the way it's supposed to work,” he said.

Most farmers buy crop insurance that protects them against reduced yields, most often caused by adverse weather, and against revenue loss, which typically occurs when commodity prices fall during the growing season.

Rather than adverse weather, Iowa farmers for the most part enjoyed favorable conditions - with adequate but not extreme warmth and moisture - resulting in the U.S. Department of Agriculture's recent prediction of record corn and soybean yields both nationally and in Iowa.

Commodity prices did fall during the current growing season, primarily as a result of the anticipated bumper crop, but probably not enough to offset the 'deductible” built into their insurance policies, Babcock said.

The maximum coverage farmers can purchase is 85 percent, which means, in effect, they have a deductible of at least 15 percent, which is about the extent of the growing season price drop, he said.

The 2016 base prices for revenue protection policies, established by the federal Risk Management Agency in the spring, were $3.86 per bushel for corn and $8.85 per bushel for soybeans - the lowest levels in several years for both commodities.

Farmers with revenue-protection crop insurance will receive an indemnity payment if their actual revenue falls below their revenue guarantee, which is determined by multiplying their actual production history yield by the larger of the spring base price or harvest price and by the percentage of their coverage.

As an example, a farmer with maximum coverage and a history of raising 180 bushels of corn per acre would have a revenue guarantee of $590.58 per acre. If the farmer meets or exceeds the historic average yield, the price would have to fall below $3.28 per bushel to qualify for an indemnity payment.

That could happen, but many analysts, including Kent Thiesse, a farm management analyst with MinnStar Bank in Lake Crystal, Minn., believe 2016 prices have bottomed out at their current level around $3.35 per bushel.

'Producers who hit their APH (actual production history) yields or higher are not likely to collect crop insurance indemnity payments this year,” Thiesse said.

Don Swanson, co-proprietor of Son Risk Management in Ottumwa, who farms and sells crop insurance, said he thinks crop insurance indemnity payments will be minimal this year.

There could be some instances of revenue loss because of yield shortfalls in southern Iowa, but that seems much less likely in the northern two-thirds of the state, he said.

'Crop insurance is back to being a safety net this year,” Swanson said.

This year may prove to be an anomaly in the annals of federal crop insurance, according to ISU's Babcock.

In an analysis published earlier this year for the Environmental Working Group, Babcock said taxpayer subsidies - 60 percent of premiums, all program administration costs and a large share of the claims payouts - make the program more a revenue stream than a safety net.

The average rate of return on crop insurance for all farmers in all states between 2000 and 2014, he wrote, was 120 percent per year. For every dollar farmers paid in premiums, they got $2.20 back, he said.

Babcock said rates of return vary among crops and regions. Rates of return, he said, are generally lowest in the Corn Belt and highest in the Great Plains and the Southeast.