What is in this article?:
• Ag economist’s number lower than some estimates.
• Some estimates of this year’s U.S. crop losses are premature and might be overstated.
• Based on the most recent crop condition reports the estimate is likely to be closer to $15 billion.
Kansas State University Agricultural Economist Art Barnaby is well aware of corn growers’ struggles this year as they deal with blistering summer heat and drought.
But after crunching the numbers, he believes that some estimates of this year’s U.S. crop losses are premature and might be overstated.
Barnaby, who is a risk management specialist with K-State Research and Extension, gathered historical data from crop insurance participation going back to 1988 — the last big drought year in the Corn Belt. He then calculated the estimated premium for the 2012 corn crop and plugged the loss ratio for 1988 into the 2012 numbers.
“State by state, the numbers won’t be so accurate because in 1988, some crops were better and some worse than this year, but in the aggregate, it generated a $10 billion underwriting loss on corn. That is a large loss, there’s no question about it, but it’s less than 10 percent of the USDA budget and the insurance companies are expected to pay some of the loss. A big chunk of that budget is food stamps and other feeding programs.”
Barnaby’s $12 billion to $15 billion estimated underwriting losses for all crops and all states is well under recent industry estimates of $20 billion to $40 billion in losses. Based on the most recent crop condition reports the estimate is likely to be closer to $15 billion, he said.
In estimating this year’s underwriting losses, he looked at the historical national crop loss ratios, which are indemnities divided by unsubsidized premiums. The two largest national loss ratios were 2.71 in 1988 and 2.19 in 1993 for all crops combined. It would require a record national loss ratio of 3.0 to generate a $21 billion underwriting loss.