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.
“There’s a lot of guessing going on. Based on what I’m seeing in the USDA reports, I don’t think this crop is quite at the same level as what the 1988 crop was in terms of being a disaster but the trend is clearly in that direction.”
One state that’s worse this year than it was in 1988 is Indiana, he said, but other states are better off: “I didn’t say great, just not as bad as in 1988.”
He noted that the dollar amount of claims is much more than in 1988 because more farmers buy crop insurance now.
“If you go back to 1988, less than 13 percent of Illinois corn acres were insured. Today, roughly 80 percent are insured,” he said.
“The way the press has been reporting this is the gross indemnity payment, not the loss in excess of premiums, which is the way the insurance industry and the government treat these things,” he said.
“The numbers are big, no matter how you cut it, but many farmers are wondering if their company will be able to pay the claim and the short answer is yes. This is something they don’t need to worry about.”
After a company failed about 10 years ago, RMA put in into place much stronger financial requirements in order to be an approved insurance provider (AIP), including sufficient assets for reinsurance to cover at least two disasters in a row.
“The reinsurance market is a worldwide market, not just a U.S. market, so if one thing goes bad, it doesn’t bring down the whole market. For most of these companies, this is a very small part of their overall portfolio.”
Barnaby says he may get cards and letters reminding him that a large insurance company failed after the banking fiasco, but it was writing derivatives on housing loans and other products and the dollar amounts were much larger than the numbers affected by this year’s crop losses.
Plus the $10 billion to $15 billion underwriting loss will not be completely borne by the insurance industry. The government will bear some of it.
He said some wells have been shut off because farmers have hit their irrigation limits. He’s encouraging producers to talk to their insurance agent to make sure everything is handled and documented properly.
“The crop insurance portion of the farm bill that’s been in place for the past several years has been successful in this sense — it got a lot of people insured,” Barnaby said. “There’s no doubt that farmers with this crop loss in 2012 are going to be covered a lot better than farmers were in 1988.
“Congress and the USDA have put a lot of effort into moving farmers from “free” disaster to a farmer-RMA premium shared crop insurance program. I find it ironic that many people are criticizing the size of the insurance program’s participation and the resulting payments.”