Abundant crop insurance shielded farmers’ income from much of the impact of last summer’s record drought across the Midwest and Mid-South, according to the latest Agricultural Finance Monitor released Feb. 13 by the Federal Reserve Bank of St. Louis.

The survey, conducted from Dec. 17 through Dec. 31, 2012, was based on the responses of 61 agricultural banks located within the boundaries of the Eighth Federal Reserve District. The Eighth District comprises all or parts of the following seven Midwest and Mid-South States: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

It is broken into four zones: Little Rock, Louisville, Memphis and St. Louis.

Farm Income

On average, lenders across the District reported fourth quarter income and spending were higher than one year ago.

In earlier surveys, lenders in the St. Louis and Louisville zones, in particular, had anticipated the record drought of 2012 would significantly lower farmer income and capital spending. Instead, crop insurance helped to offset the impact of the drought in the hardest-hit areas.

“The 2012 drought greatly reduced production, but all of our borrowers carried crop insurance,” responded one Illinois agricultural lending bank. “Many farmers had higher levels of coverage. This has resulted in good income for most, and most will carry that income into 2013.”

As of Feb. 4, 2013, Missouri and Illinois farmers have received close to 23 percent of the $13.7 billion in claims paid out nationally so far on 2012 production; the U.S. Department of Agriculture estimates total 2012 claims will reach a record $21 billion.

In addition, good growing conditions in the southernmost parts of the District (in particular, the Memphis zone) helped produce significantly higher corn and soybean yields in this region. This allowed farmers in these regions to benefit from higher prices for their crops as commodity prices soared last summer.