Facing another dismal year for row crops, more Delta farmers are taking a
closer look at crop insurance.
"The bill enacted earlier this year will make crop insurance more affordable
for producers and provide them with additional government premium
contributions for yield and price risk protection," says Senator Thad
Cochran. Last May, Congress passed a $15 billion farm aid package to
compensate for a third year of low prices and to give more money to farmers
to buy crop insurance. Of that amount, $8.2 billion was earmarked for
reducing premiums on federally subsidized crop insurance over the next five
years and included changes to encourage more farmer participation. The
government’s share of the premiums would jump to about 59%.
Proponents of the plan says the increase in the cost of crop insurance could
almost pay for itself by making farmers less dependent on disaster
assistance.
"There are those who will say that crop insurance is another way to deliver
benefits, but when you deal with multi-peril insurance, there are so many
causes for loss, and crop insurance has always had a subsidy component to it
because no actuary can sit down and figure out what it should cost," says
John Macquire, Washington representative of the National Cotton Council.
The goal of improving the crop insurance package last year wasn't to deliver
benefits via another vehicle. The concept was to provide farmers with a
predictable safety net for weather-related losses, Macquire says.
"If you don't have a good crop insurance program, then you have to hope
there is enough loss in the country, and that there is a political will in
Congress to make funds available for disaster assistance," he says. "There
needs to be some reassurance to the farmers that the new policy is
affordable and will actually deliver the benefits they are paying for."
Bobby Carson, member of the National Cotton Council's insurance committee,
who farms 3,000 acres in Marks, says more farmers in the midsouth
participated in the crop insurance program last year because the share of
the premiums paid by producers was lower and the coverage allowed was much
higher.
"Participation in the south has been extremely poor in the past, which is
why Risk Management Agency got Congress to let them lower the rates," Carson
says.
In turn, The Risk Management Agency, which is the oversight organization for
the Federal Crop Insurance Corporation (FCIC), capped the added land
provision, primarily because some growers rented land that wasn't considered
cotton acreage and would transfer their yield basis to collect insurance
benefits based on poor yields, Carson says.
"It's not illegal, but it borders on unethical behavior," he says. "It was
an abuse of the program. There is now a cap of about 640 acres and a farmer
cannot add more land at his proven yield. It would have to have  a different
proven yield."
In last year's farm bill, crop insurance rates for cotton received the
biggest cut - almost 50% - while "considerations" were made for grains, says
Chris Marley, a partner with Dunn, Marley and Harris Crop Insurance Agency
of Clarksdale and Isola.
"For a basic rate in rice of 85% coverage, it's around $10 to $15 per acre,
depending on how you structure it," he says. "On cotton, it’s $20 to $35 per
acre at an 85% level, depending on how you structure it. Soybeans are in the
$6 to $10 range at the 75% level. Rates are so variable because it changes
for every county and every level and the yield used for the historical
basis."
Dr. Anthony Mills, technical service manager in Mississippi for the Monsanto
Corp., says farmers who have traditionally purchased only catastrophic crop
insurance are now adding loss protection to their policies.
"Most everybody is looking into insurance because they have to evaluate that
option in their operation," Mills says. "It doesn't fit for everybody, and
it will depend on yield base and expenses, and what farmers think they can
do year in and year out. But the crop insurance program is not a long term
solution."
Catastrophic coverage, which is  the minimum, covers 50% of the guarantee,
and 55% of the price, says Mike George of Cottonland Insurance, Inc. in
Greenville.
"That will qualify you for all the linkage requirements with government
programs," he says. "You can buy any level of coverage for cotton in 5%
increments, from 50% to 85%. You can't buy that much with some of the other
crops. With the change in government subsidies for the coming year, the
better point is around 70% to 75% coverage, and at that rate, the government
pays about 59% of the premiums."
The government's share varies, depending on the amount of coverage the
producer buys, George says.
"For the last two years, to participate in the government's programs of
assistance, producers have been required to get crop insurance at a minimum
of catastrophic coverage or to sign a waiver with the Farm Service Agency
that they would not participate in any disaster programs."
Banks are beginning to require crop insurance, says Marley.
"About 95% of the producers I talk to say one of two things, either ŒI can't
keep going on the way I'm going,' or ŒI'm making a good yield and I'll be
lucky to break even'," he says.
In most cases, the maximum level of coverage is the most effective and
efficient level on most crops, Marley says.
"If a farmer can become more efficient with genetics and get inputs a little
less than the coverage level, then insurance puts him in a position to make
a profit," he says. "The midsouth farmer is starting to get comfortable with
the new genetics, like Round-Up Ready and Bt cotton, and  the boll weevil
program. We are beginning to grow cotton like the Round-Up Ready beans. Just
fertilize it, keep it clean, and keep the bugs off, and put yourself in a
position to make a crop at less cost than in the past.
"Yield is something that in the past we haven't had a lot of control over,
but with genetics and insurance, it lets you become an input farmer instead
of one who is shooting for something he hasn't got much control over. With
genetics you can almost set a budget and come within 5% to 10% of what you
plan for. Being able to insure to the 85% level allows you to look at things
a little differently as a grower. It's getting just about as easy to make
$50 per acre by cutting costs than it is to shoot for making an extra 150
pounds of cotton."