Can’t duck crop insurance disaster

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Many on Capitol Hill are quick to point out that “If it walks like a duck and talks like a duck, it’s a duck.”

What they never add is that this little blinding glimpse of the obvious has never stopped legislative quackery in the past and it’s not stopping it now.

Drought impact

For example, as you read this, 2012 crop insurance payouts are likely growing by $1 billion or more per week because of the spreading drought in the corn-soybean Midwest. The disaster means short crops, tall commodity prices and certain-to-rise food prices.

It also means crop and revenue insurance payments of “ginormous proportions,” suggests Bruce Babcock, an economist at Iowa State University.

How big is ginormous?

“If the current drought in Illinois and Indiana spreads west to include Iowa and parts of Minnesota and Nebraska, which it appears to be doing,” Babcock explains in a telephone interview July 10, “we’re talking tens of billions — maybe $30 billion, $40 billion or more — in crop insurance payouts this year.”

And if it stays in just Illinois?

“Payouts in Illinois are going to be large, very large,” reckoned Gary Schnitkey, a University of Illinois extension economist, July 11.

Big payouts

In fact, writes Schnitkey on the U of I farmdocDaily website, if 2012 Illinois corn yields are similar to those of 1988, the last major drought, or about 105 bu. per acre, then 2012 “harvest price would $7.40 per bushel, resulting in a $318 per acre insurance payment.” (Link to all source documents at www.farmandfoodfile.com)

That means 2012 insurance payouts for Illinois corn alone could top $3.2 billion.

Toss in the state’s soybeans, then add the drought’s effect on corn and bean yields from Ohio to Kentucky and Nebraska to Minnesota and, quickly, Babcock’s “ginormous” estimate is more realistic than fantastic.

Insuring revenue. While most farmers buy crop insurance — it’s a terrific bargain: Taxpayers picked up $7.4 billion of last year’s $11.9 billion national cost — the program doesn’t insure crops; it insures crop revenue.

Higher food prices

That means insured farmers can recover a substantial portion of their lost income but consumers, the same folks that paid 62-cents of every dollar of crop insurance premium in 2011, aren’t insured against anything — especially not against higher, drought-driven food prices.

And food prices will climb

Central Illinois cash corn prices rose from $5.80 per bu. on June 1 to $7.73 July 9, an explosive 35 percent spike in five weeks. Cash soybean prices were up 23 percent over the same period.

Additionally, nothing in current crop, weather or government stocks reports show any evidence of retreat. Indeed, on July 11 the U.S. Department of Agriculture’s World Outlook Board dropped 2012 estimated U.S. corn yields 12 percent and cut soybean yields nearly 8 percent because of the “rapid decline in crop conditions.”

Bare cupboards

Even if the weather moderates, commodity and food prices likely won’t because on June 1, the Commodity Credit Corporation, USDA’s commodity warehouse manager, reported the government cupboard bare as Mother Hubbard’s.

Indeed, according to CCC, there is not one teaspoon of sugar, one pound of peanuts, one slice of butter, one wheel of cheese, one bushel of wheat or even one chickpea in USDA’s pantry. CCC has nothing — nada, zip, goose egg — to release into the marketplace to slow or moderate what’s certain to be fast-climbing food prices in the coming months.

Reform

Worse, all that bad news will soon be compounded by more Congressional quackery. Both the Senate and House versions of the not-yet-passed 2012 farm bill use crop insurance as their new tool to “reform” farm program spending.

That’s right; only Congress could come up with a core farm and food policy tool, crop insurance, that doesn’t insure crops and doesn’t ensure adequate food stocks and then sell this “reform” as a “cost saving” in the year when, in fact, crop insurance payouts will demolish any and every record.

Hey, if it walks like a duck and talks like a duck, it’s probably a farm bill.

About the Author

Alan Guebert was raised on an 800-acre, 100-cow southern Illinois dairy farm. After graduation from the University of Illinois in 1980, he served as a writer and editor at Professional Farmers of America, Successful Farming magazine and Farm Journal magazine. His syndicated agricultural column, The Farm and Food File, began in June, 1993, and now appears weekly in more than 70 publications throughout the U.S. and Canada. He and spouse Catherine, a social worker, have two adult children. farmandfoodfile.com More Stories by Alan Guebert

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