Crop insurance: ‘Just insane’

Neither the outcome of the federal election nor the fast-approaching budget “fiscal cliff” bothered any of the 250 gawkers and bidders at a 1,170-acre land rental auction Nov. 10 in Thurman, Iowa.

That’s right, an auction where the right to crop one family’s five parcels of Fremont County, Iowa, the absolute southwest corner of the state, went on the block that Saturday at the appropriately-named Skyline Sportsman Club.

Minutes later, every notion about local land values had surpassed any skyline — nearby Omaha’s, the more distant Des Moines’ and even that of super-tall Chicago.

Average $548/acre. The winning bids were: — Tract One, 196 acres, all tillable, $545 per acre; — Tract Two, an all-tillable 158 acres, $470 an acre; — Tract Three, 296 acres, all tillable, $520 per acre; — Tract Four, 104 acres, all tillable, $485 per acre and — Tract Five, 417 acres, all tillable with some grain storage, $615 per acre.

As stunning as those prices are — an average $548 per acre — the terms of the rental deal are even more stunning.

According to Jim Hughes, whose firm, Jim Hughes Real Estate in Glenwood, Iowa, brokered the deal, the land was rented for two years only. Cash rent terms for 2013 are 25 percent of the day of auction, the remainder on March 1, 2013. For 2014, 25 percent is due Jan. 1, 2014; the balance on March 1, 2014.

In short, you pay, then pray, then plant.

Hughes describes the renters as “local farmers who are willing to risk grain prices and weather on a two-year, $550-an-acre rental deal rather than a 30-year, $12,000-an-acre purchase deal.”

Well, mostly.

Many ingredients go into the rocket fuel that pushes land values and rents to the moon: commodity prices, aggressive local farmers, excess machinery capacity, cheap labor, low interest rates, federal farm program benefits.

Enter crop insurance

A new, major ingredient, however, is federal crop insurance, the heavily subsidized program that delivers an ironclad guarantee on locked-in revenue regardless of weather, commodity prices and federal farm payments.

(In 2012, 62-cents of every $1 in federal crop insurance premium were paid by taxpayers.)

“Oh, crop insurance played a definite role in the prices,” reckons Hughes. “It’s the best thing that ever happened to farmers.”

Risk? What risk? Bruce Babcock, professor of economics at Iowa State University and a faculty member of ISU’s Center for Agricultural and Rural Development, agrees.

“If you can lock in 85 percent of your expected revenue” — the level permitted under current federal crop insurance programs — “you’ve taken virtually all the risk out farming,” he says.

And it will get better. Part, if not all, of the remaining 15 percent of crop revenue presently not insured under the federal program is almost certain to be covered if and when Congress finally approves a 2012 farm bill.

Both the Senate and House versions raise subsidized coverage over 90 percent.

That’s an unbelievable move, opines Babcock, at a time when there is a bipartisan call in Congress for all Americans to assume “more risk” — take cuts in federal programs like food assistance, retire at an older age, pay more taxes — in the marketplace in order to cut federal spending.

But when it comes to the farm bill, Congress is proposing to “ratchet down market risk” — raise the level of subsidized crop insurance — “while doubling down on the cost of these programs rising?” he asks.

“This is just insane.”

Bottom line. Babcock is exactly right: How can farmers and farm groups ask taxpayers to underwrite an expansion of an already highly-subsidized revenue insurance program that guarantees farm income and higher land values but does not — cannot — guarantee food production or conservation compliance?

Farmers better come up with an answer quickly because the question will be asked.

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

One Comment

  1. PowerOfChoice says:

    The Farm Bill is full of past legislative garbage and needs to be eliminated. If there is any future Farm Bill it should just pertain to farmers to insure proper food supply and access to insurance same as any other business, nothing more and nothing less. This bill should not contain items for broadband, energy, housing, welfare, etc. All this promotes is future petty bickering such as now with holding hostage any bill to insure proper food supply vs. food stamps. SNAP should stand alone as needed to better control abuses and better regulate.

    The Senate Farm Bill and also in other bills such as House Bill H.R. 273 and H.R. 6416 is legislative back scratching for the purpose of continuing to feed funding to self sufficient city governments. The purpose of rural programs is to help very small struggling communities grow and become self-sufficient, not to become a Welfare System for self-sufficient communities who have already received past benefits wanting more.

    What is happening in some areas is land is being obtained to implement USDA programs by violating the consumer property rights of other citizens who have contracts and prior Vested Property Rights causing families financial harm. Implementing government programs is not supposed to violate laws or harm citizens. Adding more property to USDA control at this time until steps are placed to protect Americans from abuse would be irresponsible.

    We are 16+ Trillion dollars in debt and it is now time to start eliminating items from legislation and get our debt under control. The current Farm Bill mainly supplements Big Corporations who have spent many years lobbying our government to include perks vs. helping small rural farmers. It is now time for any and all excess baggage to go …

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