Predicting the future: Farmers rolling dice with crop insurance

COLUMBUS — Most farmers say they would farm without crop insurance, but it makes their lives a little easier. Without the backup of crop insurance, they say, their business and livelihood might not survive.

“It’s been tremendous protection,” said Fred Pond, an Ohio farmer in Van Wert and Paulding counties. “It’s as important as a tractor and a combine. I wouldn’t farm without it.”

Big money

The federal crop insurance program is a taxpayer-subsidized program that helps protect farmers against loss in income from poor crop prices or poor yields. Farmers pay about 40 percent of the premiums to insure their crops, according to the USDA Risk Management Agency.

Farmers have spent $38 billion out of their own pockets to purchase crop insurance since 2000, according to the Risk Management Agency. In 2013 alone, farmers spent nearly $4.5 billion to purchase more than 1.2 million crop insurance policies, protecting 128 different crops.

Program expansion

In Ohio, the percent of eligible acres insured went from 15 percent in 1994 to 68 percent in 2012. Numbers from other prime farm states are similar.

In 2012, a severe drought crippled much of the crops in the Midwest and drove crop insurance costs to a record $17 billion — prompting national discussion on ways to cut costs to the program as Congress began to consider a new farm bill.

Instead — after two years of debate — the new farm bill expands crop insurance by nearly $6 billion.

Under the new farm bill, the crop insurance program will cost nearly $90 billion over 10 years.

2012 vs. 2008

Ohio was not hit as hard as other states by the 2012 drought — crop insurance payments totaled over $407 million, according to federal data. By comparison, in 2008, crop insurance payments in Ohio topped $522 million.

A closer look at the payouts show how weather patterns impacted various Ohio counties.

Crop insurance payouts totaled $11.9 million in 2008 in Crawford County, in north central Ohio. In 2012, the payouts totaled $8.3 million, according to the federal data.

In southeastern Ohio, in Guernsey County, the payouts ranged from $386,658 in 2008 to $121,257 in 2012.

In Columbiana County, the payouts were similar in 2008 and 2012, totaling $1.4 million and $1.3 million, respectively.

Wood County, in northeastern Ohio, suffered more, weather-wise, in 2008 than 2012, judging by the payouts. In 2008, they totaled $15.3 million, compared to $4.4 million in 2012.

The same was true in Wayne County, where payouts totaled $3.6 million in 2008 and $1.8 million in 2012.

Risk management

Pond, a soybean, corn and wheat producer farming over 1,100 acres in Van Wert and Paulding counties, said his farming operation wouldn’t be what it is today — and might not have survived — without the cushion crop insurance provides.

Pond says the weather in his part of northwestern Ohio is more like what Indiana endures than most of Ohio and when the weather woes combine with clay soil, problems erupt.

He said crop insurance is the only way to steady revenue for a farming operation.

Collecting on losses

Pond said he has collected four of the last five years due to some weather effect on the crops. He said one year it was late planting, then dry weather, and another year it was too wet.

In 2012, he had 102-bushel per acre corn yields. In 2013, the yields were above the 200 mark and was the first year the farm did not collect.

Not every acre covered

One lifelong farming couple said cost is a consideration in their farming operation and that means not every acre is covered by crop insurance.

Marsha and Wendell Waters, corn and soybean farmers in Coshocton and Madison counties, said they carry the insurance only on their Madison County farmland.

The couple said the cost, which is calculated on the base of the countywide yields, stops them from getting coverage in Coshocton County.

Marsha Waters said they have collected only once and that was in 2012 during the drought that plagued western Ohio.

“We are very fortunate. We have had consistent yields,” she said.

In addition, their farming operation in Coshocton County does something that many Ohio farms don’t: irrigate.

“That’s our insurance,” said Wendell Waters.

Young farmer

In eastern Ohio, one young farmer considers crop insurance a risk management tool and nothing else.

Andy Wentling, a 1,200-acre corn and soybean farmer in Stark County, said he would still farm without crop insurance, he just wouldn’t be as comfortable doing so.

“It makes you sleep better at night knowing it’s there,” said Wentling. “2012 was a very good example of why you have to have it.”

He said his crops that year yielded 50 percent of normal yields.

“Without crop insurance, it would have been a bad year,” said Wentling.

As his family’s farming operation grows, Wentling said, crop insurance will become even more important.

Farm bill tradeoff

U.S. Sen. Sherrod Brown, D-Ohio, said crop insurance is necessary to make up for the loss of direct payments.

But the senator, who sits on the Senate ag committee, said there needs to be an end for subsidies for crop insurance.

“Taxpayers spend too much on crop insurance,” said Brown.

Brown said changes in the system mean it is a time for a change in farm operations, and the new farm bill eliminates direct payments to farmers in exchange for expanding crop insurance.

Revenue protection

Pond insures his crops for revenue protection. He said that way he knows the bottom line in February and develops his marketing plan around it.

He said the goal is not to collect on his crop insurance, but it is necessary to maintain farm operations.

“I don’t buy house insurance to collect on it and neither do I purchase crop insurance to collect on it,” said Pond.

He said it is an important part of the puzzle that makes a complete farm operation.

It is difficult for farmers to plan and make decisions when they don’t know what the end salary will look like, Pond added.

Having crop insurance lets farmers operate a business knowing what the bottom line will be.

“We are trying to feed the country and need to know what we are going to make,” said Pond.

Crop insurance rates

Ohio Farm Bureau Federation officials say that Ohio crop insurance rates are better than some states with higher loss histories, which tends to increase the amounts of coverage.

While not Ohio-specific, the biggest impact is the program’s capacity to spread risk, which Joe Cornely, senior director, OFBF corporate communications, thinks might enable some farmers to be more aggressive in building their businesses.

Crop insurance also makes it easier to borrow money — bankers are more willing lenders when there’s less risk.

Ohio economy

Cornely also pointed out another impact on the Ohio economy:  Because agriculture is the state’s largest economic sector, the insurance that protects farmers against income volatility is providing the same protection to local jobs/economies, and food prices.

Pond added there are not a lot of industries where you go to work one day and be wiped out. It can happen in farming due to the weather and tragedies such as tornadoes.

“Farmers take quite a risk,” said Pond. “It’s not wise not to have it. Farmers need the protection in order to survive.”

Farming has changed

The crops grown in Ohio have also changed since crop insurance became the norm.

Cornely said large-scale commercial crops are now much more stress tolerant.

“They still yield in the face of drought, flood, late planting, etc.  This is a testament to agricultural research,” said Cornely.

And Cornely said more vigorous crops mean fewer payouts.

A second change is that the Ohio crop base is now more diverse — including more direct-to-consumer crops, driven by the growth in small farms.

The changes mean farmers have to adapt their operations — and crop insurance providers need to build products that meet the needs of these types of farms.

(Kristy Foster Seachrist was one of 25 fellows selected to attend “Covering Big Agribusiness in the Heartland” — a workshop funded by the Robert R. McCormick Foundation and co-hosted by the Midwest Center for Investigative Reporting and Investigative Reporters Editors. The workshop, held May 30 – June 2, 2013, in Champaign, Ill., brought together reporters, editors and photojournalists to explore issues in agriculture. This story is one of several published or in production based on the workshop and its collaborations.)