US drought may lead to record crop insurance payouts

The recent U.S. drought may lead to record crop insurance payouts totaling up to $25 billion in 2012, led by top corn-producing states Illinois, Indiana and Missouri.
Corn yields dropped by more than one-third in the top three states, and nationwide yields could top out at 122 bushels per acre — a 17-year low, according to the U.S. Department of Agriculture. Prices reached a record $8.49 per bushel in August, increasing insurance payouts, which often cover revenues based on both the magnitude of lost yields and the price of the crop at harvest. As of October 17, December corn futures were trading at $7.455 per bushel.
Of 96.9 million acres of planted corn, 67.2 million were covered by revenue protection, according to Keith Collins, a former Agriculture Department chief economist who currently works with National Crop Insurance Services. Farmers can protect up to 85 percent of their revenue with insurance. More than $2 billion has been paid out as of October 9, according to National Crop Insurance Services, with corn, wheat, cotton, soybeans and pasture seeing the most damage.
Among the nation’s top 15 corn-producing states, only Texas and Minnesota saw their productivity increase in the 2012 harvest year compared with their five-year average. Missouri yields fell 44 percent below the average and Illinois fell 42 percent. Indiana, South Dakota and Kansas all dropped more than 30 percent. Iowa, the top corn-grower in the U.S., declined 19 percent.

US crop insurance payouts near $11 billion for 2011

Losses paid out by crop insurance companies to U.S. farmers for 2011 crops have exceeded $10.7 billion and are still climbing, according to data from the Risk Management Agency, surpassing the previous record of $8.76 billion set in 2008 by almost 25 percent.
The top crops damaged, by dollar value, were corn, cotton, wheat, soybeans grain sorghum, pastureland and rangeland, and tobacco. The average loss ratio across the country is .90 — for every dollar purchased in coverage, 90 cents was paid out in indemnities — but some states are seeing much higher numbers. Vermont, which was hit by Hurricane Irene, is at 2.59. Texas and Oklahoma, which have been hit by extended drought, are at 2.35 and 2.15, respectively.
“With damages from [2011] approaching the $11 billion mark, the fact that there has not been a single call from farmers and ranchers for a federal disaster bill is testimony to the efficacy of crop insurance and proof that farmers and rancher consider it indispensible,” said Tom Zacharias, president of National Crop Insurance Services.

US crop insurance payouts pass $7 billion in 2011

U.S. crop insurance companies have paid out more than $7.1 billion in claims in 2011, which makes the year second only to 2008’s $8.6 billion in the total value of indemnities paid out to farmers. A combination of several large-scale floods in the Central U.S., record droughts in the southern plains, a strong tropical storm in the Northeast and a hard freeze in Florida combined to result in widespread agricultural losses, according to National Crop Insurance Services. Land covered under crop insurance has been rising since 1980, when Congress passed legislation designed to increase participation in the country's crop insurance program. By 1998, more than 180 million acres of farmland were insured under the program, representing a three-fold increase over 1988. By 2010, 80% of eligible farm land including all major grain crops and cotton, nursery, citrus, rice, potatoes and livestock, covering more than 256 million acres of farmland and valued at nearly $80 billion, were protected by private crop insurance policies.

New crop insurance plan to save billions

A new crop insurance plan would save $6 billion over 10 years according to an Associated Press report. The U.S. Department of Agriculture released the final draft of the plan, which projects reduced savings from its original proposal that saved $8.4 billion.
To realize savings, the plan cuts windfall government payments set off by sharp commodity price spikes. Crop insurance company administration and overhead expenses would be capped under the plan, but long-term return for these firms is projected at about 14.5%.