The eastern part of the Cornbelt will be filing crop insurance claims for the drought and the western part of the Cornbelt will be filing crop insurance claims for the flooding. But would you have crop insurance if it either cost more, or if indemnity payments were not as good? Those choices were strongly evaluated by the Members of Congress who are working on the 2007 Farm Bill. Crop insurance is seen as an expensive service to farmers that could be the source of money for conservation, nutrition, and other USDA services. What is the bottom line on the value of crop insurance for you?

One of the delays in Senate consideration of a new Farm Bill stemmed from difficulty in finding the funds to pay for the programs desired by the writers of the legislation. Both the Senate and House looked at sources of funding, a frequently the solutions seemed to be reducing Direct Payments for Cornbelt commodities and reducing expenses in the Crop Insurance Program. While the House version is set, the Senate debate is just beginning, and nothing will be safe until the House-Senate Conference Committee reconciles the differences. Crop insurance could get cut, changing its financial value for your operation.

The fall issue of the Iowa Ag Review http://www.card.iastate.edu/iowa_ag_review/fall_07/article2.aspx explores the workings of the crop insurance program, in relation to agricultural policy, but part of the article relates to every farmer who has carried crop insurance. Author Bruce Babcock says the crop insurance program costs $5 billion, and program crops make up 80% of the cost and that has been regularly increasing. As the program currently works, premiums are subsidized, insurance companies are reimbursed for their administrative expenses, and they are guaranteed a profit similar to other commercial underwriters.

Babcock says farmers will buy crop insurance if the benefits are greater than its price. Those benefits include the knowledge that the deductible will be covered, but since that is not enough Congress subsidized over half of the premium. And some farmers still do not carry it. However, for a farmer to break even on crop insurance in Iowa, Illinois, and Minnesota, about half of the premium has to be subsidized. Nebraska is at a 25% level, but farmers in Kansas and the Dakotas could breakeven on crop insurance even with 10-20% less subsidy. Babcock says, “Corn Belt farmers would not buy crop insurance if it were not heavily subsidized whereas farmers in important wheat states would have a profit motive to buy crop insurance even without premium subsidizes. Given that corn and soybeans together represent about 60% of the entire crop insurance program, it is only a bit of an overstatement to say that the crop insurance industry is selling a product with so little demand at its current price that without government price subsidies, there would be no viable market.” What many farmers are unaware of is the premiums they pay do not cover the costs the insurance companies incur as well as the commission for the agents who sell it. USDA and taxpayers pay those costs, but if not the premiums would be much higher.

With Congress considering reducing the subsidies for crop insurance premiums, more money would be available for other priorities, however it would mean that fewer farmers would buy crop insurance since it would cost more. The House version of the Farm Bill reduced the subsidies for GRP and GRIP, which Babcock says will mean many farmers will move to other crop insurance products that receive higher subsidies.

Summary:
Funding the Farm Bill is a complex process and Congress seriously is looking at shifting money away from the crop insurance program to other priorities. However, farmers currently see crop insurance as expensive, even though the USDA pays over half of the premium, plus reimburses the insurance companies for their administrative costs and gives them a profit. If funding were removed from crop insurance programs, it is likely that fewer farmers would sign up.