Crop Insurance Reduces Pain for Drought-Stricken American farmers
By Daniel de la Rosa
It's the worst drought to hit the United States in a quarter century, and it has hammered farms across the country, turning once-promising corn stands into shriveled husks and hay fields into dust bowls.
On July 10, 2012, the U.S. Drought Monitor confirmed that the top 10 corn producing states are experiencing various stages of drought. Nationally, it showed, nearly 80 percent of the contiguous U.S. is experiencing some level of drought, with nearly 40 percent of that considered severe to exceptional.
However, there are differences between this drought and those we've experienced in the past. Advancements in technology such as the implementation of irrigated land systems have managed to save some of the crop, while advancements in policy may have just saved the future of the industry.
One of those advancements, and arguably the most important, is crop insurance.
Crop insurance is the most popular risk management tool for farmers, and the key to financial stability, enabling them to supply food and fiber to our country despite severe weather and other challenges that impact their business.
In fact, nearly every major commodity group has (literally) testified to the fact that crop insurance must not be touched during the ongoing 2012 Farm Bill process, as it is the most efficient and cost-effective option in the face of disaster and often the only thing standing between losing the farm and being able to plant another season.
Farmers like Jon Drozd in Allegan County, Michigan, say crop insurance has been a life-saver this year. "It will help keep you in business," he said in a YouTube posting for the Kalamazoo Gazette.
The current drought is testing the crop insurance system like never before, but the system continues to work exactly as it was designed to. In spite of crop insurers paying a record $11 billion in 2011, they have assured farmers that they will come through this year as well.
"The farmers who suffer crop losses from this drought, or any other covered peril, can rest assured that crop insurance indemnities will be paid timely," said Tom Zacharias, president of National Crop Insurance Services in an industry newsletter.
And it's a good thing, too. USDA Chief Economist Joe Glauber recently said that "49 percent of the corn crop, 50 percent of the soybean crop, and 45 percent of the hay crop are all in areas that are experiencing drought," adding that a lot of that area is actually in the "severe drought" category.
These reports prompted the USDA to trim its estimate of U.S. corn production in 2012-2013 to 329.45 million tons, down from the June forecast of 375.68 million tons.
U.S. corn exports of 48 million tons in 2012-2013 were then cut by more than 16 percent, decreasing the U.S. share of the corn export market from 46.4 percent in June to 41.04 percent in July.
In a massive drought that's getting worse by the week, a year like this could wipe out a lot of good farmers, making the weather conditions out West a major problem for grocery shoppers everywhere.
Fortunately, Patrick Westhoff, director of the Food and Agriculture Policy Research Institute at the University of Missouri, said the impact of the drought will be lessened for those who have crop insurance, enabling them to plant again next year.
"For crop producers with adequate levels of crop insurance, the drought may not result in significant financial losses, as the combination of higher prices and crop insurance payments should leave them about as well off as they would have been if everyone had harvested a normal crop this year," Westhoff said.
But the "relatively small minority" of farmers who opted to go without any safety net "will be very severely impacted" by the dry spell, he added.