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Tuesday, July 17, 2012

Where Is The Federal Farm Program Safety Net When I Really Need It?


You have been in your fields checking potential yields.  Some fields did not pollinate, and there will be no income.  Other fields may have an average below 100 bushels per acre.  Some spots where the soil quality is good and a shower came through at the right time might yield over 150 bushels for a few acres.  However, it is likely very few Cornbelt farmers will be able to cover their production costs relying upon grain sales.  But what about farm programs and crop insurance, which make up the safety net that is supposed to catch those being dragged down by forces that are beyond the machine shed door…such as a drought of Biblical proportion?
(Editor’s note:  This posting does not contain data applicable to all Cornbelt states, but will be updated when those numbers become available, either wholesale or piecemeal.  However, data is available for Illinois and some of that may be applicable to your area, or at least provide an indication of whether there may be federal program benefits to seek.)
Current drought conditions that have decimated many crops in the Cornbelt will decimate many farm and family budgets and throw many families into financial turmoil.  Many crops will be unable to pay production expenses, cash rents may exceed gross revenue per acre, and land payments may be well beyond the ability of a budding farm owner to pay.  This is one year that the federal farm program safety net was designed for.  Does it have a tightly woven fabric that will catch everyone or does it have gaping holes that will let many farmers fall through?
University of Illinois economist Gary Schnitkey has been <a href="" title="calculating financial data "><b>calculating financial data </b></a>for many farms impacted by the drought, and says farm programs will be of little or no benefit to farmers in Illinois.
1) The SURE disaster program in the 2008 Farm Bill was not authorized for 2012 crops, so there will not be any supplemental disaster aid.
2) Some farmers signed up for the ACRE program, which has provided much less financial support than those who were expecting it.  And Schnitkey says ACRE will still be less than helpful in bolstering cash flow this year.  If you remember, it makes payments after the end of the marketing year, so any payments this fall would be based on the 2011 crop.  And 2011 crop yields and prices were generally very good.  Currently, the marketing year price for corn is $1.50 above the trigger price for ACRE payments and the soybean price is $3.50 above the ACRE trigger price.  Those trigger prices are based on state yields and a state has to have a low average yield to be anywhere close to ACRE paying any benefits that includes 2011 prices.
3) For farmers who did not sign up for ACRE and remained with the direct payments and counter-cyclical programs, direct payments will be paid for the 2012 crop, but counter-cyclical payments are based on trigger prices which are $2.35 for corn, $5.56 for beans and $3.56 for wheat.  It has been a long time since prices were that low, subsequently do not count on a counter-cyclical payment.
4)  Crop insurance will be the only federal safety net program that will be of any significant assistance.  Unfortunately, that will not include all farmers, since many do not subscribe to crop insurance.  And in the heart of the drought in Illinois, <a href="" title="Schnitkey "><b>Schnitkey </b></a>says 60% of corn acres and 50% of soybean acres were enrolled in the higher payment policies that will approach coverage of production expenses.  Thousands of farmers will not have an indemnity check coming to cover drought losses, and they are those who make up the 22% who have no coverage. 
Schnitkey says “Farms that have purchased Revenue Protection policies and GRIP-with the Harvest revenue option at high coverage levels could receive large crop insurance payments in 2012, thereby offsetting crop revenue losses from lower yields. These farms may not have as low as incomes as might be expected from a yield decline, partially because of insurance payments and also because prices may increase if yields are low.  Farms that do not have crop insurance at high coverage levels are more at risk for low incomes. However, price increases may offset some of potential decreases in yields. This offset assumes that not much of the 2012 crop has been already priced at what could turn out to be lower prices than during the fall of 2012. As a result, farms that did not purchase crop insurance and have hedged a great deal of the 2012 crop are particularly at risk for lower incomes in 2012.”
With fewer bushels to sell from a short crop in this drought year, many farmers will be challenged financially.  This comes while the Congress is debating how much to trim from the federal farm safety net in the next Farm Bill.  The disaster program was eliminated a year ago, ACRE will not pay based on 2011 prices and yields, and prices are not low enough for counter-cyclical payments.  Crop insurance is the only financial supplement for farmers, however there are many who do not have crop insurance policies for numerous reasons.

Posted by Stu Ellis on 07/17 at 10:54 PM | Permalink

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