2006 crop loss payments may double last year's: USDA
Eldon Gould, an Illinois farmer who is administrator of the U.S. Department of Agriculture Risk Management Agency, said Wednesday that early estimates of crop insurance indemnity payments for 2006 losses by U.S. farmers are likely to be twice as big as payments for 2005 crop losses.
The department asked his agency for an estimate at about the same time as the Aug. 11 Supply and Demand Estimate was released.
"Across the country, we came up with $4.6 billion, which is pretty high," Gould said while speaking in Des Moines, Iowa, to the national sales meeting of John Deere Risk Protection. "That tells me that, while we knew things are bad in the western half of the United States, they're even worse than we thought they were."
Indemnity payments for 2005 crops were $2.3 billion, Gould said.
Gould later told Agriculture Online that the loss estimates were compiled by his agency's regional offices and were based on conditions at the time of the August report. Since then, some private analysts have said that the nation's soybean crop has likely benefited from rains and cooler weather in the rest of August.
Gould said the crop losses were for winter wheat, which has already been harvested, but that the estimates also included losses on spring planted crops, including corn. The losses were worst in Texas, Oklahoma, Kansas and the Dakotas, Gould said.
Dennis Daggett, senior vice president for operations for John Deere Risk Protection, told Agriculture Online that the indemnity payments this year are likely to exceed premium income for all crop insurance companies.
That will not affect payments to farmers, since crop insurance companies have reserves for years when indemnity payments exceed premium income, as well has having their own backing by private reinsurance companies and by the USDA Risk Management Agency.
The Risk Management Agency's estimate of 2006 indemnity payments for crop losses was based on USDA's Aug. 1 estimate of yields and could change with later monthly estimates, says Tom Worth, a senior actuary at RMA's office in Kansas City, Mo.
Each of RMA's regional offices also had input into the estimate, Worth says.
He is uncertain if the $4.6 billion in expected indemnity payments to farmers was the largest in history, but it's likely to be among them. As much as crop loss, it also is a reflection of growth in crop insurance coverage. So far this year, the industry has collected $4.5 billion in insurance premiums, the largest amount ever. Last year's premium total was $3.9 billion.
A better measure of losses might be the loss ratio, calculated by dividing net crop losses by net book premium. So far this year it's about 1.03. In 1993, when flooding and excessive moisture caused widespread losses in the Corn Belt, the ratio was 2.19, or roughly twice as much paid out to farmers and as premiums taken in.
Worth says that RMA's target loss ratio is .88, which allows the industry to cover expenses and build reserves for payouts in bad crop years.