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Indemnity checks to spill into 2013

DANIEL LOOKER 09/20/2012 @ 4:02pm Business Editor

As some 5,000 crop insurance adjusters work through the claims from one of the nation's worst droughts, delays in the process don't surprise Rhonda Smith, Vice President, Insurance, for Farm Credit Services of America. Based in Sioux Falls, South Dakota, Smith and her staff are working with farmers facing losses in Iowa and South Dakota, although that edge of the Corn Belt has escaped the most extreme conditions.

"In northeast South Dakota our crops are doing pretty good, and even in central South Dakota they're not too bad," she said Thursday. But elsewhere, "we're seeing all kinds of situations, from aflatoxin to low yields to you name it." And part of northwest Iowa recently got hit by hail just before harvest, she said.

In her 20 years of working in crop insurance, Smith hasn't seen anything like this year. She wasn't working in insurance during the drought of 1988, but the industry has a heavier workload this year because in the 1980s fewer farmers bought federal crop insurance. Today, 90% of corn acres in Iowa and Nebraska are covered by crop insurance and it's more than 90% in South Dakota. And in 2011, more than half the corn acres in Iowa were insured at 80% coverage or higher. It's similar this year, she said.

Even though companies are shifting adjusters from areas where there are few losses, the industry is still struggling to keep up.

That means that some of the indemnity checks farmers receive for losses could spill over into the new year, into January or February.

"It really could. This is a huge claims year," Smith said.  

Steve Maulberger, vice president for integration with ADM Crop Risk Services agrees with that time frame. One sign of the volume is that more than 4,000 farmers attended meetings Maulberger's crop insurance company held in the summer at ADM elevators.

"We're going into potentially the biggest claims year ever," he said recently.

Adjusters working for ADM Crop Risk Services are using a smart phone app that allows them to use GPS for measurements in the field and to speed up the process.

Another potential delay is the three-year audit of a farm's yields if the claim for a crop is more than $200,000. The audit must be completed to receive indemnity payments. During the drought of 2011, audits were also required for large losses.

"Last year it was a small percentage. This year it's going to be a larger percentage," Maulberger said.

Smith daid that at this year's prices, even using the February futures average of $5.68 a bushel for corn, "there's a lot of producers that will hit that" $200,000 trigger for an audit. And when the USDA's Risk Management Agency sets the harvest price from new crop futures in October, the insurable value of crops will almost certainly be higher.

As an example, Smith says if a farm has a 125-bushel yield guarantee and harvests only 60, then the value of the loss would be 65 times $5.68, or $369. In that example it takes only about 542 acres to hit the audit.

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