 Next Generation Farming 
Issues focused on farm management, farm business trends and young farmers. |
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Is Crop Insurance Sustainable? |
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| Posted on March 12, 2013 |
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I came to a cold realization this week as I was figuring my crop budget for the year ahead. If wheat drops to $5/bu for the 2014 crop, I'd better start cutting hard on costs…now.
Some costs you just can't get rid of. Soil sampling, fertilizer, seed, fuel, and harvesting are all irreplaceable and are pretty hard to squeeze in any given year. The cost of chemical is going up, which will make bargain hunting on product even more crucial and generic labels more appealing. Replacing a few spraying operations with cheaper tillage is also more enticing (at the expense of reduced residue).
No matter how you cut it, making money at $5 wheat still is walking a very fine line, unless you consider cutting crop insurance coverage.
We're still wandering through the desert of one of the worst droughts in history with still no end in sight. We've therefore taken a much more conservative approach to our crop rotations here on our farm in west-central Kansas. Many fallow fields that ordinarily would be planted to milo this spring will be going back to wheat again this fall. Opting for a wheat-fallow-wheat rotation rather than traditional wheat-sorghum-fallow has reduced our risk exposure appreciably.
Because of our reduced risk, this could justify some cost-cutting on our crop insurance expense.
This raises a thorny issue about crop insurance. What if the lean times stay lean for a number of years and $5 wheat (or less) becomes the norm again? We frequently read about the dangers of being overexposed with risk on production costs and debt when grain prices drop and the ag economy cycles into recession. Will crop insurance be an expense we can continue to justify in the future?
For some farmers, crop insurance plays a central role in their crop rotations. I recently attended a seminar in Burlington, Colo., where a Colorado State University agronomist encouraged high-intensity cropping to maximize grain production via four-year rotations instead of less intensive wheat-fallow or wheat-summer crop-fallow. He immediately was peppered with questions from the audience of how this practice cash flows. He finally admitted privately that the only way for a high-intensity rotation to work, like wheat-corn-millet-fallow, is with the heavily subsidized crop insurance program.
But with crop insurance premiums rising, will this risky practice of high-intensity cropping make financial sense in the future? If premiums continue to rise, more farmers invariably will see it as an expense to shrink on their balance sheet.
Bearing in mind that it's the low-risk farmers reducing their coverage, this can't be good for the future of crop insurance if they continue to exit the program. There will be fewer and fewer low-risk farmers funding the failures of high-risk farmers, putting the program on a path of unsustainability.
Would asking Congress for more money to keep this program solvent be the prudent thing to do considering our nation's financial condition? Consider, also, the negative attention from main stream media that crop insurance is receiving, and the long-term future of crop insurance doesn't look promising.
If we want to control cost and keep the program viable for both high-risk and low-risk farmers, serious changes need to be made – particularly with restricting the high-intensity rotations that RMA currently allows. Otherwise, we're burning down our own house…and low-risk farmers are taking the cue and leaving.
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| Comments |
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| Anonymous |
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| You might want to double check your total cost of spraying. After including ownership costs like maintenance and depreciation, plus paying yourself for the time to operate it, your per acre costs are going to be much higher. Minus product cost, K-State estimates custom ground rig spraying rates at $5.49/acre for 2013. As for your chemical costs, I’m not sure what rates your using, but if you have problems with resistant weeds, it’s going to take more than just roundup and 2,4-D. A full rate of glyphosate plus 12 oz of Banvel, ½ pound of Atrazine and 0.1 oz of Ally, plus the application cost, comes to $15.25/acre. Undercutting, meanwhile, costs $8/acre. Tilling is nearly half the cost of spraying in this instance. -TE |
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| Anonymous |
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| Great comments on the last post! Another question, in what world is a tillage operation cheaper than a $3.50 round-up and 2,4d spraying. I use 1/10 of a gallon per acre of diesel to spray. What does it cost to pull that 4 wheel drive tractor and undercutter across the field???? |
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| Anonymous |
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| Wind: Most farmers around here still see rye more as a weed than a crop, especially the feral kind that gets into wheat. But, rye makes great forage and is a very winter hardy crop. Even better is triticale (a wheat-rye hybrid) in a blend with rye. Farmers here have had great success getting more tonnage per acre with that combination. Rye and triticale are not susceptible to rust like wheat is, so that’s another benefit. There are also the allelopathic benefits of rye that help with weed suppression. -TE |
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| Anonymous |
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| Not a insurance question, but why is not more winter rye grown in your area? We use it here in Iowa some for cover crops and the demand is growing every year along with the price. $15 per bu. or more. Does rye take as much water as wheat? Can it replace feed wheat? What about yield compared to wheat? Any rust problems rye after rye rotation?
Did I open a can of worms or a gold mine, or a recipe for failure?
Wind
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| Anonymous |
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| Regarding an earlier comment about insurance rates going down, that's great but does nothing to address the coverage being afforded to high intensity rotations with high loss rates. These losses are quickly capitalized into current rate structures. That means farmers who are doing a good job on their own of managing risk are being forced to further subsidize high intensity farming. Like Tanner suggests, if the system can't be changed, depart the system. |
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| Anonymous |
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| I talked to a crop insurance agent about these "insurance farmers" and he said, "I only know what I'm told". Maybe crop insurance agents should be asking more questions. By the way, since crop insurance is so heavily subsidized, who is looking out for the interest of the US taxpayer? |
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| Anonymous |
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| The university research I have seen from the plains states shows without a doubt that as crop rotations intensify, incidence of crop failure radically increases while crop yields drop like a rock. In local observations, the more intensive farm rotations are the ones with the most severe wind and water erosion. I am beginning to understand why cover crops are getting such attention--it is to keep no-till land from blowing into either Nebraska or Oklahoma. In addition, who is looking out for the interest of the American taxpayer who is getting stuck with the bill on these heavy subsidies. Numerous respected ag economists have pointed out that if we farmers had to foot the bill ourselves on the heavily subsidized crop insurance that none of us would buy it.Nothing like talking out of both sides of our mouth. As farmers I think we ought to be embarrassed. We criticize welfare fraud at the same time we're sticking it to the taxpayers and our neighbors with higher and higher crop insurance rates and subsidies. Give 'em hell, Tanner. |
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| Anonymous |
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| crop insurance premiums for 2013 corn and soybeans are down 7 and 9 per cent nation wide due to RMA re-rating. Wheat should follow this fall. With much lower anticipated prices for wheat, corn, soybeans, etc. 2014 premuims with be down significantly. Once again lowering the overall cost of crop insuance premuims. |
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| Anonymous |
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| You are a good thinker, Tanner, and exactly right on the final outcome! |
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| Anonymous |
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| "Is crop insurance sustainable?" The better question is, "What is the
sustainability of summer-fallow wheat in the western plains?"
If wheat production was so profitable why did US planted acreage decrease steadily from over 80 million acres in the early 1980s to around 50 million acres in recent years? And why did so many farmers in the western plains move from summer-fallow wheat to high-intensity rotations with mainly warm season crops? And why did the wheat growers associations beg the US government for significant subsidies and disaster payments? They were fairly successful most of the time
(except in the case of loan deficiency payments when they were handed an empty bag)!
Now that we are wards of Uncle Sam the only question is: Would it be better supporting farmers in the western plains with a $10.00 per acre direct annual payment or spend the ten dollars an acre subsidizing crop insurance?
Let's see what the government gets in each case for $10.00.
In the case of direct payments for summer-fallow wheat farmers,
the government gets continued deterioration of a great national soil resource. They paid for a lot of research thirty to forty years ago at ARS and land grant colleges that showed that across the Great Plains 40 to 50 years of summer-fallow tillage farming had resulted in about a 50% decline in soil organic matter, soil depth and soil fertility. Even without extreme wind and water erosion, tillage caused soil to creep down hill over time.
They also purchase mono-culture farming with its associated risks and yield drag.
Worst of all is subsidizing the false hope that in a modern world, where wheat can be ocean shipped halfway around the globe for a small percentage of its value, that Great Plains wheat farmers who have a cost of transportation to get to a ship on the ocean of at least twice that much can't compete with wheat loaded on the Black Sea ports.
Nor can big government repeal the fact that winter wheat is basically by nature a Mediterranean climate crop that grows best in mild and wet
winters. Around the Black and Mediterranean Seas and in the US Pacific Northwest an average precipitation of 16 to 20 inches with half or more occurring in winter will produce an annual wheat crop of over 60 bushels. In the western Great Plains a similar annual precipitation with only 1/3 or less falling between October 1 and April 1 will require two year of land use (summer-fallow farming) to average around 40 bushels.
If "we the people" decide not to spend the ten dollars subsidizing summer-fallow wheat production, but rather spend the same amount
to subsidize high-intensity no-till farming what will we get?
First, we can be sure that "everything the government subsidizes you will get more of, and everything the government taxes you will get less of". So no-till farming with multiple crops will increase. Soil will be improved for future generations instead of being degraded. Production will be increased to feed a growing world. Wheat is a C3 crop and is able to produce only about half as many bushels per inch of water used as C4 crops like corn, sorghum, and proso millet. Do yields in high-intensity rotation have a higher range of variation in yield compared to summer-fallow wheat? Of course they do! That is why
spending the ten dollars on subsidized crop insurance is exactly the place to spend it.
I have farmed essentially the same ground for 45 years. The first 22 years I was a summer-fallow wheat farmer. Production was about 25 bushels per acre per year (BPAPY). From 1974 to 1985 wheat farming was profitable and life was easy. I spent 7 or 8 months loafing in Texas and 4 or 5 months "suitcase" farming a little less than a thousand rented acres in Eastern Colorado. By the late 1980s it was obvious to all but the willfully blind that most of the profit had disappeared from |
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| Wheat's Big Problems |
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| Posted on November 30, 2010 |
| The Poor Start to this year's wheat crop spells bigger problems this winter. |
| Category: Wheat |
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| About The Writer |
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| Tanner Ehmke is a writer and agricultural producer in Lane County, Kansas, where his family has farmed since 1886. Located in the semi-arid High Plains of western Kansas, he grows dryland wheat, rye, triticale and grain sorghum in reduced-till and no-till systems. Tanner graduated from Kansas State University’s Master of Agribusiness program in 2011 after completing his thesis on seed wheat prices, and is currently in the Kansas Agriculture and Rural Leadership program’s Class XI. |
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