Flooding, prevented planting would take higher toll on farmers without farm policy

If it wasn’t clear before the subcommittee meeting, it was after the panel of experts testified: Federal farm policies, crop insurance and ad hoc disaster aid are all part of the safety net that farmers need in times of disaster just like today.

The U.S. House of Representative General Farm Commodities and Risk Management Subcommittee met June 20 to hear how farm policy helps farmers in adverse conditions. Their witness list included Bradley Lubben, University of Nebraska-Lincoln Extension policy specialist; Leo Ettleman, a sixth generation farmer, Sidney, Iowa; Ruth Gerdes, president of Auburn Agency Crop Inc., Auburn, Nebraska; and Brandon Willis, former administrator of the Risk Management Agency under former Secretary Tom Vilsack, now assistant professor at Utah State University, Logan, Utah.

Historic weather events across the whole of the United States in the last 18 months have taken their toll. Compounded by a struggling farm economy, increasing farm bankruptcies, and uncertain trade playing fields, farmers just can’t catch a break.

House Ag Committee Chairman Rep. Collin Peterson, D-MN, said that while the farm bill is helpful, and crop insurance is doing a good job, and the market facilitation payments are available to farmers, these aren’t solving the problem of farmers who can’t get into any field to plant any crop.

“I’m worried because in my part of the world, some people haven’t planted their whole farm,” Peterson said. Farmers survived the last couple of years of low commodity prices because they had big crops to fall back on, he added. But, he said bankers are starting to reach out to him with worries about whether or not they can finance farmers going into the winter.

A perfect storm

Lubben, who is also the director of the North Central Extension Risk Management Education Center at UNL, Lincoln, Nebraska, said that the losses of life, livestock and property from the Bomb Cylcone in March are estimated to be in the hundreds of millions of dollars. That would be tough to overcome in a good year, but current farm incomes were projected to be substantially down even before the events of this spring, he said.

“In many instances, it’s conditions that we have not seen since the 1980s,” Lubben testified. “We certainly are seeing the lowest farm income since the late 1990s. Not coincidentally then we also had lost export markets and disaster assistance was increasing back then.”

To put it in other terms, Lubben explained that this is the strongest, deepest downturn in real farm income in a couple decades, but it comes after a very strong balance sheet.

“The aggregate numbers show the total farm sector balance sheet still looks strong, from low debt to asset ratios,” he said. “But a portion of producers are leveraged. The segment that is borrowing is young, or producers growing aggressively, or producers leveraging to buy equipment and land and are exposed to bigger cash flow needs because they have rented acreage.” This means that if farm safety net programs and crop insurance and ad hoc disaster relief weren’t available, there would be even more farmers in trouble than are today.

“Calls to the stress hotline in Nebraska and elsewhere are increasing,” Lubben testified. “We see evidence of liquidation.”

Lubben testified that if President Donald Trump’s proposed budget for 2020, which reduces the federal government’s portion of crop insurance from 62 to 48 percent and cap underwriting gains at 48 percent for crop insurance agencies, were to be realized, that would put more price pressure on the producer.

“We understand that crop insurance as it currently is delivered is a cost share between producers and the federal government,” he testified. More price pressure on the producer would reduce participation rates, and while that would look good on paper, and bring down the federal cost, that would place more emphasis on ad hoc disaster relief that depends on the whims of Congress after the fact.

A farmer’s perspective

Ettleman farms a half-mile from the Missouri River in southwest Iowa and he has seen floods, but this year was just abnormally devastating.

“We have hundreds of thousands of acres of farmland still under water,” Ettleman said of his state. “We ourselves have 85,000 bushels of corn, worth $450,000 stranded, with at least the bottom 14 inches of the grain storage structure rotting.” The financial burden of farmers with corn rotting in bins due to flooding, he said, is even more desperate because many owe money against that 2018 grain that is in those bins.

“This year’s event is unique because in 2011 the historic flooding came in June or July, after the crop was planted,” Ettleman testified. “We lost that crop. In 2012 and 2014 we had decent crops and good prices so we could recover a little financially. But this year it affected the 2018 crop in the bins, and we now have an extreme amount of prevent planted acres.”

Insurance agents on the ground

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Gerdes testified that her agency writes crop insurance policies for 1,800 farmers and they’ve been working non-stop since the Bomb Cyclone hit the Midwest in March.

“We’re a month after the flooding and we’ve since had an additional round of flooding as bad or worse,” she said. “In order to get to Rockport, Missouri, a trip that would take me 20 minutes, now takes me 3 hours and I have to drive to Omaha or St. Joe because most of that ground is under 3, 5, or 6 feet of water. To settle claims we have to use drones.”

While some agree that crop insurance has its benefits, as an agent Gerdes identified one thing that’s been done to the detriment of prevented planting provisions.

“The OIG at U.S. Department of Agriculture’s audit concluded based on just five years of the highest prices of the commodity that prevent plant should be lowered,” she testified. “One average farmer in 2012 was guaranteed $553 under prevent plant. With these changes forced on the industry, that dropped to $330 on the exact same farm with higher APH.

Gerdes also testified that as prevented planting acreage reports start getting filed, there’s going to be another unexpected hit to crop insurance that few might have seen coming.

“As these farmers start to file acreage reports, in some cases, their entire farm has been flooded,” she said. “They may have signed up for enterprise units and they are unable to get even 20 acres planted in two different sections to meet the requirements. In that case, their premium will double, and in one instance I ran the numbers and the premium goes from $26 per acre to $99 per acre next year.” That will inevitably hurt participation in the coming years.

Bottom line

Willis testified that farm policy may not get everything perfect, but it gets a whole lot right.

“It benefits our nation’s farmers, consumers and taxpayers to have a safety net for our nation’s producers,” he testified. Over the years, crop insurance has kept many more constituents in business than many in D.C. may realize, he added.

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].