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Published January 25, 2011, 01:42 PM

Crop insurance program sees changes, could face farm bill challenge

FARGO, N.D. — The federal crop insurance program is working reasonably well, officials say.

By: Jonathan Knutson, Agweek

FARGO, N.D. — The federal crop insurance program is working reasonably well, officials say.

But change is coming, particularly if the program is revamped in the next farm bill, some say.

“Everything will be on the table,” including federal crop insurance, in upcoming farm bill negotiations, says Mike Connealy, chief executive officer of ProAg in Amarillo, Texas.

Connealy spoke Jan. 17 at the 18th annual crop insurance conference in Fargo, N.D. About 200 people, most of them insurance agents from North Dakota and Minnesota, attended the event, hosted by the North Dakota State University Extension Service.

The federal crop insurance program, administered by the U.S. Department of Agriculture’s Risk Management Agency, seeks to protect crop producers from “unavoidable risk” associated with bad weather, crop disease and insects, according to information from the federal government.

Crop insurance policies are sold and serviced through private companies. The federal government subsidizes the program to keep it affordable, paying crop insurers $3.8 billion in 2009, according to the Associated Press.

Nationwide, 256 million acres were covered by the federal crop insurance program in the 2009 crop year, according to Michael Alston, deputy administrator for insurance services for the Risk Management Agency, who spoke Jan. 17 in Fargo.

Premiums paid totaled $7.6 billion, with $3.4 billion paid out in claims, for a 0.45 loss ratio.

In North Dakota, for crop year 2010, 24 million acres were covered, with total premiums of $663 million and claims paid of $405 million, for a loss ratio of 0.61.

In Minnesota, for crop year 2010, 17 million acres were covered, with total premiums of $625 million and claims paid of $73 million, for a loss ratio of 0.14.

Alston says crop insurance makes more sense than ever for farmers and that his agency will do its part to make the program successful for producers, insurance companies and their agents, consumers and taxpayers.

Views differ on SRA

The Standard Reimbursement Agreement, or SRA, is a contract between the federal government and crop insurance companies. It determines how losses in the federal crop insurance program are shared between the public and private sectors and how much the private companies will be reimbursed for expenses.

USDA and crop insurance companies renegotiated the SRA last year. USDA says the new SRA, which includes caps on agents’ commissions, will save $6 billion in premium subsidies in the next 10 years.

Alston says government officials listened carefully to what insurance agents and companies had to say.

Connealy says USDA conducted “a very effective public relations job” on the new SRA.

Complaining about the new contract won’t do any good, he says.

“It is what it is. It’s not going to get any better or any worse,” he says.

The new SRA includes a number of provisions that will squeeze the finances of crop insurance companies, he says.

For instance, companies will need a “huge” operating line of credit, he says.

Connealy predicts consolidation among crop insurance companies after the next year that has an underwriting loss, or deficit after all claims and expenses are paid.

He also predicts there will be a major push in the next U.S. farm bill to reduce spending on the federal crop insurance program.

“My opinion is it’s going to be all about the money. All the programs in the ag budget will be on the table, including ours,” he says.

Falling numbers

The Risk Management Agency has implemented falling numbers “quality adjustment discounts” for hard red spring wheat, durum and soft white wheat for the 2011 wheat crop, says Doug Hagel, with the agency’s regional office in Billings, Mont.

Hagel spoke at the Fargo event.

Falling numbers usually are associated with sprout damage.

The quality adjustments generally are based on Farm Service Agency Commodity Credit Corp. loan discounts, Hagel says.

However, the RMA is taking steps to prevent both kernel damage and falling numbers from being counted — or “doubling up” — in determining quality discounts for falling numbers, he says.

The agency also has clarified some language in policies involving prevented planting, or the provision that provides coverage when extreme weather prevents expected planting.