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Published August 20, 2012, 10:36 AM

Crop insurance

How many drought years will test program limits?

By: Mikkel Pates, Agweek

FARGO, N.D. — Last week, I was on assignment in northern Iowa and southwest Minnesota. It’s an area of the region that I have a special affection for. I saw the end of the go-go 1970s and the start of the farm credit crisis and the 1981 and ’82 beginning of the land value collapse.

I was in Waterloo, Iowa, on Aug. 14, the evening that President Barack Obama was there. Among other things, the president used the trip to urge passage of the 2012 farm bill.

From the windshield, the corn crop certainly looked tough, but there was more to notice close-up. I stopped and talked to a couple of farmers who were cutting silage.

One cattle and hog farmer from northeast Iowa, near a little town called Hopkinton, west of Dubuque, told me the corn he was harvesting for beef cattle feed would have substantial feed value. He said the saving grace for farmers this year is crop insurance.

It’s the same crop insurance that is being considered for cuts in the 2012 farm bill.

A seed salesman representative near Waverly, Iowa, getting ready for a field day showed me the showpiece outer cobs that had largely filled to the end. Ten paces into the field, we could see stalks that were still green and hanging in there, but cobs that hadn’t filled to the end or had those bare, “zippered” appearances on one side.

“Just kind of ran out of gas in there,” the seed man said.

Yes, it was a month early for cutting corn. Yes, the corn looked bad on the high ground, the light ground. But the yield percentage cut in high-tech 2012 still will make the crop bigger than the last big drought. Corn planting populations are higher.

Stability

Crop insurance has provided one of the major underpinnings for the revenue stability of farmland.

A thriving world market provides the fundamentals for the strength in commodity prices, but — make no mistake about it — the crop insurance is the floor. These contracts give lenders the confidence to finance crop production.

There will be lively debates — farmers argue among themselves — about how much their taxpaying brethren should have to subsidize the premiums that offer farmers the levels of security they’ve been enjoying. Some farmers have approached me with outrage that crop production today doesn’t involve enough financial risk of failure. They think the subsidy levels should be trimmed, but don’t say how much.

Defenders of existing subsidy levels make the point that the current levels of risk management have been built into the economic system — land values, multi-year rental contracts and equipment investments. If the levels of subsidy are changed, those changes need to be gradual enough so farmers who have made investments in good faith aren’t left hanging out to dry.

I agree with that. Right or wrong, the confidence from crop insurance is now “in the market” for land.

One land appraiser in Jackson County, Iowa, told me he didn’t doubt that farmland in northwest Iowa and southwest Minnesota has gone up 30 percent in the past year. Land values that were $6,000 a year ago are now in the $8,000- to $9,000-per-acre range. The Jackson County area values have been $7,500 and $10,000. One sale in northwest Iowa involved an 80-acre tract that went for $20,000, perhaps because of rivalry between relatives.

Many think it’s important to keep the federal renewable fuel standard in place and build in safeguards. I agree, but I think the bigger question for land values is how many years my favorite spots in Iowa and its “I-state” friends will suffer drought, and whether there is a limit to crop insurance.

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