Prevented-plant sticker shock
BILLINGS, Mont. -- Some farmers in the prairie pothole region are starting to complain about sticker shock from rising rates for prevented-plant crop insurance coverage, says Doug Hagel, outgoing regional director for the U.S. Department of Agric...
BILLINGS, Mont. -- Some farmers in the prairie pothole region are starting to complain about sticker shock from rising rates for prevented-plant crop insurance coverage, says Doug Hagel, outgoing regional director for the U.S. Department of Agriculture's Risk Management Agency.
It's particularly a concern again because this might be another big year for prevented-plant acres in North Dakota and South Dakota, although Hagel's region also includes Montana and Wyoming.
The Farm Service Agency isn't making estimates on prevented-plant acres in North Dakota until the end of July or early August. RMA doesn't come up with figures until the end of October.
"When they passed the prevent-plant provisions law in the 1990s, the intent was that no one would get more than two years in a row of prevent-plant coverage," Hagel says. Since then, some guys have gotten paid 10 to 15 years in a row on the same piece of land.
In 2012, the RMA proposed to require that a farmer had to plant a crop on a piece of land at least once in the past three years in order to be eligible for prevented-plant insurance. Because of concerns raised especially by U.S. Sen. John Thune, R-S.D., and others, the rule was changed to one in four years.
Initially, RMA policy writers included additional requirements, including a "normally eligible for planting" rule, and what became known as the "cattail policy" and prevented eligibility if water-loving plants were present on the soil.
The one-in-four rule requires that the land be planted, insured and harvested in each of those prior four years.
"We're getting a lot of questions about that," Hagel says, saying farmers are always looking for ways to maximize returns. "It's essentially people trying to figure out if they can put in some kind of other crop -- millet or oats, for example -- and harvest it as hay. We're saying it has to be harvested as part of the policy, for grain."
Premium rates for prevented-plant coverage continue to climb in the areas that have had repeat losses, Hagel says.
"We try not to raise the rates more than 10 to 15 percentage points a year -- 20 points is the max," he says. "We're behind schedule for raising rates in a number of counties, so they're continuing to climb because of this loss history. Until they stop having losses for three or four years, their rates are going to keep rising."
The average coverage level is 60 percent for prevented-planting, but can go up to 70 percent in 5 percent increments, Hagel says.
Feeling the cost squeeze, some farmers have been lowering their coverage or going to coverage on enterprise zones, which gives them one unit of coverage per county for a particular crop. Otherwise they have coverage by section, or per square mile, which gives farmers more spot loss protection for small areas of a unit. Some purchase hail coverage to make up the difference.
The RMA typically designs programs for a 15 to 20 percent premium charge, meaning a payout of 15 to 20 cents on $1 of total premium, which is partially subsidized. In areas that have had a lot of prevented-planting, the premium charge is up to 50 to 60 percent in premium for every dollar paid out in losses, Hagel says.