As farmers plan for 2015 planting season many are concerned that low yield history will limit insurance coverage and ability to secure financing

As farmers plan for 2015 planting season many are concerned that low yield history will limit insurance coverage and ability to secure financing.

Farmers insist RMA has ample time to implement APH adjustment for 2015

With crop insurance now the basis of loss protection, the lower yield history presents a financial hardship to many produces.

As farmers prepare to plant winter wheat in a few weeks and begin making plans for spring crops they also begin adjusting to a farm law that’s radically different from any program they’ve ever used.

The Agriculture Act of 2014 replaces direct and counter cyclical payments that have been the warp and weave of farm safety nets for decades with a new program that relies on crop insurance to cover losses.

Farmers sacrificed a lot of security to achieve the best program they could get in an environment of budget cutting and reluctance to compromise in Congress.

Farmers also come into the 2015 planting season still struggling to recover from devastating drought, floods and cold injury over the past few years. Southwest farmers, particularly, prepare for spring planting after suffering through almost four years of the worst drought most had ever witnessed.

Those disasters had the immediate effect of limiting farm revenue, for several years in many cases. Countless producers would not have survived without crop insurance. A longer-term impact, however, may be equally debilitating to farm stability. Those disaster years eroded farmers’ yield history, on which insurance coverage and premiums are based.

With crop insurance now the basis of loss protection, the lower yield history presents a financial hardship to many produces. A provision, the actual production history (APH) adjustment included in the farm bill, addresses this issue by allowing producers to “exclude any year from their insurable production (APH) if the county’s yield per planted acre for the crop in that year is at least 50 percent below the previous 10-year average of the yield per planted acre for the crop in the county. This also applies to contiguous counties and allows for the separation of irrigated and non-irrigated acres.”

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Farmers say this provision, especially with lingering drought, could be crucial to producers for 2015 crop claims.

And then the other shoe drops. RMA insists they cannot find the time for the necessary accrual studies and software updates to facilitate these changes until the 2016 crop year.

RMA explains their reasoning in a Q&A section on their webpage.

“RMA will have the Supplemental Coverage Option (SCO), Stacked Income Protection (STAX), beginning farmer and rancher provisions, coverage level by practice, enterprise units by irrigation practice, conservation compliance, whole farm revenue insurance, and native sod provisions implemented for the 2015 crop year. “

But…

APH adjustment will require significant modifications to RMA's business support systems and will require RMA staff to evaluate the impact this change will have on program actuarial soundness and the existing premium rating methodology. In sum, while RMA desires to have APH adjustment ready for the 2015 crop year, RMA is unable to implement this provision given the current time and resource constraints.” (Bold print added by editor.)

Farmers call BS

Farmers and their organizations aren’t buying it.

Dale Artho, a Texas High Plains grain farmer from Wildorado, believes RMA is turning its back on rural America by delaying implementation of the APH adjustment.

“I thought we were part of the food security system,” he said. “I understand what RMA is doing. Because of recent crop losses they want to push it down the road. But they are not fulfilling their obligations in the farm bill.”

Artho says the Southwest, and the High Plains especially, need the adjustment to provide adequate insurance coverage at an affordable price. Losses over the past three years have been catastrophic.

“I haven’t harvested dryland wheat for the past two years,” he said. “In 2014 I destroyed 100 percent of my dryland wheat crop.”

Artho says the APH adjustment would mean a 20 percent increase in his insurance coverage. “And 20 percent over 2,000 acres means there’s a lot at stake for dryland producers.”

He figures the difference could be as much as $80,000 on his acreage. And he’s convinced that RMA could get the analysis done. “They have time. They know what the yields are; our insurance companies know our yields.”

He’s concerned, too, about how the delay will affect young growers, some of whom have had nothing but bad years since they started farming. Their ability to finance the crop may be more sketchy than for experienced producers.

Artho says times have changed since droughts of previous decades destroyed crops. “Back in the 1930s benefits were different and farmers operated on a different set of rules. So did bankers, who understood that keeping farmers on the land was beneficial to the community. With today’s rules and regulations, that’s not always the case.”

Cotton’s Case

Steve Verett, Executive Vice President, Plains Cotton Growers, Lubbock, says the APH adjustment is especially important for cotton farmers. “Crop insurance is all cotton has,” he said. “We have no PLC, no ARC, so insurance coverage levels are critical. When cotton farmers go in to see their lenders this fall and winter, all the lender has to look at is cash flow and what insurance will cover.”

He’s convinced that the Risk Management Agency has time to pull numbers together and have the APH adjustment option in place for the 2015 season.

“We’ve been talking to RMA since early April and telling them how critical this is. It’s important to any crop grown in the Southwest, but it’s crucial for cotton. Coverage levels are critical.”

Verett said RMA has known since February that APH adjustment was part of the farm bill. “It’s a feature of the farm bill. Everyone knows that; implementation is the issue.”

The American Cotton Producers passed a resolution at their recent meeting to “do everything possible to assure that APH adjustment is implemented in 2015,” Verett said.

He also noted that Southwestern producers have been the most vocal about the need for immediate implementation. Their urgency comes from three years of drought-damaged crops and resulting losses that drastically affect producers’ yield history and insurance coverage levels. He said farmers in other cotton-producing areas may not be as adamant about having the program in place next year.

“But this is not a one-time opportunity,” he said. “It is part of the farm bill and is a permanent provision for APH calculations.”

Farmers who have produced normal or near-normal yields for the past few years may not see the urgency but “this adjustment will apply in the future,” Verett said. “It’s not just retrospective.”

He explained that before the adjustment can be triggered the county has to suffer a yield that is below 50 percent of the 10 year average for the county. “We’ve have experienced that in many counties (in the Southwest) over the last three years. That’s what this adjustment is meant to address.

Funding available

“We urge RMA to get it done. We realize that they have had a lot put on their plate with Supplemental Coverage Option for all crops and STAX for cotton. STAX/SCO are done and have been announced and we urge them to complete the APH adjustment.”

He said RMA may be “making this more complicated than it needs to be. While doing the calculations for all crops in every county is no small undertaking, Congress did allocate extra funds for implementation and with today’s technologies and data readily available, it is achievable.

“Once the calculations are done, the information can be shared with the Insurance Providers where they can do the new APH calculations.”

He suggests that insurance companies may be questioning how the APH adjustment will affect risk and rates. “We think that’s already built in.”

Under current procedures, a grower can substitute any year’s yield when his/her yield is less than 60 percent of the county T-Yield, resulting in an adjusted APH from the true or actual yield history.  However, the rate yield is still calculated on the actual yield, not the adjusted APH used for coverage levels purchased, resulting in a higher rate. This will be the same procedure used with the new APH adjustment procedure.

“We feel like this is adequate to offset concern about risk and rates,” Verett said.

He thinks the risk and rate issue is a big part of why the adjustment implementation is being held up.

Verett believes RMA has ample time to implement the APH adjustment for all crops, but he says cotton is in dire need, especially with current low prices.

“While we know this APH adjustment is important to all Southwest crops, it is especially critical for cotton,” he said. “It’s going to be tight for cotton farmers when they go see their bankers, especially if cotton prices stay low.” He contends that while other crops also need the APH adjustment, they have other safety net programs—ARC and PLC. “With the 2014 Farm Bill cotton has only crop insurance, including STAX. And with potential for lower crop prices and lower insurance coverage levels without the APH adjustment, just arranging funding to get the 2015 crop planted will be a challenge.”

Wheat growers

The Texas Wheat Producers also take issue with RMA’s reluctance to implement the APH adjustment as per the farm bill.

In a statement to Farm Press, TWP said: “Crop insurance has become the go-to tool for producers, but without important measures like the APH adjustment, the coverage offered doesn’t add up to average production expectations.

“Today, farmers are being penalized because a persistent, one-in-eighty-year drought is included in their ten-year production history. In agriculture, weather disasters are part of the business, but they should not diminish the risk management available through crop insurance.

“Without the ability to exclude terrible yields from disastrous years, a farmer's APH plummets; in turn, the amount of yield a producer can insure in future years will also drop significantly. 

“During debate of the new farm bill, farmers supported changes that shifted emphasis to the crop insurance program. They did so by acknowledging the critical improvements such as the APH adjustment that would bring their crop insurance guarantees back in line with the productive ability of their land.”

Farmer perspective

David Cleavinger, a farmer in Wildorado, in the Texas Panhandle, plants an average of 1,200 acres of wheat each year. After multiple years of devastating drought, he has seen his crop insurance coverage erode.

“I haven't harvested an acre of dryland wheat since 2010,” Cleavinger said. “The drought developed in 2011 and hasn't let up. It is tough to go year after year without making a crop, especially when I see those yields decimating the most important form of protection I have.

“I ran the figures on one dryland wheat section in Deaf Smith County, and by dropping the yields from three qualifying years I would be able to increase my APH from 23 bushels per acre, to 28.”

At $6.50 wheat, the adjustment would correspond to $32.50 per acre of crop insurance coverage that he is not eligible for now but that his land is capable of producing under average conditions.

South Texas

Catastrophic losses are not confined to the High Plains but extend across the Southwest. “This is a huge issue for our growers,” says Jeff Nunley, executive director, South Texas Cotton and Grain.

Multi-year droughts in South Texas have taken a toll on farm income and on farmers’ insurance coverage. “It’s easier to count the good years than the bad ones,” Nunley said. 

The APH adjustment would help the recovery. “That would help us weather the storm, especially with low cotton prices. A 20 percent to 30 percent cotton price decline could be offset by the APH change—zero out the year when the county average falls below 50 percent of average.

The adjustment could affect a grower’s ability to secure funding for the 2015 cotton crop.” Nunley says of immediate concern will be wheat farmers, “starting now to prepare for 2015 crop planting.”

He agrees with Verett that cotton is particularly vulnerable. “From 2015 on, all (the protection) that cotton farmers have will be insurance-based—STAX and SCO. Cotton growers had hoped to make up some deficit in price with the higher yield history from the APH rule included in the Agriculture Act of 2014.

“It’s beyond belief that RMA says it has not had time to get it done,” Nunley said “They have had since Feb. 1. They chose to focus on the punitive measures in the farm bill, conservation compliance, for instance, where they found that 95 percent of farmers were in compliance.

“But 40 percent of the nation’s cotton crop is in jeopardy. Some farmers may not get financing. Who bears responsibility for that? I’ve been beating my head against a wall for several months. RMA has had time.”

He said in several recent years “we made no cotton in the Coastal Bend.”

Regional approach

In addition to the possibility of singling out cotton because it has no safety net other than crop insurance, some have suggested that RMA concentrate on the Southwest—arguably the most hard-hit section in the country over the past four years of persistent drought—for implementation in 2015. In a letter to RMA Administrator Brandon Willis, wheat producers associations in Colorado, Kansas, Oklahoma, and Texas implored RMA to concentrate on areas hard hit by recent, persistent drought.

An excerpt from that letter reads: “If it is not feasible to implement these provisions nationwide for the 2015 crop year, we ask that they be implemented for growers in states experiencing persistent drought to provide growers the needed benefits of the new provision while not over-burdening your agency.”

APH implementation unlikely for 2015

Joe Outlaw, Texas AgriLife Extension economist and Co-director of the Agriculture and Food Policy Center in College Station, sees little chance the adjustment will be ready for 2015.

“Don’t count on it for next year,” Outlaw said. “It’s a contentious issue. As of now, it will not be available for 2015.”

He explained to a group of wheat producers at a conference in Abilene recently that the adjustment would allow farmer to not count any production from a year when county average drops below the 10-year average. “It also allows for separation of dryland and irrigated acreage.

The exclusion would be good for our area of the country with significant drought losses. It is controversial.”

Farmers and their associations agree that the issue does stir up controversy, but they contend that farmers may suffer significant losses from the delay. Some imply that crop insurance companies prefer to push back implementation to avoid the potential higher payments. A Farm Press request for comments from the National Crop Insurance Services was declined.

 

 

 

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