High Risk, High Subsidies
Bankers and analysts said the key element of crop insurance - how much the government will subsidize farmers' insurance premiums - had not been weakened in the long budget wrangle. USDA will still pay up to two-thirds of the price for crop insurance premiums, with the subsidy going directly to the insurers.
"Generally the cost sharing is about 60 percent by USDA," said Barrett, using a premium example for farmers in Nebraska of $60 an acre "where they are paying $22-24 an acre out of their pocket."
Farm bankers and farm industry groups argue that the weather risk in farming, aside from any crop pests or disease, requires substantial insurance aid for farmers.
"Without government backing, it is unlikely that any insurance company would offer the coverage because the risk is too high," the National Corn Growers Association said in a statement. "Most farmers in the Midwest have paid far more in crop insurance premiums than they have received in claims."
Gary Schnitkey, extension economist at the University of Illinois, said that since the farm bill does not change any crop insurance programs for 2014 from 2013, most grain farmers in Illinois, the No. 2 corn and soybean state behind Iowa, will use a standard revenue protection (RP) policy covering 80 to 85 percent of projected earnings, based on historical yields and prices.
Asked if bankers, with the recent drought, would demand that grain farmers buy crop insurance before obtaining loans for planting, Farm Credit's Barrett said: "Each loan request is looked at on its own merit. There are some loans that we would require crop insurance. But we cannot require that they purchase crop insurance from us."
For the 2012 crop, a drought year, insurance payments totaled $17.4 billion, or 12 percent of USDA's annual budget of about $150 billion. In 2013, with a bumper harvest, payments were $10.7 billion.