Initial crop insurance prices are near year-ago levels. The initial crop insurance rates are based on futures prices recorded during February. The result is a corn price of $5.65 per bushel, a soybean price of $12.87 per bushel and a spring wheat price of $8.44 per bushel. Farmers can buy a harvest price option that means the price used to calculate payments is based on the higher of the initial price and the price at harvest. This option significantly boosted payments for the 2012 crop as the result of the severe drought. The initial prices are all well above the USDA’s cash price forecasts for the three crops released as a part of USDA’s annual Outlook Conference a couple of weeks ago. Initial prices are very close to those set a year ago, but production costs are increasing.
High insurance prices will keep acreage high in 2013. The cutoff date for buying crop insurance for most spring planted crops is March 15 but reports from the field indicate that a higher percentage of farmers are signing up for crop insurance this year and many farmers are raising the insurance coverage levels. In 2012 a little more than 85 percent of the eligible acres were covered by some crop insurance policy. Even with the big payouts following the poor crops in 2012, many farmers in the Midwest are seeing lower insurance premiums for 2013. The losses associated with the 2012 crop have not yet been factored into the calculation that determines premiums. Farmers pay about 40 to 45 percent of the premium with the government paying the rest.
Congress may reduce crop insurance funding in future years. In recent years, and especially in 2012, the costs of the crop insurance programs have increased dramatically. Throughout last year’s debate about the new farm bill, farm groups and members of Congress from states with large agricultural sectors argued that the crop insurance program should be protected, and maybe even expanded. However, with budget pressures increasing, there is rising pressure to reduce the government’s costs of the program. The President and several members of Congress have proposed reducing the premium subsidies and lowering that amount of tax money provided to crop insurance companies.