Grower complaints about crop insurance claims are as inevitable as the Great Plains' weather extremes. But despite gripes about timeliness and paperwork, insurance saved the farm for many hard red winter wheat producers this year. By August 20, Kansas wheat producers had received $231 million in crop insurance indemnity payments.
That's slightly more than 20% of the total liability of the Kansas wheat crop, and claims continue to be processed. Total wheat liability is up 40% compared to last year in Kansas. Crop insurance payments for wheat this past year in Oklahoma, as of mid-August, were nearly $111 million; payments were $58 million in Texas.
"If it wasn't for crop insurance, I'd be out of business," says Paul Penner, who farms 1,000 acres in Hillsboro, Kan. But Penner is still frustrated with the insurance program.
"What hurt us this year is after the April freeze, farmers wanted to assess the damage then kill the wheat and plant it to a full-season crop. But the adjusters dragged their heels," says Penner. "So all we had to depend on was crop insurance on those wheat acres."
Timeliness of payments also slowed down because claims of more than $100,000 necessitate an Actual Production History review, a labor-intensive documentation. It requires insurance companies to verify the past three years of production and acres used to establish the guarantee. "With high wheat prices, that now clips quite a few farmers, especially in hard-hit areas," points out Kansas State University ag economics professor Art Barnaby.
Quality issues continue to be a problem with crop insurance payouts. "It's better to have no crop than a partial crop," Barnaby notes. "The crop insurance industry uses discount tables to figure grain-quality discounts, but often they don't reflect market discounts at the elevator."
Texas has a class-action case in arbitration with more than 100 corn producers suing insurance companies that denied payments on aflatoxin-diseased corn in 2005. "[The Risk Management Agency that oversees crop insurance] has a new policy this year to address the problem that producers were not able to get a settlement at harvest," explains David Gibson, executive director for the Texas Corn Producers Board.
"If you have a quality problem, you can sell your corn at harvest, then take whatever price you get and apply that to the settlement," Gibson says. "Or, take half of what the insurance would pay on a yield discount and get paid within six weeks.
"Corn harvest in Texas is late this year, and we haven't seen how this will affect producers. I would think if you have a low aflatoxin problem in the 20- to 50-parts-per-billion (ppb) range, the new program would work well for you," Gibson adds.
The problem with grain-quality loss is there is not a consistent discount across marketing areas, he continues. "In cotton, you have a grading classification that's pretty cut and dry. With grain, it depends if your elevator can sort, isolate and blend the inferior-quality grain with higher-quality grain and ship it to your regular buyer. For poultry, dairy and human consumption, aflatoxin cannot be above 20 ppb. Up to 300 ppb, you can feed it to beef cattle.
"If you have an elevator that sells to poultry producers, it may not take 100-plus-ppb aflatoxin corn at any price," says Gibson.
Test weight was a big quality problem in Kansas wheat this year. "Some terminals would not accept wheat with a 50-pound test weight," reports Kansas farmer Penner. "Our elevator took it all but I got a 46-cent-per-bushel dockage on my 53-pound test weight wheat. (Wheat is normally 60 pounds.) Normally, the dockage on low test weight would be 25 to 30 cents per bushel, but they just couldn't get enough good wheat," Penner explains.
In Kansas "southeast producers were better off going from a spring freeze quality loss to a July rain/flood yield loss," says Kansas State's Barnaby. "If you have half a crop, low test weight and low-grade quality, your losses are likely greater than your insurance coverage.
"In 2002, it was dry in eastern Kansas; soybeans never developed. They were green and pea-size beans. The crop insurance adjuster calculated the dock and converted that to yield loss. Actually, the soybeans had zero value because the processors wouldn't buy them. But producers received only a 10-bushel loss for dockage for their insurance coverage," says Barnaby.