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All I Want For Christmas Is a New Farm Bill

Dear Congress, 
What I would like for Christmas is a New Farm Bill! 
Sincerely,
Curt

 

One of my favorite things about living in South Dakota is the changing of seasons. While we can be burning up, working in the sun on a 95o summer day, we take comfort in knowing that in 6 months, we will be wearing 3 layers of clothing doing our best to stay warm in -10o while doing the exact same tasks.  The yearly seasonal weather extremes that are encountered in the Midwest reinforce the need for a strong crop insurance program to be included in the next Farm Bill.

The time for action is now as the Agricultural Act of 2014 – known widely as the Farm Bill – has expired and farmers are making their projections for the 2019 crop year. Funding for Multi-Peril Crop Insurance subsidies is included in the Farm Bill and widely used by farmers in South Dakota to help protect some of the risk that is inherent when raising crops in the upper Midwest. A farmer that operates 1000 acres and has a corn/soybeans crop rotation may invest between $300-500 per acre over the course of a growing season depending on crop type and yield goal. He/she invests the same dollar amount as the market price of a nice $300,000-$500,000 house. Farmers put that amount at risk every single year they farm.

Opponents of crop insurance generally voice the concern that subsidies for the farmer’s premium is too generous. The big fact often missed in many discussions about crop insurance funding is the level of loss incurred by the farm operation before any loss indemnity is paid to the grower. The typical deductible that SD farmers choose on their crop insurance policies is 25% or a 75% coverage level which keeps the cost of their crop insurance in the realm of affordable. This means the farmer must incur a loss of between $75,000-$125,000 before any payment is made on their policy. The same catastrophic weather events in this area that cause home damage consequently cause crop damage. If, in comparison, I had a $400,000 home, a common deductible on my homeowner’s insurance policy would be only $1000-$5000.

Since the adoption of crop insurance by a majority of farmers in the US, we no longer have ad hoc disaster relief bills coming thru Congress. Disaster relief comes after the fact and seems to always be offered to everyone, even though they have not contributed toward the funding.  With crop insurance, farmers choose their deductible, pay their premium, and are then paid in the event of a loss only up to your coverage level. Farmers pay a fair share of the premium and, many years, never have a loss (which is always the goal of policyholders.)  No farmer ever wants to incur a loss on their policy. They also understand that if there are fewer loss claims, there is a lower loss ratio, and, therefore, lower premiums – a win for everyone involved!

Our great country’s ability to have a sustainable and stable crop insurance program helps to ensure that farmers are willing AND able to continue providing the cheapest (based on % of annual income) and safest food supply in the world.  We hope that if the lame duck Congress doesn’t pass a Farm Bill, the new mix in Washington D.C. can come to common ground and quickly pass this important legislation in the New Year.

Featured Image Credit: J. David Ake

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Farming with the Odds

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As I sit down to write this month’s article, my TV is tuned to the local news station while I await the winning Powerball Lottery numbers for the historic $1.5 billion jackpot. Like most people who purchased a ticket, I spent a few minutes (ok, maybe more than a few…) daydreaming about how I would spend the winnings if my numbers were chosen. Thankfully the subzero temperatures outside the store snapped me out of my fantasy of being on a yacht in the Caribbean. I eventually decided that I would keep farming until it was gone! While farming can sometimes feel like we are just playing the lottery and gambling on making a profit, there are a few main principles of risk management we can all follow to up our odds.

First, we need to know our costs. As this point in the 2016 crop year, we should already know what our seed, fertilizer, equipment payments, rent, and chemical prices are. There will still be some unknown variables, but we can come up with a close estimate of what each acre will cost to get the crop in the ground and off to a good start. This number may seem uncomfortably high, and we might look for shortcuts, but we need to be mindful of where the costs are cut. It is important not to cut costs in a way that negatively affects our profit potential. Decision management is 2016’s key element to controlling costs.

That being said, we also need to have a profit goal in mind. Are you shooting for just breaking even, or is it your goal to raise the largest crop ever on your farm? Knowing where we want the bottom line at the end of the year will help decide what risks to take, costs to cut, or where to splurge. It is also important to lock in profits whenever possible. While farmers realistically won’t expect to see $8 corn like a few years ago, always pay attention to the markets and try to contract a profit when an opportunity presents itself – even if it is not extraordinary.

One of the most lucrative decision management tools a farmer can use to aid in risk management is his Multi-Peril Crop Insurance policy. Crop insurance is used as a means of helping farmers cover costs of production. There are several different coverage types and options to choose from to customize your own policy to fit your farm’s needs. Revenue Protection and Yield Protection will give guaranteed revenue or bushel amounts. These policies help protect against uncontrollable variables such as adverse weather, dramatic swings in the markets, and other naturally occurring losses. Policy options are available as add-ons to increase coverage in the event of prevented planting, widespread loss years, or outdated yield information. Farmers are encouraged to work with their crop insurance agents to build a policy that suits their risk management needs without being too costly.

Well, the winning numbers were just announced and I didn’t have a single digit that matched. I guess it is back to the grindstone tomorrow. It is nice to know that even though I am not a billionaire, I still have the risk management plan and decision management tools to keep farming for years to come – without having to make a dicey wager. I’m not sure if I would know how to sail that yacht on Lake Byron anyway.

Image Credit:Amespiphoto 

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Climate Change: Are We to Blame?

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Frequently on the nightly news, the major networks run fear-mongering stories on the rising polar temperatures, El Niño, and greenhouse gasses. While we should be alert, climate change should not be considered a bad thing in all contexts. If South Dakota had not experienced significant warming over the last 10,000 years we would still be covered by what geologists estimate to be more than 1500 feet of ice – that is over ¼ mile thick! That’s a lot of frozen water and I’m glad that I wasn’t trying to no till corn under those conditions! I’m not sure I would want to dodge those pesky dinosaurs either…

So what is the immediate risk of climate change to farmers in our area? First and foremost, we need to acknowledge that our environment is ever changing and that even though we influence it to some degree, we do not drive the forces that are changing. According to Mark Seely, MN Extension Climatologist, the Midwest will move away from times of frequent, smaller amounts of widespread rainfall to times of fast, larger rainfall amounts less frequently. This means we are less likely to see light rainfalls that fall all day or over several days’ time, and more likely to experience events of heavy rainfall that lasts for a very short amount of time, with more time in between rain events. Annual rainfall in Beadle County has actually increased about 2” since 1960.

I can recall the winter of 1968 when I felt I lived in “Snowmageddon.” Our area got many lengthy snowstorms throughout the winter. We had to move it every single day before we could even start our daily chores. Maybe my memories of that winter, and several others similar to it, make me think that any move toward global warming is good!

Farmers, by nature and necessity, are good stewards of the soil, but we can always make improvements. The no-till practice has made central SD a grain producing powerhouse. We have learned to plant and produce in conditions that just 20 years ago would have been considered absurd. Who would have thought that we could grow a bushel of corn on 33% less Nitrogen than just 30 years ago thanks to better seed genetics and biotechnology? Are we at the top yet? NO WAY! We are just beginning to unlock the secrets of exactly when our crops need nutrients and how much at each stage. Our next challenge is to figure out ways to get those nutrients applied on time, but not too early so that they are lost to the environment.

If dramatic swings in weather is a forecast of the future, then crop insurance will play an even larger role in a farmers risk management portfolio. Crop Insurance is important to both farmers AND consumers alike, ensuring the safest and most reliable food supply in the world. Looking ahead to the next 35 years (2050) it will be important that consumers are educated as to why we farmers do what we do. How and when you apply nutrients should be an economic and environmental win/win for all sides in our symbiosis. A secure and safe food supply will be even more of a challenge as we move to support a 9 billion person world population. What works today may not be the best management practice of 10, 20, or even 30 years down the road. As our world changes so must our farming practices to keep ahead of demand.

I have the utmost confidence in the American farmer to adapt and meet those changing goals.

Image Credit: L. Braughler