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INSURANCE

Low Crop Prices Sink Insurance

A couple years ago crop prices were at all time highs and so were insurance returns. Now they're not. As the price of grain goes down, so has insurance.
And for the past 30 years there hasn't been quite an crop insurance event like it.
For the 2016 crop, Iowa producers can insure corn at $3.86 a bushel and soybeans at $8.85 a bushel. According to Iowa State University, production costs are higher, corn costs $4.15 a bushel to produce and soybeans are more than 10 dollars.
If you go back two to three years ago, corn insurance was $5.85 while soybeans were more than 13 dollars. At that time, corn cost less than four dollars to make, and beans had sub-nine dollar costs.
Chad Hart and extension economist at Iowa State University says, "Typically our crop insurance prices is a lower percentage of basically our production cost. But what we had had in 2010 through 2013 was a time where we could actually ensure some profitability into the crop markets. That's a rare event, we got to enjoy it for a few years but, if you will, we sort of got used to it. Now we're falling back towards normal where we're ensuring some of our cost, but not the complete cost of production."
Hart argues the early-70s were the most recent point in history where farmers actually insured a profit, but even then, the crop insurance industry wasn't near the size it is now.
He adds he doesn't think insured profits will happen again any time soon, "Crop insurance shouldn't be set up to guarantee that everyone should continue to farm. The idea is farming is still a business and that means people both come into the business but also exit out of the business. Crop insurance is a mechanism to help most of those in the business manage their risk."
Hart observes the high insurance prices brought more acres into corn and soybeans, but overall it tends to slow the movement of acres in and out of crop production.



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