Expert Commentaries & Blogs

Stu Ellis: Unfriendly Weather and Lower Premium Rates.
by Stu Ellis | 
Stu Ellis
Stu Ellis writes a regular blog on the agri business topics of the day
Stu Ellis: Unfriendly Weather and Lower Premium Rates.


By Stu Ellis,

Audio Download


Many farmers are making long range plans to manage crop production risk in 2013 in the wake of some of the latest weather forecasts for less than favorable crop growing conditions.  With lower crop insurance premiums for much of the Cornbelt and lower soil moisture anticipated, your neighborly crop insurance agent may be doing land office business in early March.

USDA’s Risk Management Agency recently released maps showing 2013 premium changes for corn and soybeans, compared to 2012, which were lower than 2011 in states where new ratings were tested.  And despite a significant drought across two-thirds of the nation and subsequent high market prices that crop insurance uses to reimburse subscribers, rates for crop insurance premiums will be going down in many Cornbelt states for corn and soybeans.  USDA’s Risk Management Agency, (RMA) which oversees the crop insurance program, says its plans to change the way premiums are calculated will be implemented.

Compared to 2012, corn and soybean premiums will change in many states.  Find your state and grain on this series of maps.

Some of the changes proposed by RMA were tested with success in 2012 and more will be implemented in 2013.  The rates will be phased in to prevent significant cost changes. That meant in 2012, USDA’s trial premiums took in less money than would have been expected. The changes to the premiums are based on recommendations from industry experts:

1) Weather data will be incorporated in a way that rare events (drought) is carefully weighted.
2) Prevented planting and replant payments will be based on weather and not state borders.
3) More weight will be given to recent years to reflect current agronomic practices.

How does your yield compare to your county yield? Your premium may go up or down, says USDA, “RMA will also update factors that account for differences in risk across individual growers as indicated by their own average yield compared to the county average yield. To the extent that a grower’s average yield is above the midpoint yield (or “reference yield”) for the county, his or her premium rate is reduced and vice-versa. These updates are based upon loss data accumulated over the last several years.”

But will crop insurance really be needed in 2013?  Your guess is as good as your neighbor’s guess, but the weather folks are talking up a storm about the potential for dry conditions in the coming year, at the minimum!  The drought will likely continue through next year, according to IL state climatologist Jim Angel. He told a Mississippi River conference Friday, "So what that means is that it's going to take a long time to get out of that mess. I don't see tropical storms running through Oklahoma any time soon. It's going to be a long, slow recovery from this particular drought."

Angel’s assessment is corroborated by IA St. meteorologist Elwynn Taylor who says the 2012 crop pulled the moisture out of 8 ft. of soil, requiring 16 additional inches of precipitation to return to normal conditions, and adds, “It is not likely that subsoil moisture will be fully replenished by the beginning of the 2013 planting season.”  He says such deficits increases the risk of low yields, and prevents recovery of stream, river and pond levels to normal.

Taylor agrees also with Angel’s “long slow recovery.” He says, “Severely deficit precipitation years of the magnitude of 2012 do not recover to normal annual precipitation in a single year.  Accordingly, an additional year of significant moisture stress is considered to be not unlikely and a fourth consecutive year of below trend U.S. corn yield a distinct possibility. The probabilities will become more definitive in the early weeks of 2013 as the likely phase of the El Nino/La Nina for the growing season becomes manifest.”  Taylor says the trend corn yield for 2013 should be near 160 bu., but he is forecasting about 147 bu.

July 22, 2010 was the birth date of the latest La Nina, which brought the 2012 drought.  Elwynn Taylor says the Pacific equatorial sea surface temperature which determines either El Nino or La Nina conditions, has been trending toward another La Nina since late summer, as indicated by the blue line.

The eastern Cornbelt has a better chance of escaping more drought than the western Cornbelt in the eyes of Ken Scheeringa.  He is on the climatology staff at Purdue and says the Gulf of Mexico is the key to breaking the drought, “The Gulf is a major source of our moisture and it's really hard to shut off that water supply for an extended time. Our research shows the longest Indiana droughts have lasted about 18 months. The state can have frequent minor droughts, but if they happen in the colder months the impacts are less than if they happen during the growing season.”  With no direct path to Gulf moisture, Scheeringa said it’s more difficult for the western states to break a drought pattern. “Once western droughts take hold, they can last multiple years, or even a decade.”

By Stu Ellis

Browse by subject: