As the acreage reporting deadline lomes ahead next month, I wanted to leave you with a thought you may not have considered.  Farmers who cheat a day or two here or there should seriously reconsider their strategy going forward.  The government clearly has the capability of spying on its own citizens now.  They are not revealing how this technology is being used, but I heard another industry insider mention that they spot check fields with satellites   If they can do that, they would use a drone also.

(Commentary by Rick Gibson, NAU Country)

Yesterday, I focused on Sequester and as a result, I received a number of emails. I hope I adequately answered all of your questions. Today, I ask you to click on the link below and read the article “Taking the First Step toward  Reform of Outdated Policies”, penned by Craig Cox. If the name is not familiar, he is the director of Environmental Working Group (EWG). This group identified Direct Payments as an issue over 5 years ago and they continually publish negative editorials using an Ag Economist located in Iowa as a source of information. You will notice that this source is again quoted in this article.

National Crop Insurance Services (NCIS) has placed an ad located directly below the article NCIS Advertisement . What I would like to bring to your attention is that crop insurance will continue without major harm through the sequester process, if it happens. However, we do not have a farm bill that has passed Congress yet and these attacks from EWG and other political action groups will continue to take aim at crop insurance companies and agents.Farmers do not escape their attacks based on high commodity prices and farm income that exceeds U.S. household incomes; however, there is no mention of the expense involved with production agriculture. Farming is a business with very high investment to enter or maintain - tractors, combines, sprayers, etc. that a normal household income does not have to buy. They also contend that producers do not need the subsidy or the protection of crop insurance. They state, “They are making so much money, they can take care of their own Risk Management.”

This article also includes an unsubstantiated statement that if losses for the year reach $17 billion as estimated, the government and taxpayers will pay $15.8 billion. I do not know where they get their numbers but they obviously have no idea how an insurance company operates.

http://thehill.com/special-reports/agriculture-february-2013-/285117-taking-the-first-step-toward-reform-of-outdated-policies

Yesterday, I commented that the proposed legislation would eliminate the Direct Payments. However, both Chairwoman Stabenow and Chairman Lucas have indicated that sign up at the FSA was a contract and that payments would be made in 2013. However, one of my good agent friends south of the NE border sent me a copy of a form, APPENDIX TO FORM CCC-509, DIRECT AND COUNTER-CYCLICAL PROGRAM [DCP] CONTRACT OR AVERAGE CROP REVENUE ELECTION [ACRE] PROGRAM CONTRACT. All producers who sign up for benefits are required to sign this form as well. The important language is as follows: “IT IS UNDERSTOOD AND AGREED BY THE PARTICIPANTS THAT BENEFITS UNDER THIS CONTRACT AND THE PROGRAMS WHICH ARE ADDRESSED IN THIS CONTRACT AND APPENDIX ARE SUBJECT TO CHANGES IN LAW AND TO CHANGES IN APPLICABLE GUIDELINES.“  I THINK IT IS IMPORTANT TO READ THE FORM AND MAKE YOUR OWN INTERPRETATION. Mine would be that the law could be changed and these programs eliminated. However, I also believe that both Stabenow and Lucas will lobby long and hard that direct payments, etc. are earned and should be paid. I would appreciate any of your comments on this. SENATOR MAX BAUCUS, at the Senate Finance Committee hearing yesterday, commented on the Democrat Senate Sequester replacement proposal, “This proposal is not perfect. I have concerns about cuts to programs family farmers rely on. That is why I secured a compromise that will extend the SURE PROGRAM and give farmers a bridge between direct payments and the next farm bill.”

You may remember that Senator Baucus, Chair of the Finance Committee, and Senator Conrad developed and funded SURE outside of the Ag Bill. It was expensive and most would agree, was a disaster within a disaster to administer and the cost was excessive. So why try to take money from a crop insurance program where farmers have some skin in the game to a no cost disaster supplemental program that is not needed or wanted?

Fraud, Waste, Abuse:  COURTS CRACK DOWN ON MULTI MILLION DOLLAR CROP INSURANCE SCHEMES

Two recent cases involving agents and adjusters were recently tried and resulted in imprisonment and restitution. An adjuster was sentenced to 48 months in prison, 3 years supervised release and Restitution of $21,045.917 for helping farmers and agents file false claims. An agent was also involved and had previously pled guilty. 

In another case, an agent conspired with others that would allow farmers to market their products through a marketing outlet that allowed the farmers to hide some or all of their production. Additionally, this agent helped his farmers pay bribes to loss adjusters, who in turn inflated the extent of damage resulting in fraudulent claims that were submitted to the companies. We don’t hear or see much of this. I believe farmers, agents and adjusters are honest hard working people, but once in awhile we do see situations as described. Take this as a warning - big brother is out there. Do the job to the best of your ability. 

Thank you,

Rick


Rick Gibson

Rick.Gibson@naucountry.com

(Commentary by Rick Gibson, NAU Country)

After listening to the news yesterday and this morning, I remembered a quote that I had heard many years ago that can be very easily applied to today’s financial problems.

“A BILLION HERE, A BILLION THERE AND PRETTY SOON YOU ARE TALKING BIG MONEY!”  Does anyone remember who this quote was attributed to? A little research indicates “this person” did not originate this quote; however, when “this person” was asked about it, he commented, “I was misquoted, but it sounded so good I never denied it.” So whose quote is it? There are no prizes for knowing the answer, unless someone can convince John McDermott to pony up something big for the first correct answer!

Serious Business:

At home we are attempting to implement a sequester for an $85 billion reduction in spending, yet they have announced $60 million in aid to Syrian rebels and Secretary Kerry announced a $250 million aid package to Egypt. 

The National Association of Farm Service Agency Employees (NASCOE) has not given up. In a recent announcement, FSA county employees want to administer crop reports and a conservation program.

They contend: 

1. To reduce duplication and produce budgetary savings by moving crop insurance acreage reporting to be the sole responsibility of the FSA.
2. County employees see their agency as a “third party” that can provide integrity and viability to the crop insurance program.
3. Quoting from a study by Informa, a private consulting group that NASCOE paid for, “reporting to them would save $200 million.”

Personally, I don’t think Congress will accept the FSA office as an alternative to save money, as farmers have told members that they like the way it is operated. In numerous Congressional hearings, producers were quoted stating, “Do no harm to crop insurance.” More than 20,000 agents now deliver the program efficiently which results in timely loss payments. I do have concerns about USDA with the new Midas computer system coming on line, as I have seen and heard statements from Under Secretary Scuse about consolidating and simplifying the forms so that only one entry would be required either at the FSA or the crop insurance agent. In addition, there is an initiative by USDA in the Midas program that would allow farmers to report their own acreage, utilizing a pilot program of this reporting.  

The requirement that crop insurance agents report CLU’s is a concern of mine, as I can see no positive reason that they add substance to the crop insurance program.  Again, it only makes crop insurance similar to FSA reporting.    

At the Commodity Classic in Kissimmee, Florida this past week, the top issue by the NCGA delegates was to continue a revenue protection program. Corn delegates chose a federally subsidized crop insurance program if they were forced to have only one program.     NCGA delegates indicated that 93% currently purchase crop insurance; 65% use revenue protection. A tie to conservation compliance would negatively impact their operations. With the recent criticisms of the Harvest Price
Option by certain ag economists, I think we will see significant support from the farmers who purchase the harvest price policies and pay the premium.   Speaker Boehner, in a Piqua, Ohio meeting with over 200 farmers, discussed the sequester, continuing resolution to fund government on March 27th and the Farm Bill. 

• 80% of Farm Bill spending is the food stamp program. 18 million more people are on food stamps than 4 years ago because of new eligibility requirements. This was, and may be, an impediment to passage of a new Farm Bill.
• Boehner indicated that he had talked with ranking member Collin Peterson on the dairy reforms. He stated, “I don’t know if we have reached agreement, but he is aware of my concerns on the supply management provisions.”

Boehner on Crop Insurance:

• “It is still the central focus of where we think farmers ought to be able to have easy access to insure their crops and insure some type of revenue.”
• “‘I would expect you will continue to see crop insurance as the central safety net for those in agriculture.”
• What about potential cuts in crop insurance? “I think crop insurance is solid.” We look at it every 5 years. There continues to be problems in some parts of the country with those who take advantage of the crop insurance program. Remember last week’s fraud and waste abuse?”

In a recent interview, Senator Johans commented that a Farm Bill would pass this year, probably sometime in September. This would be just prior to the start of the new fiscal year, and he did not expect a shallow loss program to be part of the bill. 

Thank you,

Rick



Rick Gibson  

Rick.gibson@naucountry.com

The spring prices have been set for the corn and soybean revenue insurance policies.  Corn will be $5.65 and soybeans are $12.87.  

Below are the marketing floors for corn and soybeans.  It is time to plan how to market your crop.

We are in the home stretch of the price discovery period for corn and soybean revenue insurance.  The charts below illustrated the latest projected guarantees.  As of the close on Friday, February 22, Corn is at 5.682 and Soybeans are @12.944.

Below are the estimated price floors.

Here are the county yield estimates from NASS for GRIP/GRP clients.  Keep in mind that in Kentucky, payments are based on harvested acres and not planted acres.  The yields shown are for harvested acres so these figures are useful to calculate your GRIP/GRP payment.

In the counties where I have GRIP/GRP policies, this is what the crop insurance pay outs look like.  There are a lot of very large payments made on corn, against very few modest payments on soybeans.

The corn payments will be very large this year.  Below are a couple examples of how the GRIP payments are calculated.

Hardin County Corn GRIP
with Harvest Price Option – Maximum Protection

NASS reports the actual county yield in Hardin County KY at 49.6 bu/ac and the Harvest Price at $7.51

Max  Protection Per Acre Is The Higher of Base or Harvest Price=
Base Price ($5.68) X 1.5 X County Average Yield (127.8 bu) = $1089
Harvest Price ($7.51) X 1.5 X County Average Yield (127.8 bu) = $1439

Trigger Revenue=
County Average Yield (127.8 bu) X Higher of Base Price or Harvest Price
 ($7.51) X Coverage Level (90%) = $863.80

Actual County Revenue=
49.6 bushels/acre X $7.51 Harvest Price = 372.50

Loss Payment =
Trigger ($863.8) – Actual (372.50) = $491.30
You convert it to the % below the trigger revenue (491.3/863.8)= 56.9%
56.9% X 1439(max protection) = 818.79 per acre payment

 

Hardin County Corn GRIP
with Harvest Price Option – Minimum Protection

This is the same example as above, without the 1.5% multiplier.

Max  Protection Per Acre Is The Higher of Base or Harvest Price=
Base Price ($5.68) X County Average Yield (127.8 bu) = $726
Harvest Price ($7.51) X County Average Yield (127.8 bu) = $960

Trigger Revenue=
County Average Yield (127.8 bu) X Higher of Base Price or Harvest Price
 ($7.51) X Coverage Level (90% = $863.80

Actual County Revenue=
49.6 bushels/acre X $7.51 Harvest Price = 372.50

Loss Payment =
Trigger ($863.8) – Actual (372.50) = $491.30 per acre payment

We are over half way through the discovery period for corn and soybean revenue insurance.  The charts below illustrated the latest projected guarantees.  As of Tuesday, February 19, Corn is at 5.71 and Soybeans are @12.98.

With the waterfall decline in wheat prices over the last couple of months, I can understand the concern about selling new crop wheat.  As you can see from the wheat chart below, prices are very near touching the revenue guarantee of the 85% wheat RP policy.  Making sales now will only cap your upside potential because the crop insurance will protect further price declines from here on out.  It is too early to give up on wheat yet. 

The Price Discovery Period is underway to calculate the base price for corn and soybean revenue insurance for 2013.  As of today, February 11, Corn is averaging $5.78 and Soybeans averaging $13.19.  You can see by the charts below where the guarantees would get locked in at today's price levels.

By now, I am sure you are aware of changes regarding federal crop insurance for burley tobacco for the 2013 growing season.  The new provisions essentially renders tobacco uninsurable if it has been grown on the same acreage for more than two consecutive growing seasons. This change was imposed by the RMA, the risk management agency of the USDA and not private crop insurance companies.


The changes are outlined in the special provisions which I have attached below.  In particular, the changes as it pertains to crop rotation are on page 2.