October 7, 2011
In his 31 years with USDA’s Risk Management Agency, William Murphy says he has never seen a year as complex and challenging as 2011.
Murphy, administrator for the agency, was in Amarillo, Texas, recently to address the Beef Financial Management Conference. He says this year will be only the second time in 15 years that the USDA program pays out more in claims than it takes in.
By early October, it had already paid out more than $3 billion, and, says Murphy, “We are likely to pay out more than we take in this year. Problems started early in the season and have continued well into the fall. We started with a wet spring in the Midwest, and we also had flooding in Mississippi, Missouri and other areas,” he says.
Planting was delayed through much of the Corn Belt. Then, there was drought in the Southwest that got worse, and worse, and worse, spreading from Texas to New Mexico, Kansas and Oklahoma. Murphy says he’s seen some instances where the agency will pay for both excess moisture and drought on the same crop in the same county.
Insurance will be critical to allow many farmers and ranchers in excess moisture and drought-stricken areas to continue farming, he says.
“We insure a lot of cotton and wheat in Texas. Cotton growers in Texas have come off two really good years and most farmers have insurance protection at very high levels.”
The problems in Texas included irrigated acres. “Farmers simply couldn’t keep enough moisture on their crops,” Murphy says.
RMA worked with growers to permit diverting water from part of a center pivot unit to concentrate on a half-circle or to divert water from one crop to another. “We were able to overcome almost every issue,” he says.
New programs for cattlemen also proved valuable when ranchers ran out of forage during the drought that began last fall and continues throughout most of the Southwest.
Options included the Pasture, Rangeland and Forage program (PRF), the Livestock Risk Protection (LRP) and the Livestock Gross Margin program (LGM). The first is insurance against production loss; the last two are revenue risk management programs.
Murphy says the PRF program was popular with Texas cattlemen; the state’s producers bought 5,633 PRF policies, about half the U.S. total.
PRF coverage is based on two different criteria. In Texas, coverage is based on a rainfall index, while in New Mexico and some other states, it’s based on a vegetative index. Producers don’t have to prove loss — indemnity is based solely on amount of rainfall received during a certain period or the amount of vegetation during a certain period. In each case, the indemnity is based on deviation from the norm.
The agency is working to resolve issues with the vegetative index in New Mexico. Farmers and ranchers’ heavy reliance on RMA coverage this year may help convince Congress that the program is a necessary part of the farm safety net, Murphy says. “I anticipate RMA becoming the main part of the safety net. Farmers want it, and production loans are more difficult to obtain without crop insurance.”
He says producers who typically buy crop insurance buy additional levels of coverage. The Mid-South is beginning to increase coverage, as well, he notes. “That area has typically seen lower participation.”
Murphy also cited concern with the budget process. “The key now is the ‘Super Committee.’ Every agency is currently holding back to see how much money we have to work with. At RMA, we want flexibility — we assume changes are coming, both big and small. But crop insurance is more popular than ever before.”
Threats and challenges to farm programs include additional deep cuts, he says. “If direct payments (are a target), what will be next?”
Murphy says he would like to work with crops that are not currently adequately insured. Peanuts, because they are not traded on the futures market, offer some insurance challenges, he says. Pricing is sticking point. “We would welcome peanut growers forming a working group and working with us. We’ve been working with tobacco and would be thrilled to work with a peanut group.”
Most farm organizations, Murphy says, are aware of the pressure to reduce budgets. “Cotton has recently agreed to give up direct payments in exchange for better crop insurance,” he says. “They understand current budget constraints and the National Cotton Council knows our programs very well.”
Crop insurance would save a lot of farmers following the massive crop and livestock losses of 2011, he says.
The Beef Financial Management Conference, in its second year, is sponsored by Great Plains Ag Credit; Commodity Risk Management; Brock Thompson Trading, LLC; Frost, PLLC; and CIH.
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