Tuesday, June 19, 2018

Farmers' safety net is now a money bag

MINNEAPOLIS

One of the largest farm real estate booms in decades could be getting a boost from an unsuspecting player: the U.S. taxpayer.

The government foots the bill for a large chunk of the nation's enormous crop insurance program, which essentially guarantees farmers a profit. That, in turn, removes a lot of the risk from large rent commitments or bidding big for land at auction.

While agricultural economists say they don't think anyone has researched a connection among the program, farm rents and high land prices, some farmers and other observers say it exists.

Commodity prices are the flames under cropland values, which have reached levels not seen in a century, even adjusted for inflation. But as 48-year-old farmer Darwyn Bach sees it, crop insurance is "throwing a little gas on the fire."

Designed as a safety net, crop insurance was meant to cushion farmers from the multitude of risks that farming is famous for, from hailstorms to floods. But now, about 80 percent of the country's crop insurance policies are revenue policies, protecting farmers not only from weather and yield losses, but also from drops in prices.

The insurance guarantees farmers a certain price for their corn, soybeans, sugar beets and more than 100 other crops, regardless of whether the weather's bad.

Nearly all farmers have it. It shifts revenue risk from the farmer to taxpayers, who share it with more than a dozen private insurance companies that work with the government. Farmers paid $4.2 billion for their premiums last year, while taxpayers shelled out $7.4 billion.

Iowa State University economist Michael Duffy said he thinks the larger factor in land values is that farmers have been generating record levels of income and therefore want to expand operations. "It's more of an indirect impact in my mind," Duffy said of the crop insurance. "Does it have an effect? Yes. Has anybody measured it? No."

The insurance program would be expanded under the five-year farm bill currently being debated in Congress to help make up for the elimination of direct subsidy payments to farmers.

The insurance payouts to farmers vary greatly year to year. In 2011 — a year that brought major floods, droughts and hurricanes — the program paid out a record $10.7 billion.

Supporters, including Rep. Collin Peterson, D-Minn., the ranking member of the House Agriculture Committee, argue that the insurance is critical to avoiding costly bailouts and protecting farmers.

Bach, a hog and crop farmer near Montevideo, Minn., says that by eliminating a significant part of farming's risk, the insurance is helping stoke land prices and driving up the rents. Bach rents most of the 520 acres he farms, about half of which he grows corn on. He'll pay $60 an acre to insure his corn this year — a one-time payment of $15,900 he'll make in October. The policy he bought guarantees him 85 percent of the sale price of his proven corn yield, or about $940 an acre, based on a price that's been set, he said. It costs him about $480 an acre to grow the corn.

That's a guaranteed profit of $460 an acre. Bach still has to pay rent out of that, but figures he'll pocket about $200 an acre, an "exceptional" amount, he said. For farmers who own their land, the guaranteed profit could be more like $460 an acre, he said. For a 1,000-acre operation, that's a guaranteed $460,000.

"That's ridiculous," Bach said.

To Bach, the insurance affects farm rents the most. The rent on part of the land he farms doubled last year to $280 an acre, up from $140 in 2010. That's because the owner got two higher offers from other farmers, he said. Bach said that he agreed to the steep increase because he can afford it, and that crop insurance is a big part of that.

"When you remove that risk factor, then you can be more aggressive in bidding for rent," he said. "We don't have any risk up to that guaranteed minimum. It's basically guaranteeing a profit for us now."

Bach said he has "mixed feelings" about the program. It removes risk, but he said it also contributes to farmers tearing up poorer land, or land that might be in conservation, and putting it into production. Plus, it puts beginning farmers at a disadvantage because they don't have the crop history to establish the good coverage level that more-experienced farmers have.

A Star Tribune analysis of government crop insurance data and Minnesota land values tracked by Steven Taff, an agricultural economist at the University of Minnesota, suggests that crop insurance could be playing a role in escalating prices.

Taff, who reviewed the analysis, said the findings are consistent with the idea that the insurance could be affecting prices, although other factors, such as how productive the crop land is, likely play a role, as well. "It's the old moral hazard problem," he said. "Insurance encourages people to do risky things. That's kind of what it's designed to do."

That's what bothers Craig Cox, an executive at the Environmental Working Group, a health and environment watchdog. A vocal opponent of farm subsidies, Cox said he thinks the program "greases the gears at a huge cost to taxpayers."

"The taxpayer is guaranteeing a large portion of your revenue," Cox said. "That allows you to pay a lot more for land."

Comments
Safety Harbor fire chief departs: ‘Take pride in the job’

Safety Harbor fire chief departs: ‘Take pride in the job’

SAFETY HARBOR — When Fire Chief Joe Accetta started working at the Safety Harbor Fire Department, Fire Station 53 was a double wide in the middle of a field now home to Mease Countryside Hospital.Now almost four decades of challenges and promotions l...
Updated: 15 minutes ago
Another detention center for immigrant children planned for Houston

Another detention center for immigrant children planned for Houston

Another facility intended for detaining undocumented children is reportedly in the works for Houston as the number of children separated from their parents at the border continues to swell.Southwest Key Programs, the same contractor that operates the...
Updated: 19 minutes ago
Counties sue to remove amendments from Florida’s November ballot

Counties sue to remove amendments from Florida’s November ballot

Two Florida counties are asking a court to throw an amendment off the November ballot that asks voters around the state to overrule decisions made by their local voters on which of their officials should be elected.In separate lawsuits filed this mon...
Updated: 25 minutes ago
Hillsborough Rep. Jack Raburn won’t seek re-election in House District 57

Hillsborough Rep. Jack Raburn won’t seek re-election in House District 57

LITHIA — State Rep. Jake Raburn hasn't had a challenger since the Republican first won the District 57 seat in 2012.Now he has an opponent: Valrico's Debbie Katt is a software development engineer and political newcomer who has qualif...
Updated: 1 hour ago
Muralist working with huge St. Pete ‘canvas’ to create neighborhood eye-grabber

Muralist working with huge St. Pete ‘canvas’ to create neighborhood eye-grabber

ST. PETERSBURG — They appear to rise out of nowhere — two enormous, reclaimed-water tanks with an artist’s white clouds scudding across a blue background.A closer view reveals silhouettes of a lone coyote howling at the sky, mangrove islands, oak, cy...
Updated: 1 hour ago

Coronation plans threaten Thai election schedule

Thailand's prime minister has said his military government will hold elections only after a coronation ceremony for the new Thai king takes place, casting fresh doubt on promises the polls will be held by February next year
Updated: 1 hour ago
'Papa! Papa!' Audio of children stokes rage over separation

'Papa! Papa!' Audio of children stokes rage over separation

An audio recording that appears to capture the heartbreaking cries of small Spanish-speaking children being processed by U.S. officials stoked the uproar over the policy of separating immigrant children from their parents
Updated: 1 hour ago

AP Top News at 8:58 a.m. EDT

AP Top News at 8:58 a.m. EDT
Updated: 1 hour ago
The Latest: Colombia vs Japan is 1-1 after dramatic 1st half

The Latest: Colombia vs Japan is 1-1 after dramatic 1st half

It's 1-1 in the World Cup game between Colombia and Japan after a dramatic first half. Japan defied expectations by taking an early lead over Colombia after Carlos Sanchez was given a red card for hand ball in the 3rd minute.
Updated: 1 hour ago
120 Nassar victims urge Michigan State board to fire Engler

120 Nassar victims urge Michigan State board to fire Engler

120 sexual assault victims of former sports doctor Larry Nassar are demanding that Michigan State University's governing board removes interim school president John Engler
Updated: 1 hour ago