* Corn, cotton, sorghum, spring wheat rates revised too
* USDA will phase in changes to cushion drought impact
* Agency expects little impact on 2013 planting decisions
By Charles Abbott
WASHINGTON, Nov 28 The U.S. government has
ordered crop insurers to charge lower premiums to soybean
growers for the second year in a row as part of rate revisions
for six major crops, even as many farmers collect on claims
following this year's severe drought.
The changes are part of an Agriculture Department project to
improve the actuarial soundness of the crop insurance program,
which is federally subsidized but privately run.
Lenders often require insurance or other collateral to be
pledged by farmers to assure repayment of farm operating loans.
USDA pays 62 cents of each $1 in premiums, which totaled $11
billion this year.
USDA's Risk Management Agency on Wednesday said that the
revised rates are not expected to affect planting decisions
among various crops in 2013.
The new rates will be phased in "to limit year-to-year
premium changes and potential increases due to losses
experienced in 2012 as a result of drought," the agency said.
Indemnities for crop losses could hit a record $20 billion
this year following the worst drought in half a century,
analysts say, double the mark set in 2011. So far, $6.3 billion
has been paid out on insurance policies.
"Typically, companies are not cutting rates following a
pretty big hit," said agricultural economist Art Barnaby of
Kansas State University. He said the adjustments raise the
question if USDA made adequate allowance for infrequent but
severe losses, like this year.
Overall, premiums for soybeans will fall by 6 percent and
for rice by 8 percent for 2013 crops while the premium for
spring-planted wheat will rise by 4 percent.
Corn, cotton and grain sorghum premiums will decline in the
core growing states for those crops but will rise in outlying
states. The same pattern applies to soybeans, rice and spring
For example, soybean rates will drop by 9 percent in
Illinois and Iowa, the top growing states, while the overall
reduction is 6 percent.
Rates for corn will rise by more than 10 percent in the
northern Plains and drop as much as 6 percent in the heart of
the Corn Belt even though there would be little net change.
In the end, premiums paid by farmers will drop by about 1
percent and the impact on crop insurers "is expected to be
similarly small," said USDA.
Crop insurance is sold by 15 companies including
subsidiaries of ACE Group, Wells Fargo, Deere & Co and QBE. USDA
sets the rates, guarantees farmers access to coverage, and
shares the risk of losses.
This year, the program could lose $10 billion, the first
loss in a decade.
"Coming on the heels of a record drought season, the USDA
informed us ... that those rates will undergo changes in 2013
based on crop and growing region," said Tom Zacharias, head of
National Crop Insurance Services, a trade group.
RMA rolled out an initial round of rate revisions this year,
by reducing rates for corn by 7 percent and soybeans by 9
The National Corn Growers Association termed the revisions
"real reform" that narrow the gap between premiums paid by corn
growers and their claims record. Corn policies generated $4.3
billion in premiums this year, 39 percent of all premiums.
RMA administrator Bill Murphy said the revisions, which are
based on decades of actuarial data, are intended to assure rates
are appropriate and fair.
Among other things, the revisions put more weight on the
experience of recent growing seasons and refine premiums to
reflect conditions within specific weather districts, rather
than state-wide or regionally.
Insurance is a small part but vital part of the cost of
growing crops. In Illinois, it is from 5 to 7 percent of the
cost of production for corn and soybeans, according to a
University of Illinois economist.
Farmers can expect a rate increase if they make a claim
because of drought losses, said Kansas State's Barnaby, a crop
insurance expert, notwithstanding USDA's decision on premiums.
Growers qualify for less coverage because their multi-year
average yield goes down during bad years and rates rise as