Crop Insurance to help all farmers

[charliep]

I apologize for an off the wall question but I thought I could pass along a head scrathcer for me.

Someone in a business directly involved in providing products/services to the agricultural sector (not a farmer). This individual is very concerned about the coming year and in particular the dry conditions going into spring.

He was asking about things that his business could do to cover this risk. The specific question was about private sector things/other risk management iniatives he could take on his own versus government.

I realize that your answer may be look after the farm community income and this will look after agri-business problems. Any other thoughts on alternatives I could provide this individual.

[dfarms11]

Steve you are missing the point! Today's crop ins. does nothing for the typical farmer these days except give you a hail ins. policy. The only farmers that benifit from it now are the ones who milk it or get a hail caim.

What we are saying is put farmer accountability into the program so they can't milk it dry. To me that is the main reason the premiums are so high and coverage so low.

I know farmers personally, who just slap a crop in, or should I say $5 /acre of seed only, and collect their profits from crop ins.

With accountability on our part I believe we could have better rates on premiums and a little better protection.

[TOM4CWB]

charlie,

On the risk management issue,

1. How much drought premium do you believe is actually in the market now?

If a full blown drought occurs, would the purchase of Call options WCE create a risk offset for a drought?

If a wet spring were to occur on the other hand, would Put options help offset poorer prices that would follow as the drought premium disappeared from the market?

Canadian Dollar Options, would these be beneficial for reducing currency risk? (see thread on currency)

Would a astute business decision be to give discounts to farmers who have valid risk management strategies, or conversely charge higher prices to farmers who do not have risk managment issues under control?

It is clear to me that we are in a currency deflationary period, how did people in the 1930's or 1960's deal with these issues?

Next is to try to get the federal government back under control, Ottawa seems totally out to lunch fiscally speaking!

The Canadian Dollar will continue its slide if real leadership does not take hold of management matters!

A nation without a vision will..., and Canada is as close to the cliff as Argentina was 5 years ago!

[Steve]

dfarms11

You are missing the point and trying to call crop insurance--- Income insurance.
You and the Kernel are proposing a guarantied Income insurance plan that can be milked.

[Steve]

Steve, I think you're right on that one and every time payouts are made the assistance gets capitalized into land prices because the more efficient farms just have that much more money for expansion to test the limits of the economies of scale.

[Steve]

Steve: I don't think dfarm11 and I are proposing to milk the system. Lets go through it slowly so even you and jend can understand this one. Governments don't subsidize farms and corportations, they subsdize jobs and consumers. As and industry we pay a huge amount of taxes, 40% on fuel,fertilizer, chemical and machinery. Employees have unemployment insurance which is self suffient and corporations have publicly traded shares and other markets to raise capital and protect their investment.
Now what we propose is a crop insurance that will protect to a more realistic value of input cost.
I believe that the governments are putting a very small amount into are present crop insurance. The acre coverage is some were between $60 and $100. I BELIEVE THIS IS FARMER PREMIUM SUSTAINABLE. If not sustainable then half of Western Canada better give up grain and oilseed farming today and you can decide which half.
What we are saying let us pay a premium to cover our direct input cost (fert. chem and seed), say up to $100 per acre but you must produce receipts for this coverage. Added this coverage to our present program.
This insurance would help good managers through bad times. I don't think it going to help the poor manager who doesn't help himself in being a progressive farmer.
My farm has been grossing between $225 and $350 per acre for the last few years I can stand a bad year but I have to young farmers farming with me that need a premium paid protection or they could be done in one bad year. My program is not milking the system in my estimation but it will make a sustainable industry for young farmers.

Otherwise get a job in the service industry, can everybody eat that stuff?

The Kernel

[Steve]

Kernel then the answer is simple. Set up revenue insurance and make the premiums sustain the program. If you want subsidized premiums (which we already have) then you are looking for a bigger handout. I don't necessarily disagree with that but let's be clear on the objective and the mechanics.

[Steve]

Kernel

I understand your proposed crop insurance plan ( guarantied income )but maybe you should slow down and read my proposed plan, because it accommodates most of your ideas with more stopping blocks for fruad.

I am having a problem with my computer and as soon as I fix it (*%#(^$@9%^ I will write more.

Regards Steve.

[Steve]

Sorry boys there is no subsidy in our crop insurance now according the the figures I have seen since 1990. The government does pay for the administration of the program and farmer premiums are making the pay outs and as of right now are operating at a huge surplus. I think we can afford the administration also. Where's the subsidity boys. I think the government has all of you believing that they are making a huge hand out to farmers through crop insurance. The crop insurance meetings last winter stated that premiums were covering the payouts and a surplus of 100's of million of dollars was being created. Farmers at the meeting were asking for their moeny back.

Don't tell me I'am asking for a guaranteed income I asking for a guaranteed cover your ass cost insurance which can be premium sustainable. This is a good mangement program not whinning for a hand out.

You boys check some figures at crop insurance and see what you think.


The Kernel

[Steve]

Sorry Kernel but when I looked at my crop insurance summaries for the '90's the fed and Alberta governments were subsidizing my crop insurance premiums. In fact most years if I took the early pay discount they were paying more than me. What you're asking for is so close to GRIP there isn't a lot of difference and that was an expensive (in terms of premiums) and unsustainable program. It was also ineffective because it used the usual Canadian moving average concept and this becomes useless after three bad years because then you need more help, not less. If you want help you're going to have to tie it to the cost of production (as you say) but forget about doing it through insurance because it's an oxymoron to assume that as your revenues drop you will have money to spend on premiums that will have to go up as your revenues continue to drop. This is the Catch-22 that has plagued all Canadian insurance programs from the start. By the time you really need it the coverage has dropped to where it isn't enough. I have been carrying crop insurance for about 30 years and it is only good for disasters as far as production go. Revenue and profit insurance are non-starters economically and you would be right back to where only the big guys would benefit and your young starting farmers couldn't afford a premium that would carry the program.

[dfarms11]

One small question you guys, what is your opinion of todays crop ins program? do you think its worthwhile?

[Steve]

Kernel



One basic thing that your proposed payout is missing is long term stability, because band aid quick fix has proven to be a disaster in the past.

Any insurance has to have a surplus in order to keep the premiums at realistic levels.

I know what you will say, we made this surplus and we need it now to survive and my reply, farmers say that every year and they are still farming.

Just like you said on another thread slow down the sky is not falling down yet, buy rubber boots because it will rain.

So let’s not clean the pot out for all the wrong reasons, by opening lope holes so some unscrupulous farmers can milk the system.

That is the reason I proposed the two parts system, because in the first part you insure what you have and get paid if you lose it. ( that is like car insurance and there is less room for fraud if there is a cap on input costs )

The second part is not any different than hail insurance, because you have the option to insure up to the average yield that your land can produce. Also partly closes the door on fraud.

Maybe we should have a third option and can insure the price of different grains or use
the Nesa program.

That’s the reason I suggested all these options because we are all individuals and want to manage our own farms.

All these options should have their own pot of money to operate on, and that would govern the premium rate for individual farmers.

Today’s farmers are talking about their knowledge on farm management skills now lets practice what you preach, because farming is a business. Most young farmers use all their money in the good years to expand and don’t have a plan how to pay their bills if the income drops in the poor years. ( where is this so called good management. )

There are too many people in this world should get their head out of the sand and realize its not what you want to do but can afford to do.

I know this is a repeat of what was said before but it may clarify some parts.

Regards Steve