From the Vine

Crop Insurance Limits by County are Proposed

The Donald Trump administration is proposing crop insurance cuts, similar to the ones proposed earlier by Reps. James Sensenbrenner, R-WI, and Ron Kind, D-WI, as well as Sen. Jeff Flake, R-AZ.
Both proposals include the elimination of the Harvest Price Option, a limit on adjusted gross income, and a $40,000 limit on the government’s share of the premium. Once a farmer hits the $40,000 limit, the farmer would pay 100 percent of the premium cost for any covered acres above that level.
The $40,000 crop insurance “subsidy” cap results vary by county and by year. In Kansas in 2016, it required from a low of 1,166 acres to a high of 3,619 acres to hit the $40,000 cap, i.e. the government’s share of the premium costs, depending on the year and county. By contrast, in California the range was from 149 acres to 7,556 in a county to hit the limit.

However, in most cases these outliers were based on very few insured acres in the county. Therefore, these county acre limits were capped at 200 acres and capped at 6,000 acres.
The county popup window will provide the unadjusted acres to hit the limit. These county level estimates are based on Risk Management Agency-published county-level crop insurance statistics by practice.
In 2016, the Kansas Farm Management Association’s average farm had 1,681 crop acres. Their average total acres were 2,427 acres. This is an average across the entire state. In western Kansas, farmers tend to have more crop acres and higher premium rates, so the $40,000 limit would have a greater impact.
However, the average farm in the KFMA is at the point where it would exceed the $40,000 limit in some years, but not in other years. Those KFMA farmers with above-average crop acres would be impacted immediately.
Unlike the Commodity Title that covers only a few crops, crop insurance covers over 100 different crops. What this national map really shows is the diversity of U.S. agriculture. In some counties producing high value crops, it only requires a couple of hundred crop acres to hit the limit, while in other counties it will require over 6,000 acres to hit the limit.
Hamilton County, Kansas, required 1,613 acres to hit the $40,000 limit providing $138 of coverage. Over 193,000 acres were insured. Doniphan County, Kansas, required 2,022 to hit the premium limit, providing $453 of coverage. Over 143,000 acres were insured. When comparing the two counties, Doniphan is smaller and is the reason for fewer total insured acres.
Will these cuts result in budget savings? These results were based on crop insurance coverage purchases for all counties for years 2005 to 2016. It is unlikely that this will be the result in the future because many farmers will likely make adjustments to avoid the subsidy limit. As a first step, they will likely create new “paper” farms. If they have a spouse, then farmers will try to get a second crop insurance policy for their spouse and divide the acres between two “farms.”
This should double the paperwork for the whole system, including agents, AIPs and RMA, with no new premium. Some farmers may encourage their landlords to change from cash rent to crop share rent in order to stay under the subsidy limit.
“Big” farmers will likely hire accountants and lawyers to create more entities. This will expand the administrative cost for farmers as these entities must be kept separate, and of course more paperwork for RMA, agents and AIPs with no new premium.
Farmers who are still over the limit may choose to cut coverage to stay under the limit. If still available, they could eliminate the HPO to get under the limit. They could also lower their percent coverage level. They might decide to insure their corn but leave their soybeans uninsured or only insure with CAT, which has a 100 percent premium subsidy.
I have received comments that these historical results will not be the expected result in the future because farmers will apply strategies to avoid the limit. This should likely result in less budget savings than advertised.

I agree with the critics, but these cuts will impact those middle-sized farmers because they will have to create new farms to avoid the limit. While it may not reduce benefits for this size farm, it will increase the paper work and that has a cost too. Also, this assumes that driving the really large farms out of the crop insurance program will have no impact on the insurance pool.
This case creates some interesting public policy questions. When prices fall, revenue insurance often overlaps with other government payments because those programs trigger payments when prices are low including payments from Price Loss Coverage, Loan Deficiency Payments, and—in many cases—Agriculture Risk Coverage.
In addition, the hedged farmers will also show gains in their brokerage account. The critics have incorrectly claimed that the HPO in RP competes with other USDA farm safety net programs and the CME, but it is clearly the opposite.
When prices increase, farmers receive few if any government payments, hedged farmers have margin losses, and higher prices reduce or eliminate revenue indemnity payments. Those farmers with the HPO will have their lost bushels, less the deductible, replaced at their current market value, offsetting margin losses and loss of government payments. When farmers have a crop failure and prices increase, farmers will lose their PLC payment when they most need it because they have nothing to sell at the higher prices.
It is important to remember that even in a bad year causing higher prices, not all farmers have a crop failure. Those farmers who don’t have a crop failure will have very “high” incomes and make the average U.S. farm income high.
This is the problem with making public policy decisions based on averages. Crop insurance targets the payment to only farmers who have losses. In 2012, all 80 percent coverage insured corn farmers who collected APH-based crop insurance payments had a crop loss that exceeded 20 percent of their average production including RP insured farmers. There are no exceptions under the APH plans.
A more detail presentation on the policy issues and alternatives are presented in a paper titled “Administration’s Proposed Crop Insurance Cuts Would Eliminate Harvest Price Option and Limit Farm Size (Updated Data).”

Art Barnaby, Kansas State University Department of Agricultural Economics. (2017, July 27). Crop insurance limits by county are proposed. Retrieved July 31, 2017, from http://www.hpj.com/crops/crop-insurance-limits-by-county-are-proposed/article_3dbdebc5-3eb3-5bbc-b5e0-0a726fde245b.html