Last year federal crop insurance performed really well. This means it covered losses in the way it was designed to do the job. Over time crop insurance is meant to even out the ups and downs in annual income experienced by commodity farmers.
It does this by paying out one dollar for every dollar of premium a farmer pays in to the system to purchase the insurance. The farmer can expect there will be many years when a payment is not made, but when the income from crops drop, a crop insurance payment will help alleviate the gap. Here’s another explanation from University of Illinois Extension Ag Economist Gary Schnitkey.
Quote Summary - The crop insurance program was designed to have a loss ration of about one. The loss ratio equals payments-made divided by premium-paid. Over time the federal crop insurance program is supposed to pay out roughly the same amount it collects in premium. A loss ratio of one is about the target. A loss ratio of less than one means payments were less than the premium collected and if the payments made are more than the premium paid, then the loss ratio is greater than one.Last year, for all covered crops harvested in 2014, the loss ratio was point-nine. This is slightly above the annual yearly average of the last decade. The long run average is point-eight-two.
Quote Summary - Overall you would say 2014 was an average year. The high happened in 2012. That year the loss ratio was one-point-six-two. The low year is point-five-three which happened in 2007.The 2014 loss ratio for corn was one-point-zero-five. Wheat losses nearly topped that chart at one-point-one-three. Rice had a bad income year. Its loss ratio was one-point-four-nine. By contrast the soybean loss ratio was just point-five-four.
Last year Gary Schnitkey says the data shows most of the corn belt state payments were made in Iowa and Minnesota. Many of the counties in the northern two-thirds of Iowa and in Minnesota had loss ratios above two. Losses in those parts of the country were quite high.
The reason is because we had price declines on both corn and soybeans and those areas last year were not as good as the rest of the corn belt. The remainder of the corn belt had very low loss ratios. The loss ratios were below one in Illinois, Indiana, Ohio, Missouri, and the Dakota’s.
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