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Tags: Crop | Insurance | Farmers | Drought

WSJ: Crop Insurance Might Ease Farmers’ Losses From Drought

By    |   Wednesday, 01 August 2012 09:06 AM EDT

The drought across the interior of the United States is killing crops, but most farmers’ incomes will hold up – thanks to crop insurance and record soybean and corn prices.

"Crop producers will largely weather the losses," Joseph Glauber, chief economist for the U.S. Department of Agriculture, tells The Wall Street Journal.

Farmers are already writing off their corn crops in parts of the Midwest, and chicken farmers and cattle ranchers are paying record prices for feed, which is likely to mean as much as a 4 percent increase in food prices, according to The Journal.

Higher commodity prices are likely to squeeze margins for food companies, while crop insurers might see their first losses in a decade.

However, most crop farmers, with several years of strong incomes under their belts, won’t be suffering that much, certainly not as much as during the last major drought in 1988, when the federal government had to step in with a multi-billion dollar bailout, The Journal says.

One result of the last major drought is that most farmers across the Corn Belt now hold crop insurance, which is backed up by a federal government that pays 60 percent of premiums. Premium subsidies last year totaled $7.1 billion, with additional direct subsidies paid to farmers reaching $5.9 billion, according to Congressional Budget Office data cited by The Journal.

Thanks to the insurance programs, Illinois corn farmer Aron Carlson expects his income to come in near his five-year average, even as his corn crop may be reduced by about 45 percent.

Still, companies that depend on the farming industry are likely to see a slowdown. Archer Daniels Midland Co., a major grain process, reported lower earnings on Tuesday. Sales of farm machinery are also likely to weaken, analysts tell The Journal.

U.S. House leaders this week plan to vote on a $300 million drought-relief package that would provide aid to livestock producers who don't have crop insurance and helps cover the costs of animals that die due to the drought, The Journal says.

Small fruit and vegetable farmers across the Midwest are seeing fewer chances of relief, The Associated Press reports.

Some of the small farmers have lost crops and most aren’t growing enough to sell at a profit to wholesalers, while sales at farmers markets are weak. Farmers with community-supported agricultural programs are struggling to keep their members satisfied enough to sign up for another year.

Unlike farmers who grow corn and other crops sold as commodities, vegetable farmers don't have insurance to cover them in case of drought or flooding, according to the AP.

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Wednesday, 01 August 2012 09:06 AM
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