Moving Forward: Life After Drought

Despite a dust bowl-like disaster, good managers will prevail

"Back in my day it was so dry, the cows were giving evaporated milk! …Even the fish were thirsty! …The river only ran twice a week!

Anyone else tired of hearing this?

Anxiously looking for green patches on a Doppler map can make you think crazy thoughts. Like, was Al Gore right? Nine of the ten hottest years on the planet have happened since 2000.

As FDR said, the only thing we have to fear is, fear itself. So heed these words of encouragement: Good managers – and marketers – will prevail.

For starters, this ain't '88. Back then only 25%, or 14 million acres of U.S. cropland, were covered by crop insurance; today that number is 85% (266 million acres). Farm income has grown 147% since 1988 and farm debt-to-asset ratios have been sliced in half.

Having said that, those without crop insurance better have deep pockets. According to University of Illinois, Central Illinois non-land costs surged from $250 to $500 per acre in the past 10 years. On a 1,500-acre corn farm, growers invest an average $750,000 before seeing a dime of income. 

Tale of Two countries

Things could be worse. You could farm in Brazil, where crop insurance is not worth the paper it is printed on.

Julio Bergamasco, a Brazilian I met last February while touring there, saw corn and bean yields cut by over half in that country's rare drought.  Even with such catastrophic loss, Bergamasco decided it wasn't worth filing a claim. In Brazil, government-subsidized insurance only covers 50% to 70% of average yields; damages must be very large in order to bring about an indemnification, explains João Conrado Schmidt, a farmer in Ponta Grossa, Paraná. That explains why just 10%, or 12 million of Brazil's 123.5 million acres of planted crops, were covered by crop insurance in 2010.

A few thousand miles north, our situation is drastic, but also drastically better. Farmers like Kelly Robertson, in Southern Illinois, will likely see 40 bu. per acre corn yields. But crop insurance will ensure he is back in the fields next year.

"Just like my auto or house insurance, I hope I never have to collect on crop insurance when I take it in the spring of the year," says Robertson. "Crop insurance sets the floor and protects me from one of the many risks I can’t control:  Weather. Every year we put more and more dollars into an acre of production and I would not want to farm again without the peace that crop insurance gives me to lay out that kind of investment."

Federally-subsidized crop insurance might cost taxpayers upwards of $30 billion this year. The cost is a sore point among those who want less tax money spent on agriculture. To me that cost is easily justified for an American public who likes to eat and will hardly notice a modest increase in food costs next year, as U.S. agriculture soldiers on.

This year provided a painful lesson for some folks, who did not even know what kind of coverage they had until they had to use their policy.  You can bet a lot of farmers will revisit their coverage with agents for 2013. 

The psychological impact of this summer cannot be dismissed. No one feels good about an empty harvest. Don't let depression gnaw on you. Step back, take a breath, and start looking toward 2013.

In every crisis, opportunity arises; good managers know that. Take a look at every aspect of your business this fall. Focus on capital budgets, cash flow, harvest moisture (which may be different if you're drying for insurance losses) and fall fertilizer applications, which will change if yields got hit.

This, too, shall pass. There's another growing season around the corner.

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