The Scott Pruitt "If the models are all wrong" thread

[Emo EMAW]

Does crop insurance cover much more than the cost of the inputs?

I think it's based on your average yield over the past 5 years. I don't think planting dryland corn and planning on raking in crop insurance dollars is a very good business model.

You are correct.  Also factors in what your neighbors made.  Also you still have to cut it and it pays the difference.  But it doesn't factor in the opportunity cost of planting something that would have made more money.  So yes it's a stupid business model.

[michigancat]

Some farmers say they plant corn because in the really good year, it’ll have a higher yield peak. Sorry. The data say something else. In the super optimum years, sorghum and corn do equally as well.

One thing I have noticed, though, is with certain farmers, corn is the crop of choice in the really bad years—because it dies so well. They don’t like grain sorghum because it really does have much better drought tolerance. It’ll hang on and hang on and hang on while corn just gives up.

These farmers openly promote corn for dire conditions because it makes their crop insurance plans and returns work so much better. But honestly, guys, I don’t think this is how we want to present our industry to the public. Planned failure really does not look good—especially to a skeptical public who has always struggled to understand farm subsidies and crop insurance subsidies.

http://www.kansasagland.com/index.php?option=com_content&id=4838:plant-corn-or-milo&Itemid=55

[michigancat]

same guy

http://www.kansasagland.com/index.php?option=com_content&view=article&id=5010:is-this-crop-insurance-abuse&catid=51:vance-ehmke&Itemid=55

[Emo EMAW]

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[michigancat]

Wheat and More….or less

Remember the old saying…you can’t trust a dog to watch your lunch.

 

Well, in driving around the western Kansas neighborhood recently, it seems that’s exactly what we did. We told the dog to watch our lunch…and he ate it.

 

For every rule, there’s someone willing to break it. And among that crowd, there are those smooth talkers who can make it sound like a good business decision. To them, it’s just business. Others are even cheered on because they put one over on the government. Still others consider this a form of innovation. But it’s wrong. And at the end of the day, everybody pays.

 

Over the past several years, I and others have watched a growing trend with concern—and that is to continually push the fence on crop insurance abuse.

 

The big trend here in semi arid western Kansas this past fall was to plant “continuous wheat” immediately after harvesting dryland corn. And in many cases, the corn itself was also a failure. I call this 5-minute fallow but the crop insurance industry calls it continuous wheat because it will be harvested the following year.

 

What happened this past fall was classic. Because of the on-going drought, there was zero topsoil moisture and zero subsoil moisture after the summer row crop. Almost April, much of this wheat that was planted in these disastrous conditions has not even come up.

 

But why would you plant a crop that has almost l00% odds of failure? Because you can make a heck of a lot of money doing it…off crop insurance. Here’s how it works. My insurance agent says with a T yield of 27 bushels per acre, with 85% coverage and a wheat price of $7.15, the farmer’s share of the premium is $45/acre. He can easily put in the wheat crop for less than $20 giving him a total investment of just $65/acre.

 

Now with $165 in coverage and with high odds of failure, the farmer will almost triple his investment—and will certainly net $100/acre. For every quarter of ground, he’ll get an insurance check for $26,000.

 

But wait. The good news doesn’t stop here. We get to combine these very generous insurance loss payments with payments from other government programs like the Supplemental Revenue Assistance Program (SURE) or Congress’s disaster program. In SURE, the farmer gets paid again for the identical losses that had already been covered by crop insurance. Overall, it makes this type of activity incredibly profitable.

 

So who are the winners? The farmers doing it, of course. After they get their hefty checks, they’ll just fallow the ground and plant it to wheat the next fall—just like everybody else was going to do. I’ve even heard some of these farmers joke about using extremely low seeding rates to help ensure poor stands. Then in the spring when they’re “topdressing”, they’ll add a glug or two of Roundup herbicide to make sure the wheat gets sick and that the crop fails.

 

Yet sabotage is rarely needed. KSU researcher Alan Schlegel, Tribune Experiment Station, says this is a very risky rotation and simply getting a stand is very difficult.

 

While this is irritating to me and other farmers, even insurance agents who are selling policies to these farmers are disturbed by it. One said these farmers are clearly taking advantage of the system. “It’s just not right. And it’s bad for the crop insurance industry.”

 

I agree. The crop insurance industry is one of the casualties—not only their actuarial integrity, but their professional integrity.

 

What about the integrity of the farmer. Is this ethical? A quick acid test on ethics is to simply ask: Is anyone being hurt by these actions? Without a doubt.

 

Beyond the crop insurance industry, the US taxpayers clearly got a bloody nose. As we all know, crop insurance is heavily subsidized with normally 65 to 75% of insurance premiums paid for by the Federal government.

 

Who else gets hurt? Neighboring farmers….big time. To cover the losses, everybody’s rates go up and everybody’s coverage goes down. Not only that, this type of activity reflects very badly on farmers in general. The skeptical public really does have reason to wonder if all farmers are crooks.

 

And let’s not overlook the landlords. In many cases, older out-of-state landowners have cash rented their land. But part of their equity in the ground is their crop yield history, yield guarantees and insurance values which these planned-failure farmers consider theirs for the taking. That looks good on your Schedule F—screwed 80 and 90-year old landlords who trusted you.

 

In my mind, there is no question about the ethics of this. But is this legal? Is this a crime? In trying to find an answer to that question, I talked to a lot of people. One of them said when you sign an insurance contract, you agree to use best management practices and to do everything possible to make this a successful crop. That does not include planting wheat under disastrous conditions where the crop has no chance. This is fraud. This farmer cannot look you in the eye and say he intended to plant a crop that would succeed.

 

These farmers may say with the current high price, it justifies the risk of putting in the crop. Who knows, it could start raining and we could get a wonderful crop out of the deal. That’s true and that’s one of the nice things about having farmed for 35 years because I have seen that happen. And it was one year out of 35. Those are pretty good odds—if you’re betting on failure.

 

While we’re on this point, I didn’t say you couldn’t plant the crop. If you want to run the risk, go right ahead. But I sure don’t think the American taxpayer or your neighbor or your landlord has to share in your risk.

 

The whole system is weakened by these excesses. Because of the individuals practicing these high risk and non traditional rotations—especially under extreme conditions where failure is almost guaranteed—regulatory agencies are forced into more and more stringent restrictions on coverage and rates, all of which can have a chilling effect on legitimate farmers wanting to adopt new and innovative production practices.

 

All of this leaves us with one question. If USDA and the crop insurance industry continue to allow this, do we all now have to start using these very suspect crop production practices and rotations just so we can remain competitive with the over zealous farmers? That’s not a world I want to be part of.
- See more at: http://www.kansasagland.com/index.php?option=com_content&view=article&id=5010:is-this-crop-insurance-abuse&catid=51:vance-ehmke&Itemid=55#sthash.LGGf1QNW.dpuf

[john "teach me how to" dougie]

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[michigancat]

http://lubbockonline.com/stories/100198/LD0675.shtml

[Rage Against the McKee]

Some farmers say they plant corn because in the really good year, it’ll have a higher yield peak. Sorry. The data say something else. In the super optimum years, sorghum and corn do equally as well.

One thing I have noticed, though, is with certain farmers, corn is the crop of choice in the really bad years—because it dies so well. They don’t like grain sorghum because it really does have much better drought tolerance. It’ll hang on and hang on and hang on while corn just gives up.

These farmers openly promote corn for dire conditions because it makes their crop insurance plans and returns work so much better. But honestly, guys, I don’t think this is how we want to present our industry to the public. Planned failure really does not look good—especially to a skeptical public who has always struggled to understand farm subsidies and crop insurance subsidies.

http://www.kansasagland.com/index.php?option=com_content&id=4838:plant-corn-or-milo&Itemid=55

Well, yeah, if you are going to have a total loss, corn is probably better insurance-wise than milo because you will get to that total loss faster and have less input costs in the process. It's still going to devastate your 5-year average yield, though. Farmers aren't planting corn with the expectation of collecting the insurance. They are planting corn because on a good year, they will make a lot more money than milo, and on a bad year, the insurance is still there as a safety net.

I don't farm, so I'm sure that some of what I said may not be accurate, but the idea that there are a bunch of farmers out there just planting corn with the expectation of intentionally letting it die so they can collect insurance just doesn't make sense.

[EMAWican]

A fraction of a percent of the 2.2 million farmers took advantage of loopholes (that were closed) while the rest planted an extensively researched and modified high-end product with the most demand.  And LOL at milo since its domestic demand has been cut in half the last 35 years.

[Emo EMAW]

Sys would argue here that if you don't put restrictions on the insurance payouts it'd be more efficient and better for everyone, fraud be damned.

[sys]

michigan, what you posted (i didn't open your link) is insurance fraud.  that has nothing to do with subsidies, other than obviously it's more profitable if your costs are lower, but you can defraud private insurance just as easily as subsidized.


here's a good paper on crop insurance that i just googled.

http://www4.ncsu.edu/~bkgoodwi/papers/goodwin_final.pdf

[sys]

it's also, like someone else said, a stupid business model.  weather prediction is getting amazingly good, but it's still very poor for over 10 days forward.  one good fall rain and they could have planted a crop and gotten whatever yields the rest of the year's weather would have given them.  the guy is acting like it was a given that they couldn't produce a crop the following year.  that's complete bullshit.  this year's ks wheat was pretty bad, for example, what would you be willing to bet regarding next year's harvest?  i'll take either side of the bet on +/- average yield.

[michigancat]

michigan, what you posted (i didn't open your link) is insurance fraud.  that has nothing to do with subsidies, other than obviously it's more profitable if your costs are lower, but you can defraud private insurance just as easily as subsidized.


here's a good paper on crop insurance that i just googled.

http://www4.ncsu.edu/~bkgoodwi/papers/goodwin_final.pdf

I don't think it's fraud, but  farmers are definitely taking risks they wouldn't have if the government didn't subsidize their premiums.

[Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!)]

Don't forget the federally backed crop insurance programs, FSD.

Michigancat, please explain how affirmative legislation like farm subsidies qualifies as an "unintended consequence"?  Seems awfully intended to me.

Your Master,
Sugar Dick

I'm not sure what you're getting at here. I was helping you by adding to your list, because for the most part I agree with you on this topic. Although I don't think federal crop insurance was designed as an incentive to grow dryland corn where it has never grown well so the farmer can just collect insurance. Lots of farmers grow crops they really don't expect to produce because of crop insurance.

My rant was about unintended consequences of foolish government policy (recently coined "investment").  Crop insurance is not an unintended consequence of the settlement of a desert for farming crops that don't belong there, on the contrary it is a calculated incentive to encourage responsible farming (eg hedging risk to ensure there is opp capital for the next growwing season) to ensure a more stable food supply, and has its own unintended consequences.

 I'm glad you agree with me, and clearly you should more often, but you added nothing to my point.  All you tried to do was partisan the argument up by injecting what you believe to be a Republican pet project and mute the stupidity of your Democrat party.

[michigancat]

Don't forget the federally backed crop insurance programs, FSD.

Michigancat, please explain how affirmative legislation like farm subsidies qualifies as an "unintended consequence"?  Seems awfully intended to me.

Your Master,
Sugar Dick

I'm not sure what you're getting at here. I was helping you by adding to your list, because for the most part I agree with you on this topic. Although I don't think federal crop insurance was designed as an incentive to grow dryland corn where it has never grown well so the farmer can just collect insurance. Lots of farmers grow crops they really don't expect to produce because of crop insurance.

My rant was about unintended consequences of foolish government policy (recently coined "investment").  Crop insurance is not an unintended consequence of the settlement of a desert for farming crops that don't belong there, on the contrary it is a calculated incentive to encourage responsible farming (eg hedging risk to ensure there is opp capital for the next growwing season) to ensure a more stable food supply, and has its own unintended consequences.

 I'm glad you agree with me, and clearly you should more often, but you added nothing to my point.  All you tried to do was partisan the argument up by injecting what you believe to be a Republican pet project and mute the stupidity of your Democrat party.

OK

[steve dave]

re-reading what dax just posted dax realizes that dax could have done a better job with his first person narrative

[sonofdaxjones]

It's seems that Rusty and SD took some grumpy pills.

sad

[steve dave]

It's seems that Rusty and SD took some grumpy pills.

sad

read my post in a super happy voice. that's how I typed it.

[michigancat]

I have no idea what the eff dax is talking about.

[Brock Landers]

I think he's just saying the FCIC is a giant clusterfuck.

Also I'm not sure if he was the guy with the grievance or if that was a coworker.

[yoman]

I have no idea what the eff dax is talking about.

I feel like this is a common theme of this blog. But I love his posts anyway.

[michigancat]

I have no idea what the eff dax is talking about.

I feel like this is a common theme of this blog. But I love his posts anyway.

yes, they're always a treat

[WillieWatanabe]

http://online.wsj.com/article/SB10001424127887324425204578599743078256264.html

[sys]

http://www.npr.org/blogs/money/2013/07/12/201502003/episode-472-the-one-page-plan-to-fix-global-warming

[yoman]

http://www.ncdc.noaa.gov/sotc/global/2013/6

June was the 340th consecutive month of above average temperatures