Less Wheat Disaster Aid on 2001 Montana Wheat

Dear Art,

I, as a Montana Wheat Grower, read with growing trepidation your article entitled, "Somebody in Washington Loves Kansas Wheat Growers". The further I got through the article, the clearer it became to me that Kansas has a lot more pull than Montana when it comes to dealing with the people and the machinery in Washington D.C.

We here in Montana have been STUCK in a mind numbing drought going on 6-7 years now, while Kansas has had what, 1 or 2 years of sub-par wheat production, and yet WOW, 2002 crop year is where all the loss is at?

In 2001, on my farm in Montana , I harvested less than half of my wheat acres, and the rest was not worthy of harvesting.

Yet if I savvy from your analysis of the prices that are going to be used in determining payment caps for disaster, prices used for production and prices used for indemnities paid, I as a CRC purchaser in 2001, will feel like a heel because I was STUPID to try and manage my own risk as I will be severely penalized when it comes to figuring the payment caps!!

In Montana, we were paid $3.34 (the 2001 CRC price was $3.31) a bushel on our CRC spring wheat policies in 2001, and that is what we will have to use in figuring our indemnity that counts against our disaster cap, yet the price used in the payment cap will be $2.80? Where is the logic here? As far as the price used with actual production, that is irrelevant to me, AS I HAD NO PRODUCTION!!!! I took it upon myself to buy up my coverage as I had CRC at 75%, while a lot of other producers choose to sit in the coffee shop and whine about this and that and from what I read in your analysis I would have been better off to be in town with the rest of the whiners doing nothing, had the same low level of coverage and expenditure, and paid for all the coffee myself!!!

Please don't feel I am "shooting" the messenger so to speak, I really do follow your work and appreciate what you do.

Thanks,

Montana Wheat Grower

Dear Montana Wheat Grower,

I am not so sure Kansas wheat growers have the Washington connections that you suggest (however, most Kansans would agree they are pretty good). It is more of a case that the numbers worked out for Kansas this time and remember the final decisions for disaster aid have not been finalized. It is true the wheat payments are lower for 2001 wheat losses than 2002 because the prices were lower. The problem with a national program is there are many different types of wheat and markets for wheat. Kansas hard red winter wheat normally has a higher price than soft red winter wheat but it is all counted as winter wheat. Pacific Northwest winter soft white wheat normally has a higher market price than Kansas wheat. So the “all” winter wheat price does not really fit Kansas either and MPCI-APH only has the one price.

Most reasonable people would agree this per acre payment cap in a National program is not easy to define and there is only one MPCI-APH wheat price election that is now a part of the disaster payment formula (durum wheat has a separate MPCI-APH price election). This is just wheat; now add all of the fruits and vegetables that are covered under disaster aid and one starts to understand the problems that USDA is facing. The per acre payment cap clearly competes with high levels of crop insurance and complicates life at USDA. It also complicates decision making for farmers.

Analysis for a 2001 Montana Wheat Loss. The 2001 NASS “all wheat” price was $2.78 and the MPCI-APH price election was $2.80 and one would use $2.80 because it is higher. That price would set the cap, value of production and disaster payment rate. The 2001 wheat disaster payment rate is lower $1.40 ($2.80 MPCI-APH 2001 price election times 50%) versus 2002 disaster payment rate of $1.575 ($3.15 MPCI-APH 2002 price election times 50%).

The Montana wheat analysis assumes a 35 bushel APH (use county yield if higher) and a Montana CRC planting price of $3.31 and a harvest price of $3.10 for spring wheat in 2001[1]. Those numbers were used to generate tables 1 and 2. If USDA uses the 2001 “all wheat” price for setting the cap and value of production then the cap will cut the payment for 75% CRC insured growers assuming a 95% yield loss (table 1). If USDA uses the 2001 NASS spring wheat price to set the cap ($3.06) then the reduction in disaster aid is smaller but there is still a cut (table 2).

Most insured growers agree they are better off with the disaster aid. While it appears that some Montana wheat growers will not receive the full payment, 50% of something is still better than 100% of nothing.

If Montana wheat farmers could make the 2001 crop insurance decision today, clearly they would buy less coverage. The cap is a real problem if public policy makers want farmers to buy higher levels of crop insurance coverage.

Crop insurance is a more certain program and most claims are paid much faster than any disaster aid. Some insured farmers will likely be upset if the cap cuts their disaster aid payment but will still buy crop insurance because they can not count on future disaster programs. Even if there is a disaster program it may not look like this one.

Count Only Taxpayer Funded Indemnities. An alternative cap is for USDA to only count the share of the insurance indemnity payment that was paid for by taxpayers. The share of the insurance contract that was paid for by farmers should be treated as private insurance and that share of the indemnity payment should not count against the cap. For example, farmers paid 45% of the 75% crop insurance coverage premium therefore 45% of any indemnity payment should NOT be counted against the disaster payment cap because it was funded with private dollars paid by farmers. USDA is counting 100% of the indemnity payment against the cap but only funded 55% of the insurance payment. If this approach had been used few if any (probably none) farmers would have had there disaster aid reduced for buying crop insurance. That would have added to budget costs and some Washington analysts argued that the law did not allow that approach.

Many farmers would agree with you this cap is a “bad” policy for highly insured growers. However, highly insured growers must also suffer a severe yield loss before their disaster aid will be reduced. Montana wheat growers with a 50% yield loss are unlikely to exceed the per acre payment cap. Also the insured grower with a 35% yield loss often will suffer a greater financial loss than an insured grower with a 100% yield loss, but this disaster program provides no help for the 35% loss.

Thanks for the question.

ART

[1]Source: RMA WEB page. The values in your email were a little different than the 2001 Montana CRC prices published on the RMA WEB page.