drought - farming
If you've been worried that this year's drought will put farmers out of business and leave Americans short of the staple crops they need to survive, relax. In its latest farm income forecast, the Department of Agriculture is reporting that U.S. farmers will make more money in 2012 than ever before, even as the country is facing its worst drought in 50 years.

How is this possible? Rising prices, for one. The U.S. is the world's biggest exporter of corn and soybeans. As the summer's extreme heat has baked the Plains and the Corn Belt, prices have naturally gone up at home and around the globe. This will help make up for the crops that farmers have had to abandon in the fields.

"With corn and soybean supplies for the 2012 marketing year expected to be the lowest in 9 years," the USDA said in its statement, "prices are increasing dramatically, resulting in higher expected 2012 calendar-year receipts for many crops."

Insurance Companies to the Rescue

Crop insurance is the other silver lining for farmers in what would otherwise be a very dark cloud, and a very dark fiscal year. Farming is beholden to the weather and other vagaries of nature, like crop-destroying pests and diseases, to a degree not experienced by any other industry. Also unlike any other industry, the lives of people around the world depend on American farmers staying solvent through these vagaries.

That's why farmers avail themselves of crop insurance, which does exactly what you think it does: protects them against loss of income from devastating acts of nature. According to Financial Times, agricultural economists from the University of Illinois predict that this year's drought will trigger crop insurance claims of nearly $30 billion.

One insurance analyst told Financial Times that the drought of 2012 is a "catastrophic event," and that it is "likely the largest [insurance] crop loss in history." The National Oceanic and Atmospheric Administration is reporting that the drought has hit 85% of America's soybean crop and 87% of the country's corn crop.

But Who Rescues the Rescuers?

So if we don't need to be worried about farmers, should we be worried about insurance companies and their ability to handle this unprecedented mountain of claims? After all, without companies willing to insure crops, it will only take one more catastrophic event to truly wipe U.S. farmers out.

As you might have already guessed, whether it's with too-big-to-fail banks or too-big-to-fail commodities, the federal government is the entity insuring the insurers. Of the $18 billion underwriting loss that will result from the $30 billion in crop claims, Uncle Sam will step in to cover $14 billion of it.

But while 2012 U.S. farm income is expected to exceed $122 billion, cash income is expected to exceed $139 billion, and farm equity is expected to increase to an all-time high of nearly $2.3 trillion, don't expect to see American farmers tooling around their fields in the latest luxury SUV or soaking up the sun in the south of France anytime soon. Federally backstopped crop insurance won't make them rich, but it will allow them to do what they've always done: feed the world, year after year, no matter what nature throws at them. Those are your tax dollars at work, but given what's at stake, it's hard to argue they're not dollars well spent.



John Grgurich is a regular contributor to The Motley Fool.

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10 Comments

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amani4000

Who is going to bail me out in January when it is either food for my family to stay alive, or fuel oil so we don't freeze to death? All of you Liberal Pumpers please send my kids a buck each, you have so much to give so it seems.

September 05 2012 at 7:10 PM Report abuse rate up rate down Reply
nklswrth

So when crop insurance goes through the roof next year to recover thier losses this year, how many farmers will go under cause they can't afford it? I wish unemployment insurance paid as well as crop insurance......

September 05 2012 at 12:38 AM Report abuse rate up rate down Reply
Terry and Mandy

This article should be used for fertilizer for next years corn and soybean crop. It is a huge pile of horse s__t.

September 04 2012 at 10:01 PM Report abuse rate up rate down Reply
no1ryb

I'm amazed, We get the story, the analytical synopsis, and the product line all in just one short article. Like sprinkling feed in front of a cattle chute. We all just march the right direction. This article is misleading and perfuctory information with a political flair. Armchair politics. How in the world can the American public possibly profit from a 14 Billion dollar debt ? Will this insurance cover all the farms in America or just big business farms with foreign investments ?

September 04 2012 at 4:26 PM Report abuse rate up rate down Reply
dmcdan1004

The problem is Farmers aren't raising food anymore, there raising corn to be used for Ethenal. We need to protect our food source and quit forcing consumers to use Ethenal. Food prices would be alot more economical. We can live without fuel (would hate to) we can NOT live without food!

September 04 2012 at 2:28 PM Report abuse rate up rate down Reply
joethightwad

Most of this year's crop was, as usual, sold in the futures market before the seed was in the ground. Few farmers will reap any benefit from today's higher prices while they remain obligated to make delivery on those futures sales. Insurance will cover up to only 75% of their loss. Federal insurance does not exist for every crop in every county in the country. A small fruit grower, for example, in a county that produces mostly grain may not be able to obtain government insurance.

September 04 2012 at 2:25 PM Report abuse +4 rate up rate down Reply
mcquirk

Have you thought about what happens next year, and the year after that, if the droughts continue?

September 04 2012 at 2:16 PM Report abuse rate up rate down Reply
Hey Razor

How is there any silver lining to this with the American people?

September 04 2012 at 1:00 PM Report abuse rate up rate down Reply
2 replies to Hey Razor's comment
hattie54

We pay way less for groceries than most countries pay.

September 04 2012 at 1:26 PM Report abuse -3 rate up rate down Reply
gov111w

The Farmer will survive to grow the food you need to eat next year, rather than abandone their farms for the lack of income.

September 04 2012 at 1:49 PM Report abuse -2 rate up rate down Reply