Crop Insurance Today May 2015 - (Page 4)

CropInsurance TODAY The Year in Review By Drs. Keith Collins and Laurence Crane, NCIS Overview The 2014 year was another successful demonstration of sales and service for the crop insurance industry. Yet, the year turned out to be frustrating in several aspects. After two successive years of gross losses (indemnities exceeding premiums), the natural expectation was for a return to fewer losses and more normal returns. But that was not to be, as lower crop prices and pockets of production losses pushed the gross loss ratio to 0.89, the fourth highest in the past decade. (Unless indicated otherwise, data in this article are as of April 20, 2015.) The 2013/14 winter featured extended periods of extreme cold. While many areas had adequate precipitation, cold and variable temperatures, wind, periods of inadequate snow covering and dryness hurt the 2014 winter wheat crop, which declined 11 percent from 2013. Spring was slow to come, and planting delays occurred in the Northern tier of states. Later in the spring and during the summer while California suffered, weather generally cooperated elsewhere, and much of the nation had a more favorable growing season. Corn and soybeans consistently had high ratings of "good" to "excellent" throughout the summer and into the fall, and production of many crops was up in 2014. Corn yield and production set record highs. With soybean planted area up as corn area contracted, soybeans, too, featured record highs for yield and production. Other 4 MAY2015 oilseeds also saw production gains, such as sunflowers, canola and peanuts. The spring wheat crop was sharply higher with the Dakotas having record yields. Cotton and rice production were also higher, despite much lower rice area in California. Among specialty crops, vegetable and citrus production declined in 2014. The increase in production of major crops again is leading to increased carryover stocks and lower prices. The index of prices received for crops by farmers was down nine percent from January-December 2014, which followed a 19 percent decline in the prior 12-month period. The weak farm markets resulted in sharp declines in crop insurance base prices for all major crops for 2014. The market price declines continued into 2015, reducing base prices again for all major 2015 crops. The drop in 2014 base prices, combined with lower volatility factors (which are used to set premium rates) for all major crops, contributed to a 15 percent drop in total program premiums. As of this writing, the program provided farmers with protection on $109.8 billion in crop value in 2014, and the crop year loss ratio (indemnities divided by premiums) stood at 0.89. While an improvement over the past two years, the final loss ratio is expected to exceed 0.90 and keep the returns to the crop insurance companies anemic under the financial terms of the current Standard Reinsurance Agreement (SRA), which has been in effect since 2011. The cumulative underwriting gains of the insurance companies during 2011-14 are likely to be

Crop Insurance Today May 2015

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