PUBLICATION OF NATIONAL CROP CR OP INSURANCE SERVICES ® INSU RANCE VOL. 42, NO. 3 AUGUST 2009 TODAYTM 2008 A Year in Review AFA Affecting the Future of the Crop Insurance Industry Rural Community Insurance Agency, Inc., D/B/A Rural Community Insurance Services. RCIS is an equal opportunity provider. © 2009 Rural Community Insurance Agency, Inc. All rights reserved. TODAY PRES IDENT’S MESSAGE Crop In sur ance plays CRITICAL ROLE Laurie Langstraat, Editor I would like to extend congratulations to William J. Kelly Moyer, Assistant Editor “Bill” Murphy on his appointment as Administrator of TODAY IS PROVIDED AS A SERVICE OF the Risk Management Agency. Bill brings close to 30 NATIONAL CROP INSURANCE SERVICES ® TO EDUCATE READERS ABOUT THE RISK years of experience to the job, all of which will be MANAGEMENT TOOLS PRODUCERS USE extremely important this year as we enter into a TO PROTECT THEMSELVES FROM THE RISKS ASSOCIATED WITH volatile time for American farmers and ranchers and PRODUCTION AGRICULTURE. the future of production agriculture in this country. TODAY is published quarterly–February, May, August, and November by There is no substitute for tried and tested experience National Crop Insurance Services when U.S. agriculture is facing this most unusual time 8900 Indian Creek Parkway, Suite 600 Overland Park, Kansas 66210 of economic uncertainty. Bob Parkerson, NCIS If you move, or if your address is incorrect, One of the most important items that the people please send old address label clipped from recent issue along with your new or corrected address to who produce the food and fiber for this country and many parts of the world rely on is Laurie Langstraat, Editor, at the above address. credit to see them through each year of production. Credit is key to getting them start - NCIS Website: http://www.ag-risk.org ed every year when they need to purchase seed, fertilizer and other inputs. Credit helps them to expand and develop their farms and ranches. And what makes this even more important is the fact that Mother Nature is an uncertain partner…a partnership that will determine whether you make a profit or not. Even if you have a bumper crop, it is not necessarily a winning situation. Depending on the elasticity of demand and other market fundamentals, lower prices resulting from higher yields could possibly result in fewer dollars. With the collapse of several rural NCIS ® EXECUTIVE COMMITTEE and agricultural lending institutions this past year, credit will become an even bigger Steve Harms, Chairman Steve Rutledge, Vice Chairman issue for producers. One of the keys to acquiring this all important credit is a strong risk Ted Etheredge, Second Vice Chairman management tool. Managing risk is not only important for the producers of food and fiber, but for the commercial lenders who supply the credit. These lenders must be able NCIS ® MANAGEMENT Robert W. Parkerson, President to stay in business and remain solvent so that they can continue to provide the needed Thomas P. Zacharias, Executive Vice President P. John Owen, General Counsel help year after year. James M. Crist, Controller These lending institutions that provide the financial assistance to the agricultural Laurence M. Crane, Vice President Dave Hall, Vice President sector will rely heavily on the crop insurance industry to deliver and provide the Frank F. Schnapp, Vice President much-needed risk management tools to complete this critical arrangement. What will keep this delicate balance moving forward? It is the ability of U.S. agriculture, banking Creative Layout and Design by Graphic Arts of Topeka, Inc., Kansas and insurance companies to attract the investment dollars in the open market. And all face strong competition from many manufacturing and industry segments from across the globe. As we prepare to negotiate this next year’s SRA, it will be important for us to keep Winner of The Golden ARC Award this critical financial balance in mind so that the ever-demanding need for food and fiber Printed on recycled paper. can continue to flow to an ever-increasing world population. CROP INSURANCE TODAY 1 CR OP INSU RANCE VOL. 42, NO. 3 AUGUST 2009 TODAYTM Table of Contents 1 Crop Insurance Plays Critical Role 4 2008: A Year in Review 12 Antitrust Issues in SRA Negotiations 16 Listening & Learning 4th Annual Program Integrity Conference 24 21 Opportunities to Diversify Verification of Carbon Credits/Offsets 24 AFA: Affecting the Future of the Crop Insurance Industry 27 NCIS Services Spotlight 28 2008 Research Review 36 In Memory of E. Ray Fosse 38 Update: Crop Adjuster Proficiency Program (CAPP) 28 Visit www.cropinsuranceinamerica.com ON THE COVER On June 10-11 the NCIS Missouri R/S Crop Insurance Committee PUBLICATION OF NATIONAL CROP CR OP INSURANCE hosted a loss adjuster school in Columbia, MO. This two-day school was ® SERVICES INSU RANCE held at the University of Missouri Bradford Research Center. The first day VOL. 42, NO. 3 began with basics for new adjusters, those with less than three years of TODAYTM experience. Later in the day, more experienced adjusters joined the school. The school focused on calculating Crop-Hail and MPCI losses on wheat and soybeans. Faculty from the University of Missouri spoke about 2008 A Year in Review current wheat diseases and insect problems. To supplement classroom AFA Affecting the Future of the Crop Insurance instruction, adjusters and plot leaders practiced hands-on adjusting Industry techniques. The Missouri Committee takes great pride in the amount of field time spent at this school. Ten AIP companies were represented at the school with a total of 72 attendees from ten states. 38 Photos by Lynnette Dillon, NCIS THE PAST, PRESENT AND FUTURE OF AGRICULTURAL RISK MANAGEMENTSM Over the past 80 years we have worked rigorously to set the mark for service and customer satisfaction in the crop insurance business. We assure you that on a daily basis we earnestly focus on one goal – helping you and your family keep farming. Isn’t it good to know that when things are unpredictable, we have it under control? To learn more about how we can help you manage your complex risk management needs– visit www.ProAg.com. Producers Ag Insurance GroupTM D/B/A ProAgsm, is comprised of Producers Agriculture Insurance Company, Producers Lloyds Insurance Company—the insurance policy issuing companies—and Pro Ag Management, Inc., the managing and servicing affiliate. The insurance products offered may not be a complete list of all products offered and may not be offered in all states. ProAg is an equal opportunity provider. © 2009 ProAg. All Rights Reserved. TODAY crop insurance 2008A Year in Review By Frank Schnapp, Keith Collins, Mike Sieben, and Thomas P. Zacharias, NCIS its requisite “storm” of cuts for the crop insurance program. Overview Consequently, when viewed from the rear view mirror, the results Although the 2008 crop year is definitely behind us at the time of 2008 will temper the path of the crop insurance industry for of this publication and we are well into the 2009 crop season, the several years to come. actuarial and statistical results for 2008 are now pretty firm and well With that said, the purpose of this article is to review the 2008 into focus. Unfortunately, much like the movie scene of the crop insurance season and highlight some of the dramatic events Tyrannosaurus Rex from Jurassic Park and the lyrics of Meat Loaf, that shaped the year. We will begin with a discussion of the spring “. objects in the rear view mirror may appear closer than they weather conditions that set the stage for the remainder of the year. are . .,” the 2008 crop year had much in common with the Disney That will be followed by a discussion of prices and price volatility theme park’s “Mr. Toad’s Wild Ride .” Beginning with commodity in the commodity markets throughout the year. Crop-hail experi - prices for corn and soybeans at historically high levels, the year was ence for both the U.S. and Canada will then be reviewed. Next will characterized by difficult planting conditions and spring flooding in be a discussion of the results for the federal crop insurance program the Corn Belt followed by major hail storms in the U.S. and Canada, with a focus on the dramatic drop in commodity prices that led to and then the precipitous decline in commodity prices coupled with significant losses for the industry’s revenue products. And lastly, no the catastrophic downturn in the general economy. In addition to review of 2008 would be complete without a summary of the Farm the weather and the markets, the 2008 Farm Bill was passed with Bill and its economic impacts on the crop insurance industry. Weather Figure 1 Despite many damaging weather March-May 2008 National Climatic Data Center/NESDIS/NOAA events, the production of major field crops generally turned out favorably in 2008. The crop year began with winter crops seeded in mostly dry conditions in the fall of 2007, which reduced hard red winter wheat plantings. Over the winter, most of the nation experienced above normal precipitation, which provided favorable snow cover for winter crops and relief in the far west from ongoing drought. However, parts of the southeast, Texas, and Colorado faced below normal precipitation. The growing and harvest seasons for winter wheat were much improved over 2007, with sharply higher production in Kansas and Oklahoma, but drought-reduced output in Texas and Colorado. Hard red winter wheat production rose eight percent over the 4 august 09 pre vious year, and soft red winter wheat Figure 2 production increased 74 percent over the Planting Progress for Major Spring Field Crops for 2008 prior year’s freeze-damaged crop, aided by more acreage and record-high yields in many states.