Trust the ag lender, crop insurance cuts would most harm family farms

This is the time of year when farmers are meeting with their lenders to renew farm operating loans for 2016. The past few years have been challenging for producers as commodity prices have fallen, input costs have risen, and severe weather has damaged or destroyed entire crops. With the downturn in the ag economy, multiple years of lost revenue and less than favorable forecasts for 2016, many producers are facing the tough question: can I afford to continue farming?

Without access to capital, the answer to this question is a resounding no.

I’ve worked in the ag finance business in Texas for more than 30 years and have seen highs and lows in the farm sector. Though those in agriculture have always faced risks, those risks have escalated over the past two decades. Volatility has become the norm rather than an infrequent event. In the last five years farmers have experienced a multi-year drought, hail storms in October, late spring freezes, and too much rain literally drowning their crops. Prices for farm commodities have dropped drastically to below the costs of production as foreign subsidies and market-manipulating policies have drastically risen.

As a way to mitigate these risks and make access to capital possible, Congress selected crop insurance as the primary risk management tool for farmers in the last farm bill. The modern crop insurance system in place today replaced ad hoc disaster relief programs ensuring farmers would have some protection against natural disasters. Congress designed crop insurance to be affordable to the farmer, yet accountable, requiring producers to pay premiums for the insurance coverage on their crops and shoulder a portion of losses through deductibles.

INSURANCE ONLY PROTECTION AVAILABLE FOR COTTON

In the cotton industry, a major crop in the 43 counties served by AgTexas, crop insurance is basically the only risk management tool available to producers. It can literally make the difference between farming another year or losing so much a farmer must call it quits.

From the lending perspective, crop insurance provides a guarantee of a minimum income for a lender to rely on to repay loans should a farmer lose a crop. This insurance guarantee makes it much easier for producers to obtain the financing they need to farm. This is similar to the guarantee any car owner would have on their car loan if they got into an accident. Crop insurance is a safety net for some of the events that cannot be controlled.

For perspective, an average family farm in the panhandle of Texas farms between 1500 to 2500 acres and must borrow $500,000 to $1 million each year to produce a cotton crop. Because of the low price of cotton and the high input costs in 2015, many had farm losses exceeding $150,000. On top of the loss, they still have loan payments, living expenses, and the same farming costs to keep operating another year.

As producers and ag lenders work together to prepare cash flows for 2016, it is extremely difficult to forecast enough income to cover operating loans, meet debt payments, and pay living costs. Especially vulnerable are the young and beginning farmers who face these challenges with limited financial resources. These young producers and multi-generation family farms are the most affected by the volatile prices, increased production costs, and weather uncertainty in their operations.

Some in our country wish to do away with farm programs and any support of a crop insurance system that supports farmers and ranchers who produce the food and fiber that not only feeds and clothes our nation, but also serves other nations around the world. The reality is, without a viable, affordable crop insurance program most of these producers’ businesses will not survive. And if farmers go under, the Main Street businesses they support are not far behind.


Scotty Elston is the Chief Credit Officer at AgTexas Farm Credit in Lubbock, TX.

Farm policy, crop insurance wise investments for all Americans

Although I was born and raised on a farm, the standing rule in our house was I had to spend two years after college pursuing other things. This was not to discourage me from continuing the family farming tradition. Rather, my father wanted to make certain I knew what kind of life I was signing up for. Perhaps another job elsewhere would provide me with greater financial security and stability than one that was beholden to the weather, markets, foreign subsidies, and even lawmakers in Congress.

I recognized the wisdom in my father’s counsel, but after a couple of years, I knew I wanted to get back to the farm. By then I was married and the thought of raising my family in a small, rural town, combined with returning to the family farm, appealed to me. I have been farming on my own for the past nine years.

What I have learned during this time is this: farming is an enormous game of risk management. It’s not if something bad is going to happen, it’s when. I was aware of this reality growing up, but I fully appreciate it now that I am working to sustain my own farm and support my own family.

Droughts, floods, hailstorms, high input prices, unpredictable commodity prices, the uncertainty of what will come out of Washington whether it is talk of cutting the farm safety net during the life of a farm bill or applying a new regulation that increases the cost of doing business; in addition to competing with foreign governments that cheat on their commitments to free trade and fair markets. These are the challenges that farmers face every year. It is a life that is rife with risk and uncertainty.

Today’s depressed farm economy is a prime example. Commodity prices are half what they were a few years ago while the cost of doing business has not followed the same trend. The financial situation for many farming operations all across the country has deteriorated fast and many lenders are nervous about providing financing.

This is why we need strong farm policy and crop insurance to help us manage things beyond our control like a natural disaster or a collapse in commodity prices.

One of the least understood points about crop insurance is that it’s not just for farmers. That’s how we as farmers talk about it, that it’s a way to keep us in business when we suffer a catastrophic loss. That it’s a way to protect our yearly investment when things go wrong. That is all true, of course, but we don’t explain that it is also insurance for every consumer.

Just look at the drought of 2012 – one of the worst droughts on record – that devastated most of the country. There were times in our nation’s history when that kind of devastation would have put thousands of farmers out of business, especially beginning farmers like me, because farm policy and crop insurance wasn’t what it is today. But, that didn’t happen in 2012. Those risk management tools gave us the ability to stay in business, to make it another year. It provided banks with assurance that operating loans would be repaid despite large losses, and in the process it enabled us to keep a stable and affordable food supply for all American consumers because we were able to begin again.

What affects the farmer will affect the consumer. The tools that help farmers stay viable from year to year and decade to decade, allows consumers to get what they need and want in the grocery stores.

We’re all in this together. We have to remember that fact when Congress begins reauthorizing the next farm bill or some lawmaker in D.C. proposes an arbitrary and irresponsible cut to farm policy and crop insurance. These risk management tools serve us all, especially the next generation of farmers. They are a sound and wise investment for America.


Zach Hunnicutt is a fifth-generation farmer from Giltner who raises corn, soybeans, popcorn, seed corn and milo.