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Crops Hurt, But Farmers Will Still Get Paid

Despite the severe drought that is destroying crops across the midsection of the U.S., many farmers will not face significant declines in income because of crop insurance and record prices for corn and soybeans
August 8, 2012

Despite the severe drought that is destroying crops across the midsection of the U.S., many farmers will not face significant declines in income because of crop insurance and record prices for corn and soybeans. Economists do not expect the income of commodity farmers to fall greatly and predict that one of the strongest sectors of the U.S. economy will remain stable. Joseph Glauber, chief economist for the U.S. Department of Agriculture, said that most growers will be able to manage the losses. Most crop producers have had strong incomes for several years so their current financial position is much better than during the last major drought in 1988, which prompted the federal government to provide billions of dollars in assistance and reform its safety net.

One of the major changes expanded the crop insurance program so that nearly all farmers in the Corn Belt are now covered. The most common crop insurance covers changes in price as well as crop losses, so the current conditions could lead to $20 billion in claims payouts by the federal government and insurance companies. Last year, nearly 70 percent of the crops in the U.S. were insured. Over the last 10 years, the government has not seen underwriting losses on crop insurance as premiums have exceeded claims, but this year is expected to be different.

Insurance Offsets Crop Losses on Drought-Hit Farms (Wall Street Journal video 7/31/12)

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