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Most of the money that gets paid out to crop insurance holders gets paid out because of drought. Sixtyone percent of the money paid to Virginia farmers from 1981 -88 was paid to those who lost crops because of drought.
Besides depending on Congress, farmers may balk at buying insurance because of cost concerns or unrealistic optimism, Mr. Pease said. “Everybody hates insurance,” admitted Joel Plath, Extension agricultural economist at Virginia State. “It’s just another added cost.”
The cost of crop insurance varies according to a farmer’s average crop yield, his chosen coverage level, his price selection and the going premium rate. A farmer with 100 acres of corn and an average yield of 100 bushels per acre might pay $500 to cover his crop. At that same insurance level, he would receive $13,000 in the event of complete crop loss.
Most farmers get coverage that pays not only when more than 35 percent of their crop is lost. Since most farmers think the chances are slim of producing less than 65 percent of their expected crop, they don’t think to take out crop insurance.
“A lot of farmers may say ‘I’m an optimistic person, I think my chances of getting a good crop are pretty high,”’ Pease said, “but those farmers are not looking realistically at the chances of getting a bad crop. If we look back at recent years in Virginia, the chances of getting a disaster drought year are also pretty high.”
Crop insurance would be an unwise investment for only a minority of farmers, Mr. Pease estimated.
“There are a certain number of cases where you are in such bad financial shape that crop insurance is not worthwhile — in essence, you’re on your own one-yard line with a fourth-and-10 and there are only 30 seconds left in the game,” he said. “In that case you have to go for broke.
“But far more prevalent is the situation where you should play it safe and go for that solid four yards up the middle.”
For farmers who want to find out whether crop insurance is a good investment, FCIC has helped develop a computer program that can work up some figures for them.
The deadline for farmers to sign up for crop insurance is April 15, and the farmer’s cost for the insurance is tax-deductible.
90.6%