It’s a challenging time for agriculture. Trade wars are brewing. Prices are down. Interest rates are going up. Producers are worried about their bottom- line.
We often blame Congress. But they deserve enormous credit for recently making a change to the crop insurance program that will be looked back upon, for livestock and dairy producers, as every bit as consequential or more than Farm Bill passage. On February 8th Congress eliminated a $20 million cap on the sales of livestock insurance products. The $20 million cap has led to livestock insurance programs being shut down and stifled innovation that could benefit the livestock sector. Yet, thanks to Congress, USDA now has the authority to provide livestock producers risk management tools that would have been impossible 7 months ago.
This change already allowed USDA’s FCIC Board of Directors (FCIC Board) to approve Farm Bureau’s Dairy Revenue program. A vital program for the dairy sector, that, but for the removal of the cap, would have been unable to operate. Now, the challenge is delivering the product to dairy farmers as quickly as possible to meet today’s extraordinary needs. Having worked with the team at the Risk Management Agency who is responsible for delivering new insurance programs, I couldn’t be more confident that they will deliver for America’s dairy producers.
The next big decision facing the FCIC Board is whether they will improve risk management options for cattle and pork producers. At their meeting in August they must decide whether to approve improvements to the Livestock Risk Protection (LRP) plan of insurance. LRP is a market-based program that uses futures prices and allows cattle and swine producers to insure against unexpected price declines. LRP offers protection against unpredictable market downturns – exactly what producers need today.
Due to statutory language that requires USDA to keep a “reasonable reserve” most crop producers receive a 50% discount on their premium. That is why crop insurance is affordable and participation is strong. However, for LRP there is effectively no discount. That made sense with a $20 million cap. It doesn’t make sense today. And with today’s market volatility and struggling ag economy it needs to be changed. Soon.
The developer of LRP, with strong support from livestock producers has requested the FCIC Board make LRP more affordable by providing producers around a 22% discount. That’s half of what an average corn farmer receives and well below Livestock Gross Margin-Dairy -- and likely well below the recently approved Dairy Revenue Program. As an agent, I have found that sometimes the producers who need insurance the most cannot afford the premiums. This change will make a real difference for those producers.
Besides affordability, LRP has struggled to offer producers adequate insurance options, especially for producers who want insurance against longer term price declines, such as 9-12 months in the future. The LRP developer has requested additional flexibility, allowing significantly more options for livestock producers and providing better insurance that matches when producers want coverage.
Times are challenging for agriculture producers. Secretary Perdue recently announced measures that will help agriculture’s producers in these uncertain times. The FCIC Board has the opportunity to help the Secretary. For livestock producers, improving LRP, a market-based safety-net program where producers have skin in the game would be a strong step in the right direction. Congress did its part. Now, USDA’s FCIC Board has the opportunity to improve the safety-net for America’s livestock producers.
About the Author: Brandon Willis worked on Capitol Hill for U.S. Senator Max Baucus, served as a senior advisor to Secretary of Agriculture Tom Vilsack and was the administrator of the Risk Management Agency. He currently teaches at Utah State University, consults for Combest, Sell and Associates, and is an insurance agent who works with livestock producers and sells LRP.