Who IS Going To Pick Up the Tabs From Crop Damage

Implications: Flooding across the Midwest is causing billions of dollars of crop damage as corn and soybean crops are killed or washed away. What had looked as a stellar year for farmers throughout the Midwest will result in some major losers, starting with farmers and livestock producers, and continuing with crop insurance companies and the U.S government that back those policies.

Analysis: It is still too early to know how many acres of corn and soybeans with be lost this year, but the insurance claims will be in the billions. It appears that there could be as much as 2-3 million acres EACH of corn and soybean lost around the country. While we have been focused on the flooding in Iowa these past few days, there have been lost crops in Nebraska, Missouri, Illinois, Indiana and Wisconsin as well. Today there was a levy on the Mississippi river that was breached flooding several miles of farm land on the Illinois side of the river.

This article by Business Week uses an estimate based on the loss ration of 2.19 from the terrible 1993 flooding and based on  the estimated $8 billion of crop insurance for this year, the insurance losses could be over $16 billion. The flood in 1993 started much further north and west, so even with the water levels in some areas in Iowa being much higher, it is possible that the farm damage will not reach a comparable ratio. My quick estimate based on the high end of potential lost acres would be "only" $8-9 billion for crops. Of that, the government would cover 23% of the losses.

Who are the big players in the crop insurance business? Some of the biggest are Wells Fargo, Ace. Ltd. (Ran and Hail LLC), Westfield Insurance Company ( John Deere Risk Protection Inc.) and  Agricultural Insurance Company.

The farmers will not recover all their losses, and there will be some hard times in a year when most farmers expected to hit the jackpot. One of the saddest losses, will be farmers who sold or hedged part of their crop last year when corn was trading around $4/bushel. It hurts when you have to buy in your contract at a $3/bushel. It would have hurt to deliver the corn when the market had gone up so much, but it stings when you have to actually pay cash for that difference.