As a family farmer from central Indiana, it is an honor to testify to the committee today
concerning federal crop insurance subsidy programs and their impact upon our farm.
While risk is an inherent part of any farming business, the risk in today's marketplace
has been greatly reduced in the past 20 years. Crops are more drought and pest tolerant.
The purchasers of our commodities have introduced many excellent risk transferring
tools as additions to their purchase contracts. And lastly, this committee has initiated
the long overdue transition from a socialized agriculture to a free enterprise based
farm sector where the most efficient have an opportunity to prosper.
As the foundation for my testimony this morning, I'd like to share with you the actual
case study of the existing crop insurance options available to our farm for the 1999 crop
year. I hope you will better understand our decision not to participate.
Actual Farm History for Analysis:
Labor: 10 Full-Time Farm Employees (5 Owners)
Corn Acres - 2,431
Corn Budgeted Cost of Production = $1.89/bu. = $277 per Acre
Corn Yield - 14 year average proven yield = 145.6
Corn Yield - 5 year average proven yield = 144 = APH
Lowest Corn Yield =105.7 in 1991 & 111.6 in 1998
Soybean Acres - 2,290
Soybean Budgeted Cost of Production = $4.98/bu. = $253 per Acre
Soybean Yield - 14 year average proven yield = 50.3
Soybean Yield - 5 year average proven yield = 50.9 = APH
Lowest Soybean Yield = 36.3 in 1988 & 42.1 in 1995
Hog Production = 11,000 Head per Year: Budgeted Cost =33.20/cwt
Corn Crop Insurance Options:
Federal CAT coverage: Yield Guarantee = 72.0
Price Guarantee = $1.16
Coverage per Acre = $84.00
Cost per Acre = $0.03
MPCI Coverage @ 65%: Yield Guarantee = 93.6
Price Guarantee = $2.10
Coverage per Acre = $197.00
Cost per Acre = $5.00 ($2.33 this year due to subs.)
MPCI Coverage @ 75%: Yield Guarantee = 108.0
Price Guarantee = $2.10
Coverage per Acre = $227.00
Cost per Acre = $10.00 ($5.10 this year due to subs.)
CRC Coverage @ 75%: Yield Guarantee = 108.0
Price Guarantee = $2.40
Coverage per Acre = $259.00
Cost per Acre = $15.00 ($9.16 this year due to subs.)
CRC PLUS Coverage: Due to poor product design this product is
quite unpredictable.
ARM Coverage: This is a good policy for poor price risk managers. Good managers
with this weakness should recognize it and utilize the product. Over the long-term,
especially in drought years, the good price risk manager will have a
large advantage.
RULON ENTERPRISES COVERAGE SUMMARY TABLE (per acre):
Type Coverage Added - Added = Potential Yield Possible Adjusted Economic
Coverage Cost Benefit Floor Occurrence Value* Benefit**
No Ins. $0.00 $0.00 $0.00 = $0.00 0
CAT $84.00 $84.00 $0.03 = $83.97 72.0 1% $0.84 $0.81
MPCI-65% $197.00 $113.00 $5.00 = $108.00 93.6 2% $3.24
($1.76)
MPCI-75% $227.00 $ 30.00 $5.00 = $ 25.00 108.0 8% $2.00
($3.50)
CRC - 75% $259.00 $ 32.00 $5.00 = $ 27.00 108.0 1%***
$0.27 ($4.73)
FIELD K $184.28 $116.42 $9.03 =$107.39 87.8 14% $15.04 $6.01
(MPCI -75% - APH yield = 117; CAT coverage = $67.86
per acre)
* Adjusted Value = Potential Benefit multiplied by the years per 100 the event would
likely occur on our farm.
** Economic Benefit = "Adjusted Value" minus Cost of Coverage
*** The possibility of our yield being under 108 and the price still being at $2.40 or
less rapidly approaches zero. No occurrences would have occurred in
this century.
CONCLUSIONS:
1. We find that at all current levels of coverage being offered, over the long-term,
only CAT coverage is cost effective in our operation. Self-insurance is a more
profitable course of action. As well, there appears to be no reason for the govern-
ment to interfere by artificially reducing the rates to encourage enrollment.
2. Despite the fact that we can guarantee 93% of our cost using the CRC coverage,
it is not cost effective due to the very poor chance of having a claim.
3. Most importantly, if we analyze our farm as individual fields, the results are quite
different. For example, FIELD K above, results in a positive economic benefit for all
classes of coverage. Even though the insurance coverage is less per acre, the rates
are the same while the odds of collecting increase fourfold. This occurs because
the distribution of average yields on less productive soils NOT A NORMAL BELL
CURVE distribution. For us, this proves that the current rate schedule is skewed
in favor of the more variable producing areas.
4. The analysis for soybeans produces very similar results.
COMMENTS CONCERNING THE CURRENT PROPOSED PROGRAM CHANGES:
1. PRICE MITIGATES LOSS: For the bulk of the corn belt, the price response
from the marketplace compensates for any yield reduction. For example, in
1988, our average price increased $1.13 per bushel, or $126.10 per acre, due
to the reduced yield. Actual revenue per acre in 1988 was $351.54 versus a
budgeted $360.00. Financially, the 1988 drought was not a disaster. Exist-
ing insurance programs provide coverage for single-farm catastrophes.
Raising gauranteed yields, or prices, is sure to distort market signals and
reduce composite net farm incomes.
2. MANAGEMENT MITIGATES LOSS: Our average corn yield of 144 compares
to the county average yield of 129.9. We achieve this level of productivity by
making large investments in: training and education; no-till equipment and
technology to conserve soil and water; subsurface tile drainage; site-specific
management of fertility; and, timeliness of field operations. These items require
capital and management to implement.
We are quite concerned that the proposed crop insurance modifications will
penalize us for good, enviromentally sensitive operation of our farm. Increasing
crop insurance subsidies will absolutely increase production and lower prices.
As well, it encourages production on non-productive soils.
3. FREE MARKET ECONOMICS ARE WORKING: The current acreage shifts that
the free market is forcing upon agriculture are working. In response to market
conditions, acreage is shifting to more appropriate growing areas. This is in the best
interest of farmers and consumers over the long-term. The short-term pain of adjust-
ment creates hardships. Assisting producers through this period of adjustment is a
noble cause that should be limited to AMTA and LDP policies. Modifying crop
insurance to help inefficient, or highly variable, cropping areas succeed will
only serve to reduce composite profitability for the entire industry.
4. LIVESTOCK REVENUE INSURANCE: The current suggested inclusion of
livestock into the government insurance or revenue assurance programs is a
nightmare in waiting. This proposal is very ill-advised and likely extremely costly.
- Well-managed hog producers made profits in 1998 despite the 4th quarter
debacle. The rationale for revenue assistance is hard to justify.
- The marketplace offerred numerous ways for good managers to shift price
risk to others and lock in a profit through all of 1998. As a farmer, I chose to
assume this risk. We do not want the government to come to our aid.
Frankly, we assumed the risk and learned a valuable lesson.
Thank you, Mr. Chairman for accepting my testimony.
Biography:
Ken Rulon is a family farmer from Cicero, Indiana. His family farms
in a general partnership called Rulon Enterprises. The Rulon family began
farming after homesteading in Indiana in 1837 and 1869. The farm currently
operates 4,976 acres in Hamilton and Tipton counties in Indiana. The farm
also is the sole owner of Bryant Premium Pork, LLC. which produces over
10,000 high quality lean hogs annually.
The farm consist of: Jerry, Ken's father who started farming in 1963; Roy,
Ken's brother who started farming in 1982; and, Rodney, Ken's cousin who
started farming in 1994. The farm also employees six full time associates,
and ten part-time seasonal employees.
The farm produces yellow-dent corn and soybeans with average yields
per acre of 144.5 and 50.9 bushels for corn and soybeans respectively.
The family utilizes a 100% no-till production system to increase soil
structure, tilth, and biologic activity. Erosion has been reduced by over 90%
since the early 1970's while yields have increased 50% over the same
period.
In addition, the farm has invested over $40,000 in acquiring the latest
site-specific technology. Actual field results using this data and its impact
on maximizing production, while simultaneously reducing environmental impacts,
have been very gratifying. This technology is quite effective at managing the
hog waste applications to monitored phosphorus loading levels on a 1
acre-grid.
CONTACT: Ken Rulon (317) 984-2076
E-mail: rulonent@indy.net