A report from Dr. Joe Outlaw, Professor and Extension Economist, Co-Director, The Agricultural and Food Policy Center at Texas A&M, says: “According to USDA survey data, U.S. agricultural producers, on average, have relatively low debt and many are in quite strong cash flow positions. Low debt makes farmers much less vulnerable to a collapse in land values. But, I think the biggest reason the U.S. won’t see a crisis like the 1980s again is the federal crop insurance program.
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Crop insurance had very low participation during the 1980s with less than 50 million acres covered generally at low levels of buy-up on yield policies. Over time, a lot of innovation has occurred in crop insurance policies. Now, around 225 million acres are covered generally by revenue insurance policies bought up to at least the 70% coverage level. With virtually all cropland covered by some type of policy, significant within year price declines will be covered by revenue insurance. Due to this, there wouldn’t be the tremendous pressure on farm incomes contributing to lower land values and increased loan defaults. What about a sustained price decline scenario? That is where crop insurance coupled with price loss coverage provides significant protection.”
Click here to view Outlaw’s full report.
