 Wheat and More….or less
Remember the old saying…you can’t trust a dog to watch your
lunch.
Well, in driving around the western Kansas neighborhood recently, it seems
that’s exactly what we did. We told the dog to watch our lunch…and he ate it.
For every rule, there’s someone willing to break it. And
among that crowd, there are those smooth talkers who can make it sound like a
good business decision. To them, it’s just business. Others are even cheered on
because they put one over on the government. Still others consider this a form
of innovation. But it’s wrong. And at the end of the day, everybody pays.
Over the past several years, I and others have watched a
growing trend with concern—and that is to continually push the fence on crop
insurance abuse.
The big trend here in semi arid western Kansas this past fall was to plant
“continuous wheat” immediately after harvesting dryland corn. And in many
cases, the corn itself was also a failure. I call this 5-minute fallow but the
crop insurance industry calls it continuous wheat because it will be harvested
the following year.
What happened this past fall was classic. Because of the
on-going drought, there was zero topsoil moisture and zero subsoil moisture
after the summer row crop. Almost April, much of this wheat that was planted in
these disastrous conditions has not even come up.
But why would you plant a crop that has almost l00% odds of
failure? Because you can make a heck of a lot of money doing it…off crop
insurance. Here’s how it works. My insurance agent says with a T yield of 27
bushels per acre, with 85% coverage and a wheat price of $7.15, the farmer’s
share of the premium is $45/acre. He can easily put in the wheat crop for less
than $20 giving him a total investment of just $65/acre.
Now with $165 in coverage and with high odds of failure, the
farmer will almost triple his investment—and will certainly net $100/acre. For
every quarter of ground, he’ll get an insurance check for $26,000.
But wait. The good news doesn’t stop here. We get to combine
these very generous insurance loss payments with payments from other government
programs like the Supplemental Revenue Assistance Program (SURE) or Congress’s
disaster program. In SURE, the farmer gets paid again for the identical losses
that had already been covered by crop insurance. Overall, it makes this type of
activity incredibly profitable.
So who are the winners? The farmers doing it, of course.
After they get their hefty checks, they’ll just fallow the ground and plant it
to wheat the next fall—just like everybody else was going to do. I’ve even
heard some of these farmers joke about using extremely low seeding rates to
help ensure poor stands. Then in the spring when they’re “topdressing”, they’ll
add a glug or two of Roundup herbicide to make sure the wheat gets sick and
that the crop fails.
Yet sabotage is rarely needed. KSU researcher Alan Schlegel,
Tribune Experiment Station, says this is a very risky rotation and simply
getting a stand is very difficult.
While this is irritating to me and other farmers, even
insurance agents who are selling policies to these farmers are disturbed by it.
One said these farmers are clearly taking advantage of the system. “It’s just
not right. And it’s bad for the crop insurance industry.”
I agree. The crop insurance industry is one of the
casualties—not only their actuarial integrity, but their professional
integrity.
What about the integrity of the farmer. Is this ethical? A
quick acid test on ethics is to simply ask: Is anyone being hurt by these
actions? Without a doubt.
Beyond the crop insurance industry, the US taxpayers
clearly got a bloody nose. As we all know, crop insurance is heavily subsidized
with normally 65 to 75% of insurance premiums paid for by the Federal
government.
Who else gets hurt? Neighboring farmers….big time. To cover
the losses, everybody’s rates go up and everybody’s coverage goes down. Not
only that, this type of activity reflects very badly on farmers in general. The
skeptical public really does have reason to wonder if all farmers are crooks.
And let’s not overlook the landlords. In many cases, older
out-of-state landowners have cash rented their land. But part of their equity
in the ground is their crop yield history, yield guarantees and insurance
values which these planned-failure farmers consider theirs for the taking. That
looks good on your Schedule F—screwed 80 and 90-year old landlords who trusted
you.
In my mind, there is no question about the ethics of this.
But is this legal? Is this a crime? In trying to find an answer to that
question, I talked to a lot of people. One of them said when you sign an
insurance contract, you agree to use best management practices and to do
everything possible to make this a successful crop. That does not include
planting wheat under disastrous conditions where the crop has no chance. This
is fraud. This farmer cannot look you in the eye and say he intended to plant a
crop that would succeed.
These farmers may say with the current high price, it
justifies the risk of putting in the crop. Who knows, it could start raining
and we could get a wonderful crop out of the deal. That’s true and that’s one
of the nice things about having farmed for 35 years because I have seen that
happen. And it was one year out of 35. Those are pretty good odds—if you’re
betting on failure.
While we’re on this point, I didn’t say you couldn’t plant
the crop. If you want to run the risk, go right ahead. But I sure don’t think
the American taxpayer or your neighbor or your landlord has to share in your
risk.
The whole system is weakened by these excesses. Because of
the individuals practicing these high risk and non traditional
rotations—especially under extreme conditions where failure is almost
guaranteed—regulatory agencies are forced into more and more stringent
restrictions on coverage and rates, all of which can have a chilling effect on
legitimate farmers wanting to adopt new and innovative production practices.
All of this leaves us with one question. If USDA and the
crop insurance industry continue to allow this, do we all now have to start
using these very suspect crop production practices and rotations just so we can
remain competitive with the over zealous farmers? That’s not a world I want to
be part of. |
Ag Blogs 
Painting many farmers as committing crop ins. Fraud. I agreed with you that this happens and that there are laws in place to take action when abuse happens. If you are aware of individuals doing this I presume you have taken action & worked thru the proper channels of RMA. I would say that would be a much better approach than your method of accusing a large group of producers in public like you did here. I have paid premiums for crop. Ins since CRC was offered and only collected once or twice but still participate. Am I helping the system or hurting it? For sure I (like most other producers) am not in the group you are referring to but why do it-- the answer is "for the security and to manage the risk" not abuse the system! As for your comments about sitting on the sidelines, I agree and hope you weren't referring to me as being there. All of my life I have been outspoken and proactive on Ag issues as I have here. As some others have mentioned I will question the way you presented this issue and your motives!
Terry Kastens
While we're on the subject of T yields being too high, let's look at the ability to insure crops as we go from wheat/sorghum/fallow to a more intensive w/s/s/fallow. At present, you can insure the second sorghum crop for the same yield and same cost as the first. But as we all know from KSU data, the yield of the second sorghum crop will be about 30% lower than the first crop. At Akron, USDA researchers say the yield of the second crop crop will be 25 to 40% lower. So, I have an identical concern here as with the ability to insure 5-minute fallow for yields that are too high.
Again, this ability to insure for higher than expectable yields provides an incentive to do the wrong thing ethically or legally. Further, it's bad farm policy in that it is market distorting. How relevant is that? Remember several years ago when the US cotton industry was sued in the WTO for our market distorting STEP II program. Our foreign competition asked why the US cotton acreage was going up while prices were dropping. Of course, we lost and again everybody got to pay--not only cotton but a lot of other commodities too.
You also made a comment about yields continuing to go up the longer you are in no-till. The data would support that at Trubune. However, in talking with researchers at the Garden City Experiment Station, they have failed to see this gradual incline in yield. They seem to think it's more likely the more arid the climate, but less likely as you move east in the High Plains.
I also enjoyed your comment about the undercutting boys driving up insurance premiums. I agree that no-till makes a lot of sense as you go from wheat to a summer row crop like corn or sorghum. However, as you go from corn or sorghum back to wheat, I think a reduced till program makes a lot more sense. One reason for that is the very poor condition of no-till seedbeds after fallowing in summers and falls like we just came through. After baking all summer long, the ground turns to concrete. The worst wheat stands I've seen this year were where no-till had been used. Some of the worst wind erosion of this and last winter was on no-till ground, especially in milo stubble.
Some time ago in talking with CSU weeds people, they said if you want to no-till fallow, the best thing you can do for yourself is to undercut once in the spring at the start of the fallow period. Then you can spray all you want after that but by loosening the ground early, you've given yourself a running headstart on getting a stand if it turns off hot and dry.
Of course we'll all know a lot more in the future about where we're headed now, but one of the other relevant issues concerning no-till is the weed resistance issue. In talking with a number of KSU weed scientists and agronomists, they are saying things that some no-till people may not want to hear--that we maybe ought to be doing some tillage. The two major reasons for this are because of poor seedbeds in hostile environments and because it's increasingly difficult and expensive to control certain species of weeds.
I also applaud your entrepreneural spirit in trying new and innovative rotations and practices. We in agriculture need innovators like you to help show the way for the rest of us.
to some numbers...Mr. Ehmke is NOT living in the
real world--HOW many no-til farmers do you know
who would still be charging $10.oo/acre for no-til
planting?....and the simple plan would be to check
seeding rate...normally 2, YES two bushels planting rate behind corn....so EASY plant for 20. rings a
bell of NOT being correct or up to date...I'm
saying easy 22 just for the seeding...NO starter
fertilizer...so what about the old saying "plant in the dust and the bins will bust." RISKY too.
Certainly, the expected wheat yield for wheat after corn is lower than for wheat after wheat. So, in this regard, there will always be apparent adverse selection in a policy that does not discriminate. But, adverse selection is neither ethically wrong nor legally wrong, rather only indicative of an underwriting problem.
Since you reference Tribune data I'm sure you know that the evidence is quite clear that wheat planted behind chem-fallowed ground (no tillage) yields considerably higher than that planted behind tilled ground (conventional fallow). Moreover, the yield gap tends to grow the longer one is in always no-till. So, very soon it will be clear that it is the undercutting boys who are driving up the insurance premiums relative to the no-tillers . . . meaning it will be the undercutting boys who will be accused of fraudulent behavior regarding crop insurance, i.e., not using BMPs.
Finally, it is difficult to determine the motive of your article. Was it 1) to whistle blow, 2) point out adverse selection, or 3) slow down your neighbors to give you a chance to catch up with cropping system technologies?
Terry Kastens
Is it possible that, much like other folks (Kastens included), your neighbors may still be merely experimenting with wheat on corn. I know 11% of our 2011 wheat crop is the same way and if you were farming besides us you would have the same comment. And, with certainty I can say our decision to plant wheat on corn was only marginally based on crop insurance (we would have done it even if we were not eligible for crop insurance). The decision framework, however, is certainly always intertwined with crop insurance at the broad scale. First, relative to corn in a wheat-corn-fallow rotation, wheat on corn is high risk because soil moisture remaining at the end of a dryland corn crop is nearly always quite a bit lower than soil moisture in wheat stubble fields at the same time. On the other hand, due to less than normal precip following what harvest in 2010, many wheat stubble fields last fall in early October had only marginally more soil water (say 2 inches more), meaning the guy planting behind corn for that particular year is only marginally more adverse selective than someone planning to do the traditional corn into wheat stubble this spring.
That said, if the situation you reference really is fraud (i.e., not using BMPs) then it should be treated as fraud. Beyond that, adverse selection is and always will be an underwriting problem. For example, suppose it stays drier than normal up through corn and milo planting time this spring. If you (or anyone) decided to go ahead and plant corn or milo into wheat stubble anyway, would you be committing fraud or would you be adverse selecting? Certainly it would have to be one of the two. It all depends upon what’s inside your mind during the planting decision and what your follow-up crop input actions show.
I will note that at some point it may be the slow adopters of new cropping technologies who are causing insurance rates to be higher for the earlier adopters. For example, Tribune has ample evidence that chem-fallow wheat yields considerably higher than wheat planted into tilled fallow. And, the gap in those yields continues to widen with ever longer no-till (true no-till; not merely ahead of the corn or milo). So, those farmers still pulling an undercutter ultimately will be the cause of high premium rates for their neighbors.
So, my question regarding your blog is this, Vance. What exactly was your motive. Was it to 1) whistle-blow on fraud, 2) point out adverse selection, or 3) slow down your neighbors' technological advance to give you a chance to catch up? Just curious. I'm not pointing fingers, rather merely trying to understand the article.
Terry Kastens
The tone suggests you may feel as if you are in a minority adhering to ethics, non-criminal behavior and the like. Whatever the statistics, it is obvious that the violations are not uncommon and are widely known inside ag circles.
The overall effect of this rotation to fellow farmers and the government is the same as shoplifting.