Crop insurance in Manitoba prepared for hefty drought payouts this year

The program, founded in 1960, is designed to be actuarially sound

A recent crop report for Manitoba indicates harvest yields so far this year vary from less than half of normal to normal.

Glacier FarmMedia – There’s enough money to cover Manitoba crop insurance payouts in the wake of this year’s drought, the worst in years, says David Van Deynze.

Despite an early harvest due to dry and hot growing conditions, Van Deynze, chief product officer with the Manitoba Agricultural Services Corporation (MASC), which administers the federal-provincial program, says it’s too early to guess the total bill.

“Whatever number we’d come up with now would be wrong,” Van Deynze said in an interview Aug. 16.

Why it matters: With drought knocking down yields many Manitoba farmers are counting on crop insurance payouts to help offset some of their lost revenue.

Crop insurance payouts in Alberta could top $1 billion, Alberta Farmer Express reported in July.

“We collected about $600 million in premiums this year, so we’re looking potentially at payments twice that amount,” said Darryl Kay, CEO of Agriculture Financial Services Corporation. “It’s really early yet, so it’s hard to speculate on the dollars at this point, but we do know that payments will be significant, not only on the annual crop insurance but on the perennial side as well.”

MASC knows crops are suffering here too, but Manitoba crop insurance, founded in 1960, has seen tough years before and the program, designed to be actuarially sound, has not foundered.

“If there are any farmers out there wondering if MASC has enough money this year because of how bad it is, there is no question in our mind that there is enough money,” Van Deynze said.

“We’re in such a good spot after a number of good (crop production) years, plus we have reinsurance — insurance for insurance companies.”

Manitoba crop insurance had a $788-million surplus coming into the growing season, plus premiums from the Manitoba and federal governments and farmers.

(In Manitoba on most crops farmers cover 40 per cent of crop insurance premiums while the federal and provincial governments account for 36 and 24 per cent, respectively.)

With so little rain in many places and record-breaking temperatures it’s hard not to be pessimistic about annual crop yields this year.

Manitoba Agriculture and Resource Development’s Aug. 17 crop report says based on what has been harvested — mainly cereals and peas — yields are variable ranging from less than half of normal to normal.

For example, in the southwest spring wheat estimates range from 40 to 60 bushels an acre. The range is wider in the central region — 20 to 70 bushels. In the Interlake wheat is averaging just 30 to 35 bushels an acre.

The report rates just 46 per cent of Manitoba’s spring wheat crop as ‘good to excellent’ as of Aug. 10 to 16.

In the Interlake where conditions have been the worst, just five per cent of spring wheat is rated ‘good to excellent.”

“We don’t know yet how this will shake out,” Van Deynze said. “Some areas are really bad, some areas aren’t as bad.”

Crop insurance’s biggest payout occurred in 2011 — $326.9 million. Crop yields suffered because of too much moisture rather than not enough. That year 501,800 acres alone were too wet to even seed.

Although the total payout of $114 million due to the 1988 drought was lower, crop insurance considers 1988 its worst year because payouts were 30 per cent of insurance coverage.

“From an insurance perspective that’s a pretty bad number,” Van Deynze said. “Our program only offers 80 per cent coverage (on average yields) in the first place. If we pay out 30 per cent of our liability that means people are only on average getting about half a crop.”

When adjusted for inflation 1988 payouts are worth $226.6 million in 2021.

Between 1966 and 2018, 38 per cent of crop insurance payouts were due to excess moisture compared to 33 per cent for drought and heat.

Frost, hail, winterkill, wind and all other causes, accounted for 10, seven, four, two and six per cent of payouts, MASC’s 2019-20 annual report says.

Like with any insurance, a year with big payouts will affect future premiums, Van Deynze said.

“Again, hopefully our program is stable enough it’s not going to be hugely significant for clients, but it would be foolish to say premiums wouldn’t go up,” he said.

While crop insurance coverage is based on historic yields, premiums are based on a rolling 25-year period of payouts.

Premiums were discounted this year because of the growing crop insurance surplus.

“We don’t think we should be in control of farmers’ money more than we need to make the program work,” Van Deynze said.

Despite the poor growing conditions MASC hasn’t been swamped with claims yet, an indication many farmers expect there will be something to harvest.

“Anecdotally the majority of our claims are to convert to alternate (feed) use,” he said. “I don’t think many guys are just straight up ripping up their crop. Even a not very good-looking crop has some value as livestock feed for those folks who need it.”

Crops being adjusted for greenfeed this year are also subject to a grade adjustment. Normally MASC needs a seed sample for that, Van Deynze said.

“In this case we figured part of the reason guys are cutting it for greenfeed is because they don’t think it’s going to be a good yield and they don’t think the quality is there and they would get a bigger bang for their buck as greenfeed so we wanted to make that quality adjustment for them too.”

Allan Dawson is a reporter for the Manitoba Co-operator. His article was published in the Aug. 26, 2021 issue.

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