United States durum growers would have to be crazy not to take advantage of a lucrative new revenue insurance program for their crop, say producers south of the border.
“You’re looking at anything that will help your cash flow,” said North Dakota wheat producer Lawson Jones.
The Crop Revenue Coverage program first allowed U.S. farmers to insure their durum for a $1.92 (U.S.) a bushel premium over spring wheat, or about $5.52 a bushel.
That translates into a startling $8.28 in Canadian funds, compared with the Canadian Wheat Board’s pool return outlook for new-crop durum of $3.36 per bu. at a Saskatchewan farmgate.
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The CRC’s durum premium was reduced to $1.15 in February, but a North Dakota judge last week issued a temporary injunction restoring it to the previous higher level.
Jones said he’d have to average more than 43 bu. an acre to miss collecting under the CRC, based on a $1.15 premium. At the richer level, the break-even yield will be even higher.
When farmers and their financial advisers sit down and do calculations like that, it’s not hard deciding whether to sign up.
“I’ve heard some bankers and some marketing consultants are saying that’s the only thing you can do to cash flow and hopefully survive one more year,” Jones said in an interview from his farm at Webster, N.D.
Acreage up
Despite low prices and a bearish world market, U.S. farmers will increase their durum acreage by 12 percent this year, according to the latest forecast from the U.S. Department of Agriculture.
Analysts on both sides of the border agree that increase is totally due to the revenue insurance program.
Some U.S. growers sound almost apologetic as they talk about the high level of returns that could be generated by the program and the impact it is having on farmers’ planting decisions.
“There are mixed feelings,” said Bruce Lewallen, a Bisbee, N.D., producer and vice-president of the U.S. Durum Growers Association. The association supports the CRC, but it doesn’t want farmers to make management decisions designed solely to maximize their returns from the program. A statement on the association’s website urges producers to use the program honestly and for the purposes for which it was intended.
But Lewallen acknowledged the potentially lucrative program will almost certainly be abused.
“In all reality, there are farmers that will probably seed and play the insurance game,” he said. “I’m afraid there are some farmers who will just throw away their rotations.”
He added he enrolled in the program because barring some sort of production problems this summer, durum prices will almost certainly be depressed this fall.
Durum growers say one benefit of the program is that encouraging the crop’s production could allow U.S. producers to fill a greater share of their domestic market.
“I think there will be less opportunity for Canadian durum to flood the market,” said Jones. “I don’t think it was the intent, but we’ve kind of backed into a pretty good trade policy.”
However, he cautioned that a 12 percent acreage increase won’t necessarily boost production by 12 percent, since farmers will likely reduce inputs like fertilizer or spraying for wheat midge or scab.
The North Dakota court case about the reduced premium is similar to one launched by farmers against the Saskatchewan government over changes made to the Gross Revenue Insurance Plan.
When CRC was first announced, the durum premium was set at $1.92 a bu. On Feb. 10, the federal government cut that back to $1.15. A group of farmers went to court arguing that the government action was illegal because the change was brought in after a Dec. 31, 1998 deadline.
The growers also argued in U.S. District Court that the cut endangered their livelihood and the stability of the state’s farm economy.
While last week’s order restoring the $1.92 premium was a temporary injunction, law-yers for the farmers say it’s highly likely the injunction will become permanent.
“Now I can go to my banker and say that I don’t have a negative income, that I’ll have positive cash flow this year,” said Paul Wiley of Millarton, N.D., one of the farmer plaintiffs.
