US drought may lead to record crop insurance payouts

$25 billion expected in 2012 payouts, say experts

The recent U.S. drought may lead to record crop insurance payouts totaling up to $25 billion in 2012, led by top corn-producing states Illinois, Indiana and Missouri.

Corn yields dropped by more than one-third in the top three states, and nationwide yields could top out at 122 bushels per acre — a 17-year low, according to the U.S. Department of Agriculture. Prices reached a record $8.49 per bushel in August, increasing insurance payouts, which often cover revenues based on both the magnitude of lost yields and the price of the crop at harvest. As of October 17, December corn futures were trading at $7.455 per bushel.

Of 96.9 million acres of planted corn, 67.2 million were covered by revenue protection, according to Keith Collins, a former Agriculture Department chief economist who currently works with National Crop Insurance Services. Farmers can protect up to 85 percent of their revenue with insurance. More than $2 billion has been paid out as of October 9, according to National Crop Insurance Services, with corn, wheat, cotton, soybeans and pasture seeing the most damage.

Among the nation’s top 15 corn-producing states, only Texas and Minnesota saw their productivity increase in the 2012 harvest year compared with their five-year average. Missouri yields fell 44 percent below the average and Illinois fell 42 percent. Indiana, South Dakota and Kansas all dropped more than 30 percent. Iowa, the top corn-grower in the U.S., declined 19 percent.