The federal government is subsidizing Missouri agriculture over $8 million per year. Unlike farm bill payments, not every farmer sees this money. But the agricultural sector as a whole benefits.

It won't be long until the March deadline for crop insurance rolls around, and that means growers need to decide about electing coverage. That decision might be easier if you look at the big picture.

The USDA Risk Management Agency has a great Web site (www.rma.usda.gov) with the ability to query its database of crop insurance premiums paid, indemnities, subsidies and anything else you can think of. The item that interests me is what is called a loss ratio. A loss ratio is the dollars of indemnity paid to growers divided by the dollars of premium paid.

Let's take a look at the information for Missouri:

The total crop insurance loss ratio in Missouri during the last 5 years has been 0.57. For every dollar paid to insurance companies (from crop producer and government subsidy) 57 cents came back to Missouri producers in the form of indemnities. The producer crop insurance loss ratio in Missouri, considering only the premiums paid by producers (ignores government subsidies paid), was 1.30. For every dollar paid to insurance companies by Missouri producers, Missouri producers received back $1.30. That is profit in the pocket.

In a normal insurance situation, the loss ratio for all of the insured individuals in a state should be less than one. For every dollar an individual pays into insurance, he should expect to get less than one dollar back. The difference is what goes to pay the salesperson's commission, administer the insurance policy and make a profit for the insurance company.

If a loss ratio is greater than one, the insurance company is losing money--unless it is subsidized by the government. Your car insurance is not subsidized. Your house insurance is not subsidized. Your life insurance is not subsidized. The only insurance that I can think of that is subsidized is crop insurance.

From 1997 to 2001, farmers have received $41 million more in insurance indemnity payments than they have paid in insurance premiums. The federal government during the same time period paid almost $174 million in subsidies for crop insurance. The difference of $132 million went to pay the expenses and profit of insurance companies.

What does all of this mean? First, it means that the federal government is subsidizing Missouri agriculture over $8 million per year. Not every farmer sees this--as farmers do with a farm program payment. But the agricultural sector as a whole gets it.

Second, for Missouri as a whole, crop insurance has been a good investment over the last 5 years. The subsidy from the federal government comes only if farmers buy the crop insurance.

What it does not mean is that every farmer needs to maximize his crop insurance. Just because crop insurance has been good for Missouri agriculture as a sector doesn't mean it is necessarily good for each individual producer. Producers still need to determine their individual needs for crop insurance. But given the historical loss ratios for producers, crop insurance is definitely an expense that should be looked at as a possible investment. The government subsidies appear to be large enough to justify strategic use of crop insurance.