Midwest Drought Feeds Crop Insurance Sales.

Crop insurers in the Midwest are in a potentially difficult situation as farmers load up on insurance for the winter wheat crop they are planting in drought-parched fields.

Despite dusty conditions and low expectations, farmers in Kansas, Oklahoma, Texas and Nebraska are planting southern winter wheat. They also are insuring higher percentages of their crop in anticipation of poor growing results and with the help of a new law that provides significantly higher federal subsidies this year for crop insurance.

The new federal law expands subsidies for both multiple-peril crop insurance and crop-revenue insurance. A farmer insuring 50% of his (crop would have received a 57% subsidy from Washington for multiple peril under the old law, but will get 67% under the new one. For crop-revenue insurance, the subsidy rises to 67% from 41% for 50% coverage. Farmers can insure up to 85% of their crop.

Despite the dry conditions and high demand for crop insurance, insurers cannot raise prices for the coverage. The federal government regulates prices, adjusting them up or down based on experience.

While the higher subsidies may put insurers at risk of larger claims, government participation in the crop-insurance markets helps over the long haul. Insurers are willing to write the higher coverages for several reasons, said Art Barnaby, agricultural economist at Kansas State University. One is that they are partially reinsured by the government, particularly at catastrophic levels.