(Reuters) – The drought ravaging America's prime farmland is having an unexpected consequence that could shape the future of agricultural finance: in some cases, farmers who have amped up their insurance coverage may be giving up on their crops early rather than to trying to save them.
Anecdotal evidence and economic assumptions suggest that a record number of farmers are likely preparing to file insurance claims this year, opting to plow under their withered crops — some without bothering to administer the costly pesticides and weed killers that might help salvage a dwindling harvest.
Call it “moral hazard” in the heartland: with the growing use of federally backed crop insurance, a shift toward larger policies and newer schemes that protect revenue, some experts say farmers may now be better off claiming a total loss than eking out a shrunken harvest — a move that could exacerbate a 50 percent surge in corn prices by further reducing supply.
“Why spend money trying to save a crop when every bushel of crop you save is then going to reduce the indemnity that you would otherwise receive?” said Vince Smith, an economist at Montana State Universitywho has been critical of the program.
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