Michael sez: This story came from the Daily Kos, through Stan Dayo, thrugh Jim Haddix and now through me. It's a long time time coming but it is here now. Notice the line about the insurance company maybe being insolvent.
November 27, 2008
By Neal Rauhauser
Last week I received a very concerned call from South Dakota farmer and agronomist Bryan Lutter. "Neal, we're out of propane!" I figured this was personal distress – he and his family farm over three square miles of land and I know this has been a tough year for many people. He promptly corrected my misconception when I tried to console him. "No, everybody is out, all three grain elevators, we can't get fuel for the bins, and we're coming in real wet this year."
There are equally dramatic issues due to the bankruptcy of Verasun and the apparent insolvency of the nation's largest private crop insurance program. Payments that would have come in June or July of a normal year are still not dispersed at the end of November and this has grim implications for next year's crop.I started digging into the details and unless I'm badly mistaken people are going to be starving in 2009 over causes and conditions being set down right now. It's a complex, interlocking issue, and I hope I've done a good job explaining it below the fold ...(I just submitted my personal story and a vision for the nation at change.gov - I sure hope someone is listening over there.)
The Dakotas have faced fuel restrictions for at least the last two years. They're at the far end of the pipeline network and after complete outages in 2007 everyone orders their diesel well in advance. Vehicle tanks are kept fuller and the on farm tanks are not allowed to run low. Gasoline supply dynamics have changed as well; British Petroleum shuttered three hundred stations in the area, citing the high cost of trucking fuel to the locations from the pipeline terminals. This year propane is in short supply. Rural homes in that part of the world are heated with propane and the grain elevator and on farm drying require it to bring corn moisture down for storage. There is no sense that homes will go cold this year, at least not due to supply issues; the grain drying season is a short period of intense usage that will draw to an end within the next week. Pray to whatever higher power you recognize that the unheard of figure of 18% of the crop still in the field is brought in before the snow flies.
The Dakotas were very wet this year and the corn is coming in at 22% moisture. A more usual number would be 18% and for long term storage it must be dried to 14% to avoid spoilage. That doubling in the moisture reduction needed, an 8% drop instead of 4%, pretty much doubles the amount of propane used. Right now the harvest is at a dead stop. What can be dried has been and what is left can't even be combined without the fuel to make it ready for storage; it would all just spoil in the bin if put up wet.
I wondered if this was a spot problem in that particular part of South Dakota, but Bryan said it was widespread – he'd talked to farmers as far away as St. Louis and they were reporting similar issues.I made a few calls to try to figure out how broad the problem was. I ended up talking to Rollin Tiefenthaler at fuel dealer Al's Corner in Carroll, Iowa about the issue.
The Iowa crop comes matures earlier and is brought in earlier, so that is done, but he confirms that propane is being trucked long distances because local terminals have outages. They did have one farmer's cooperative run out of propane and they scrambled to get them enough, but in general it wasn't a problem. These are plains cooperatives, operations with thirty employees, dozens of vehicles, and tens of millions of dollars in inventory and commodities under management, so one running out of fuel is a problem that would affect a whole county.
Diesel has been a bigger concern for them – instead of the thirty mile drive to the Magellan pipeline terminal in Milford they're running as far as Des Moines or Omaha, each about two hours away, and the added time and cost for running more trucks is eating them alive.
The die has already been cast in the Dakotas, they'll either get the crop in or they won't. If they don't and it winters in the field they not only lose 40% of the yield on that ground they lose 20% of next year's yield in soy beans. The corn makes an excellent snow fence, trapping drifts six feet high, and they're slow to clear in the spring. The farmers have to wait until it's dry enough to plant before they can finish bringing in the corn crop, then they plant their soy, and that delay cuts into the growing degree days available for the soy beans and thusly we see the yield drop.A few of you might not be from farm state and thusly won't know the normal work flow. The corn crop is still partially in the field, but the soy beans are already done. Soy matures and dries earlier, so it gets tended first. There would never been an instance of soy being left to overwinter just based on crop timing and I don't think the small, thin stocks with relatively fragile pods would prove to be terribly durable under snow banks.I wrote earlier about the famine potential we face due to the underfertilization of the wheat crop.
Wheat that gets enough ammonia is 14% protein, if it is unfertilized closer to 8%, and that 43% reduction in total plant protein is going to cause unimaginable suffering in places like Egypt, where half of the population gets subsidized bread. Global end of season per capita wheat stocks have been about seventy pounds my entire life, except the last three years where they've dropped to only forty pounds. One mistake in this area and one of the four horsemen gets loose, certainly dragging his brothers along behind. That mistake may already have been made in the lack of wheat fertilization this fall.
The fall nitrogen fertilizer application has been 10% of the norm. A typical year would see 50% put on in the fall and 50% in the spring. During fertilizer application season the 3,100 mile national ammonia pipeline network runs flat out and the far points on the network experience low flow both fall and spring. If they try to jam 90% of the fertilization into a period of time when the system can only flow a little more than half of the need much of our cropland will go without in the spring of 2009.
Finances as much as weather are the issue with regards to fertilization this fall. Crop prices have fallen to half of what they were, ammonia prices have dropped but ammonia suppliers here, receiving 75% of their supply from overseas, still have product in their storage tanks purchase at the historical highs last spring and summer.
When farmers plant they record the acreage and they purchase crop insurance - $20 to $40 an acre depending on the crop. If they have a failure they file a claim, an adjustor contacts them, and they get a check to cover the deficit. Some of this runs through the U.S. Department of Agriculture and some of it is through private insurers.
My conversations with farmers earlier this week lead me to believe that the largest private insurer, Des Moines Iowa's Rain and Hail Agricultural Insurance may be insolvent. Flooding claims from this spring were filed and payments would have typically been received by the end of June or beginning of July. It's now the end of November and payments are not being dispersed. Individual farmers are told there was something wrong with their paperwork, but this is nonsense – some of these guys have been farming thirty years and they all didn't forget how to fill out a simple form all at the same time. Iowa did have its second five hundred year flood in a decade and a half this spring which certainly has something to do with the situation, but I suspect Wall Street's sticky fingers got hold of Rain & Hail's assets, just as they've done to every pension fund and state run municipal investment pool.
So, we're already facing what Bryan Lutter calls "the mother of all fertilizer shortages" next spring and on top of that local banks won't lend to farmers.
The local bank was quite willing to lend to a farmer on a crop despite the weather related risks just like they'd lend on a car despite the driving risks. So long as the asset was insured the risk was deemed manageable. There were sure to be losses here and there, but they'd be administrative hassles associated with well known risks. If the auto insurance companies were viewed as untrustworthy no one would be getting a car without 100% down at the dealership and the same rule is now in effect for farmers.
Farmers without financing can't afford nitrogen fertilizer at $1,000 a ton, which translates to $100 an acre at current application rates. They won't be paying $300 for a bag of 80,000 hybrid corn kernels, again a $100 per acre expense. The average farm size in Iowa is four hundred acres and planting to harvesting would run about $120,000.
This looks incredibly bad. Bryan and I are both puzzled as to why the mainstream media isn't covering this. Perhaps the need to sell Christmas season advertising trumps the need for the public to know about the troubles that are brewing.This is already 1,600 words and I haven't even touched Verasun. Executive summary? The nation's second largest ethanol maker took corn from farmers, went bankrupt without paying many of them, and a whole lot of family farms are going to be foreclosed upon in short order if something isn't done.