PUBLICATION OF NATIONAL CROP INSURANCE

SERVICES®

VOL. 39, NO. 2 MAY 2006

CROP

INSURANCE

TODAY NCIS

Regional/State

Committees

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TODAYPRESIDENT’S MESSAGE

We Stand

PREPARED

Laurie Langstraat, Editor

TODAY IS PROVIDED AS A SERVICE OF

NATIONAL CROP INSURANCE SERVICES®

TO EDUCATE READERS ABOUT THE RISK

MANAGEMENT TOOLS PRODUCERS USE

TO PROTECT THEMSELVES FROM

THE RISKS ASSOCIATED WITH

PRODUCTION AGRICULTURE.

TODAY is published quarterly–February, May,

August, and November by

National Crop Insurance Services 8900 Indian Creek Parkway, Suite 600 Overland Park, Kansas 66210 If you move, or if your address is incorrect, please send old address label clipped from recent issue along with your new or corrected address to Laurie Langstraat, Editor, at the above address.

NCIS Website: http://www.ag-risk.org

NCIS® EXECUTIVE COMMITTEE Steve Harms, Vice Chairman

Steve Rutledge, Second Vice Chairman

NCIS® MANAGEMENT Robert W. Parkerson, President

Thomas P. Zacharias, Executive Vice President

P. John Owen, General Counsel

James M. Crist, Controller

Laurence M. Crane, Vice President

Dave Hall, Vice President

Frank F. Schnapp, Vice President

Creative Layout and Design

by Graphic Arts of Topeka, Inc., Kansas

Winner of The Golden ARC Award

It’s springtime in the U.S. and many farmers are well on their way to finishing their spring planting. It will be interesting to see what Mother Nature throws our way this year, considering the Kansas City area set a record temperature of 92° on April 13th—the last record of 88° was set back in the Dust Bowl era of 1936. We hope for bumper crops across the country but know that probably won’t be the case nation-wide. Whatever does happen, the Crop Insurance Industry stands ready to protect producers who wisely chose to purchase an insur­ Bob Parkerson, NCIS ance policy. As we prepare for another growing season, I’d like to tell you about a few things that are happening within the Industry that you should be aware of: The first is an upcoming Program Integrity Conference on May 22 & 23. This con­ ference will center on the Industry’s ability to reduce fraud, waste and abuse and how best to handle these issues in a growing and complex program. Several groups have been invited to participate and will be represented at the conference and include: the Risk Management Agency; the National Association of Insurance Commissioners; the Office of Inspector General; the Federal Bureau of Investigation; Tarleton State University; and, the International Association of Special Investigative Units. Secondly, the NCIS Board of Directors has instructed NCIS staff and committees to conduct a review of several programs including the Group Risk Plan (GRP), the Group Risk Income Plan (GRIP), Adjusted Gross Revenue (AGR) and AGR-Lite to determine if some can be consolidated and/or eliminated. Recently, NCIS formed a workgroup of Industry members that met to discuss many of the concerns associated with these programs. Other meetings are scheduled to work through some solutions that could be implemented to make the programs viable. Thirdly, it is the intention of NCIS and its members to develop a performancebased discount program that would reward farmers with good insurance or production experience. We feel this program will not only benefit and reward good farmers, but also will create incentives to help reduce fraud, waste and abuse and further promote the integrity of the crop insurance program. A committee of SRA holders with actuarial and analytical expertise will be convened shortly to help us work on this initiative. All discussions are in the preliminary stages and we’ll share more information with you when it becomes available. I would like to take a moment to thank the FCIC Board of Directors, and its Chairman, Keith Collins, for its recent efforts to work with the stakeholders of the Continued on page 21

Printed on recycled paper.

CROP INSURANCE TODAY

1

CROP INSURANCE VOL. 39, NO. 2 MAY 2006

TODAY

Table of Contents 4

A Profile of the Crop-Hail Program

8

Bryant Receives First Industry Leadership Award

10

NCIS Outstanding Service Award

12

Reorganization Changes Chapter 12 Bankruptcy

16

NCIS Regional/State Committees An Integral Part of the Industry

18

Asian Soybean Rust A Historic Perspective & Current Assessment

21

Sieben Joins NCIS Staff

24

NCIS Industry Awards

4

12

ON THE COVER Representatives from many of the 18 NCIS Regional/State Committees were on hand in March for orientation and training. You can read more about the important role of these committees in the article beginning on page 16.

18

Left to Right: Russell Hefner, Farmers Mutual Hail Ins. Co. of Iowa, Kansas/Oklahoma Committee; Dave Bousselot, Pro Ag Insurance Group, Iowa Committee; Ron Spanier, Heartland Crop Insurance, Minnesota Committee; Curt Lewsader, Great American Insurance Co., Southeast Committee; Guri Bhangoo, Rain and Hail L.L.C., California/Nevada Committee; Dennis Biewer, Great American Insurance Co., North Dakota Committee; Shirley Ford, ARMtech Insurance Services, Gulf States Committee; Tom Wilson, American Farm Bureau Ins. Services, Montana Committee; Dave Meylor, Rural Community Insurance Services, Illinois/Wisconsin Committee; Dock Ayers, Rural Community Insurance Services, East Committee; Charles Rother, Farmers Crop Insurance Alliance, Nebraska Committee; Jim Maroon, Great American Insurance Co., South Dakota Committee; Rob Young, NAU Country, Kentucky/Tennessee Committee; Gary Schaneman, Great American Insurance Co., Colorado/Wyoming Committee; and, Ray Farmer, Great American Insurance Co., Southwest Committee.

PUBLICATION OF NATIONAL CROP INSURANCE SERVICES®

VOL. 39, NO. 2 MAY 2006

CROP INSURANCE

TODAY NCIS

Regional/State

Committees

Providing the best agricultural products and services.

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TODAYcrop insurance

A PROFILE

of the Crop-Hail

Program By Frank Schnapp and Therese Stom, NCIS

Insurance for hail damage to crops has been avail­ able to farmers in the United States for well over a century. In 1915, after recognizing a need for stan­ dardized procedures for settling claims, the crop insurance industry created an organization to conduct research to help establish industry-wide loss adjustment procedures. Several decades later, in 1947, a second service organiza­ tion was created to conduct ratemaking on behalf of the crop insurance indus­ try. These two organizations merged in 1989 to form National Crop Insurance Services (NCIS). Among the responsibilities of NCIS is the col­ lection and processing of Crop-Hail data from its member companies. NCIS maintains an extensive database of Crop-Hail experience, starting with 1948, which is used to prepare Final Average Loss Costs and to carry out other research. The following review of the CropHail program is based on information from the NCIS Statistical Summary reports and includes all of the experience reported to NCIS in the United States through the 2005 crop year for all crops and all policy forms. 4

MAY 06

Countrywide Results Chart 1 presents the premium volume for the Crop-Hail program in the United States reported by member and non-mem­ ber companies over the period from 1948 through 2005. After reaching its peak vol­ ume in 1996, Crop-Hail premiums shrank for several years following the introduction of federally subsidized crop revenue poli­ cies. In recent years premiums have been relatively stable, with countrywide premi­ ums hovering around $400 million each year from 2001 through 2005. Chart 2 shows the industry’s average loss costs and average rates over time. The average loss cost is defined as 100 times the indemnity payments divided by the lia­ bilities, while the average rate is 100 times the premium divided by the liabilities. The chart also shows the cumulative average loss costs and cumulative average rates. These are included in order to smooth out the variability of the results and to high­ light the long-term trends. The chart shows that loss costs are much more volatile than rates, as should be expected. However, the chart also shows that the cumulative aver­ age loss cost has been reasonably stable over the entire period, with a current value of about $2.50. The annual average rates, in comparison, have declined significantly since 1948, starting from an amount in excess of $5.00 to a current average rate of around $3.00. Industry-wide loss ratios for the CropHail program are presented in Chart 3. Loss ratios are defined as the ratio of indemnity payments to premium, and are equivalent to the ratio of the average loss costs to the average rates from Chart 2. The gradual increase in the cumulative loss ratios in recent years reflects the narrowing gap between the loss costs and rates shown in Chart 2. However, countrywide loss ratios have been below 60 percent in each of the past three years.

Regional Premiums Chart 4 provides a breakdown of each year’s premium into six regions. The assignment of states to regions is indicated on the map following the chart. The chart confirms that the Midwest has been, and CROP INSURANCE TODAY

5

Regions

continues to be, the dominant region for Crop-Hail business. In addition, premium in the Southeast region has declined visibly over the most recent five-year period while the Southwest region has grown in vol­ ume. The decrease in the Southeast region can be traced to a reduction in premium for North Carolina tobacco (not shown).

Major Crops by Region Chart 5 shows a breakdown of the 1948-2005 premiums by major crop within each region. On a countrywide basis, soy­ beans generated the greatest amount pre­ mium over the period, followed by corn, wheat, tobacco, cotton, “other,” barley, and fruit. The primary crops in the “other” cat­ egory are milo, oats, potatoes, and sun­ flowers. For the Great Lakes and Midwest regions, soybeans, corn, and wheat gener­ ated more than 80 percent of the premium. The dominant crops in the Southeast region are tobacco and cotton; while cot­ ton, wheat, and corn are the major crops in the Southwest. In the Western region, the major crops are wheat, barley, “other,” fruit, and corn. Tobacco, followed by fruit and “other,” are the major crops in the Northeast.

Deductible Usage— Countrywide and by Region Chart 6 provides a breakout of the countrywide premium based on the size of the deductible. The amount of premium written at no deductible (which includes the Basic form) and at the five percent deductible has decreased over time, while the premium for deductibles of 10 percent or higher has increased. Companion Plan business is also down to some extent. A very different picture appears when individual regions are considered. As shown in Chart 7, the vast majority of the premiums written in the Great Lakes region are purchased with no deductible. The Midwest region shows a more var­ ied result. Since the Midwest is the domi­ nant region for Crop-Hail business, it is not surprising that its results, included in Chart

6

MAY 06

8, are similar to the countrywide results in Chart 6. The Midwest is also the only region with a substantial amount of Companion Plan business. Chart 9 shows the results for the Southeast region. This chart highlights the dramatic decline in premium for the region over the past five years, mostly due to declining volume for North Carolina tobacco. Virtually all of the busi­ ness is written with a deductible of 10 percent or less. In the Southwest, premiums have risen substantially over the period, as indicated in Chart 10. Almost all of the increase is coming from Texas. Most of the premiums are written with deductibles of 10 percent and 20 percent, with a smaller amount written with no deductible. The amount of premium written at the 20 percent deductible has risen much faster than the other deductibles over the last five years. Premiums in the Western region rose through 2003 and have fallen slowly since. Most of the business is written either with no deductible or a 10 percent deductible.

Summary Following a period of contraction sub­ sequent to the introduction of federally subsidized crop revenue programs in the mid 1990’s, the premium volume of the Crop-Hail program has now stabilized at around $400 million. The most notable change in the past five years has been the decline in premium for tobacco in North Carolina; however, this change has not had a major impact on the program as a whole. On a regional basis, the use of higher deductibles has been increasing as a share of the total premium volume in the Southwest and Western regions. In comparison, the mix of business across deductibles has been reasonably stable in the Midwest and Great Lakes regions. On a countrywide basis, average rates have declined significantly since 1948 but have remained relatively stable in recent years. Even though loss ratios continue to be volatile, the industry has experienced good results for the past three years.

CROP INSURANCE TODAY

7

TODAYcrop insurance

Bryant Receives

FIRST INDUSTRY LEADERSHIP AWARD

Bob Parkerson (left), President of NCIS, and Ben Latham (right), Chairman of the NCIS Board of Directors, presented the Industry Leadership Award to Buckles Bryant (center) at the Crop Insurance Industry Annual Convention in February.

Buckles Bryant, National Claims Manager for ARMtech Insurance Services, was the recipient of the NCIS Industry Leadership Award, presented at the 2006 Crop Insurance Industry Annual Convention. This is a new award established to formally rec­ ognize individuals who are directly involved in the crop insurance industry and who con­ sistently serve the industry by providing out­ standing leadership. “This award is a testament to Buckles work ethic, leadership and integrity,” said Sam Scheef, President of ARMtech. “NCIS represents every company in this industry. Buckles receipt of this national Industry Leadership Award from his peers exempli­ fies his commitment to his job, his indus­ try, and ultimately, the American farmer. We are very proud of him and thankful to have him on ARMtech’s team.” As the National Claims Manager, Bryant 8

MAY 06

is responsible for supervision and training of 13 area claims supervisors and almost 300 adjusters that work for ARMtech throughout the country. He has been with the company since October of 1999. Prior to ARMtech he farmed and ranched in Idalou, Tex., where he still resides. He pre­ viously worked as a crop insurance adjuster for ten years while maintaining his cow/calf operation and farming cotton. Bryant, who was told he was going to Florida for the 2006 Annual Industry Convention but not why, was ‘shocked’ when he learned he was to receive the award. “I love my job and am honored to receive such recognition. I am grateful to Ted (Etheredge) and Christie (Bracey) for nominating me,” said Bryant. According to Christie Bracey, Vice President—Operations for ARMtech,

“Buckles has been active in the NCIS Southwest Regional/State Committee since accepting the National Claims Manager position at ARMtech. He encourages ARMtech’s claims staff to be active and support NCIS state and regional commit­ tees as well as industry functions in their area. I feel Buckles is very deserving of this award because of his work ethic and his proud representation of ARMtech.” During his acceptance speech, Bryant thanked NCIS for the award and compli­ mented their leadership on a productive working relationship. He has had the priv­ ilege of serving as the chair of the Southwest Regional/State Committee and is currently serving on the MPCI Policy, Procedure and Loss Adjustment Committee with NCIS. This committee reviews recom­ mendations submitted through the region­ al/state committee process. When asked what this award means to him, Bryant replied, “To be recognized as an industry leader for doing what I really love is amazing and I am truly thankful.” Criteria for the Industry Leadership Award are: strong personal and business ethics; demonstrated service above and beyond to the crop insurance industry; and, represents themselves, their company and the crop insurance industry well. Bryant and his wife, Janet, have been married for almost 26 years and have three children. Byron is 22 and will receive a Masters Degree from Texas A&M University in May, Brendi is 20 and a jun­ ior at Texas Tech University; and Bo is 16 and a junior at Idalou High School where he plays football.

TODAYcrop insurance

Outstanding

SERVICE AWARD To underscore the crop insurance industry’s commitment of reaching out in credible and successful ways to limited resource and socially disadvantaged farm­ ers, NCIS created the Outstanding Service Award to present to an individual who has demonstrated a genuine commitment of outstanding service and outreach to these groups of producers. This year, the NCIS Board of Directors voted unanimously to present the award to Steve Tate of Steve Tate Insurance in Meridianville, Ala. “We are proud to consider Steve a long time friend and advocate of the crop insur­ ance program as well as a Rain and Hail agent,” said Steve Harms, President and Chairman of the Board of Rain and Hail L.L.C. “Steve shows great pride in his job and has always strived to provide a fair and hon­ est program to his southern farming peers. He is an extremely knowledgeable and ded­ icated individual who has contributed a great deal to the success and livelihood of Southern agriculture,” said Harms. Steve Tate is not only a crop insurance agent that writes policies in three different states, he is also the managing partner in a 5,500 acre farm that he owns with his brothers and cousin. Tate works out of an office on the farm, but most of his policies are written while at his customer’s farm office or home. “I respect their time. I might have to travel 60 miles one way for an appoint­ ment, but customer convenience is impor­ tant to me. The only way to differentiate 10

MAY 06

Bob Parkerson (left), President of NCIS, and Ben Latham (right), Chairman of the NCIS Board of Directors, presented the Outstanding Service Award to Steve Tate (center) at the Crop Insurance Industry Annual Convention in February.

your business is through knowledge and service,” said Tate. Tate also seeks out the farmers that may be harder to find. “We have a lot of land around here that is becoming part of the urban sprawl,” he said. “While this is not a truly agrarian economy like in the Midwest, agriculture is still important here. We have everything from large commercial farms to small fam­ ily-owned operations.” Writing some of his business can be very time consuming. “We have a lot of shared leases which means companion policies. They take some time to write. I’m willing to spend that time when others might not be.”

In addition to his farming operation and crop insurance agency, Tate’s one of those farmers that likes to give back to his community. “We operate a pumpkin patch in late September and October,” said Tate. “And we do farm education for preschool through second grade students.” An aver­ age day will have 300 – 500 kids come through the doors. “I suppose if I ever kicked this farming habit, I might be able to expand my crop insurance business,” laughed Tate. While attending Auburn University, Tate met Waymon Moore, a long-time Rain & Hail employee. “He told me if I ever got hungry

enough and needed a job to call him. Sure enough, I did,” Tate said. Tate began adjusting for Rain & Hail in 1982 and didn’t quit until the farming operation expanded enough that he just couldn’t spare the time away from it to do part-time adjusting. A few years later, the local crop insurance agency dis­ solved. Tate understood the business and knew some people in the industry. He decided to get his insurance license and sold eight policies that first year. He has since grown that business into over 200 policies. “It may not sound like a lot when compared to some of the other mega agents in the country, but it works well for me,” he said. The business is “physically challenging due to the proverbial crop insurance deadlines,” Tate said. “But I really enjoy the relationships I’ve built in this busi­ ness,” he said.

Customers seem to be his best source of advertising. “I’ve never made a cold call,” he said. “Many creditors require crop insurance for collateral but the crop insurance product sells itself. I just have to provide the serv­ ice and knowledge.” “The Crop Insurance program was built and continues to grow and flourish due to hard-working and dedicated agents and producers such as Steve Tate,” Harms said. “He has been involved in the pro­ gram from the beginning and still today, prides himself on providing service and support to all of his southern farming peers. We at Rain and Hail hold a great admiration and respect for Steve who throughout his life and career has given so much to American agriculture.” The majority of his crop insurance work is done in a relatively short amount of time. “It seems like we only have a few short

weeks to service the policies and take care of any changes producers might make. Sometimes that can be frustrating,” Tate said. Tate is the president of the Madison County Farmers Federation and sits on the Board of Trustees of the Farm Federation. He’s also very active in local organizations. “I have to miss a lot of the national meetings of the organizations I belong to because they are usually held during my busy season,” he said. In fact, the date that Steve was present­ ed this award at the crop insurance indus­ try annual convention was the same date the CRC base prices for cotton were released. “We flew into Naples one day and out the next. As much as I was honored by the award, I just couldn’t stay away from the office for long.” Tate and his wife, Jackie, have two daughters, Kristen and Kasey.

CROP INSURANCE TODAY

11

TODAYcrop insurance

Reorganization Changes CHAPTER12

Bankruptcy

By Dr. Norm Dalsted, Colorado State University

Chapter 12 of the Bankruptcy Code was specifically enacted in 1986 to help agricultural producers reorganize their business oper­ ations during the 1980’s major agricultural crisis. To qualify to file under a Chapter 12 agricultural producers had a number of crite­

Table 1

Total Business Bankruptcy Filings for the 10th District1 and U.S. and Chapter 11 and 12 for Colorado by year—1985–2004. ∂

2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990a 1989b 1988b 1987b 1986b 1985b Total 1

ria to be met in order to qualify. These criteria are discussed later in the article. During the period 1986–2004, 440 Chapter 12 bankruptcies were filed in the State of Colorado. The number of Chapter 11 and

∂ Total Filings 28,169 25,956 21,359 18,800 15,558 16,165 18,262 19,146 16,403 13,705 12,878 13,881 16,079 17,071 16,671 18,279 17,028 14,668 10,469 7,012

Colorado Chapter 12 4 8 9 3 13 14 15 20 18 15 13 20 31 26 23 52 70 86 c c 440

∂

∂ 10th District Chapter 11 104 78 113 105 78 81 63 99 109 109 107 152 228 229 231 306 406 442 433 255 3,705

Total Filings 205,821 218,050 208,749 86,805 70,454 71,184 77,578 76,584 63,118 49,781 450,018 47,220 53,793 56,602 54,233 52,351 49,896 47,780 36,277 25,509

The tenth district includes the states of Colorado, Kansas, New Mexico, Utah, Wyoming and part of Oklahoma. Filings reported on a calendar year basis. b Fiscal year reporting July 1-June 30. c Chapter 12 was enacted in late 1986. a

12

MAY 06

U.S. Total Filings 1,597,462 1,660,245 1,577,651 1,492,129 1,253,444 1,319,465 1,442,549 1,404,145 1,178,555 926,601 832,829 875,202 971,517 943,987 782,960 442,993 594,567 561,278 477,856 364,536

12 filings are listed by year for Colorado 1985–2004 in Table 1. Since Chapter 12 sunseted initially in 1994 and was reinstat­ ed by Congress for short periods of time during the following years some qualified producers had to file as a Chapter 11 rather than a Chapter 12. Chapter 11 has a differ­ ent set of criteria and management of a Chapter 11 is somewhat different than a Chapter 12. As part of the legislation signed into law by President George W. Bush on October, 2005, Chapter 12 along with Chapter 7 (liq­ uidation), Chapter 11 and Chapter 13 (wage earner reorganization) resulted in some significant changes. First and fore­ most Chapter 12 became a permanent bankruptcy chapter. The focus of this arti­ cle is to provide an outline and discussion of the many changes made to the bankruptcy code related to Chapter 12.

BACK­ GROUND The following excerpt from Family Farmer Bankruptcy— Chapter 12, Public Information Series of the Bankruptcy Judges Division, May 1995 provides the back­ ground underlying the initial focus, purpose, and qualifying criteria for filers electing a Chapter 12 reorganization. In tailoring chapter 12 to meet the economic realities of family farming, this law has eliminated many of the barriers that family farmers had faced when seeking to

CROP INSURANCE TODAY

13

reorganize successfully under either Chapter 11 or 13 of the Bankruptcy Code. For exam­ ple, Chapter 12 is more streamlined, less complicated, and less expensive than chap­ ter 11, which is better suited to the large cor­ porate reorganization. In addition, few fam­ ily farmers find chapter 13 to be advanta­ geous, because it was designed for wage earners who have smaller debts than those facing family farmers.1 In Chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farm reor­ ganizations. At the time of the enactment of chapter 12, Congress could not be sure whether Chapter 12 relief for the family farmer would be required indefinitely. Accordingly, the law (which first provided that no Chapter 12 cases could be filed after September 30, 1993) currently provides that no cases may be filed under Chapter 12 after September 30, 1998. The Bankruptcy Code provides that only a family farmer with “regular annual income” may file a petition for relief under Chapter 12 (11 U.S.C. 101(18), 109(f)). The purpose of this requirement is to ensure that the debtor’s annual income is suffi­ ciently stable and regular to permit the debtor to make payments under a Chapter 12 plan. However, allowance is made under Chapter 12 for situations in which family farmers may have income that is seasonal in nature. Relief under this chap­ ter is voluntary; thus, only the debtor may file a petition under Chapter 12. Under the Bankruptcy Code, those eligible to file as “family farmers” fall into two categories: 1) an individual or individual and spouse; and, 2) a corpo­ ration or partnership. Those falling into the first category must meet each of the following four criteria as of the date the petition is filed in order to qualify for relief under Chapter 12: 1. The individual or husband and wife must be engaged in a farming operation; 2. The total debts (secured and unse­ cured) of that farming operation must not exceed $1.5 million; 14

MAY 06

3. Not less than 80 percent of the total debts which are fixed in amount must be related to the farming operation; and, 4. More than 50 percent of the gross income of the individual or the hus­ band and wife for the receding tax year must have come from the farm­ ing operation. In order for a corporation or partnership to fall within the second category of debtors eligible to file as “family farmers,” the corporation or partnership must meet each of the following criteria as of the date of the filing of the petition: 1. More than one-half of the outstand­ ing stock or equity in the corpora­ tion or partnership must be owned by one family or by one family and its relatives; 2. The family or the family and its rel­ atives must conduct the farming operation; 3. More than 80 percent of the value of the corporate or partnership assets must be related to the farm­ ing operation; 4. The total indebtedness of the corpo­ ration or partnership must not exceed $1.5 million; 5. Not less than 80 percent of the cor­ poration’s or partnership’s total debts which are fixed in amount must come from the farming opera­ tion owned or operated by the cor­ poration or partnership; and, 6. If the corporation issues stock, the stock cannot be publicly traded.

CHAPTER 7 Chapter 7 of the Bankruptcy Code is designed to liquidate all debts and as a result the filer would be able to start over free of debt (certain debts such as student loans, taxes, maintenance, and child sup­ port are not discharged). The purpose of this chapter is to provide an equitable distri­ bution of the debtor’s available non-exempt property to both individuals and businesses who have filed a claim. The new law as it pertains to Chapter 7 has a number of new

qualifying rules a filer must meet. Although for an estimated 75 percent of new filers, the qualifying criteria should not affect their ability to file under this chapter. Two major criteria that are important are: 1. The debtors attorney must determine if the income of the filer over the pre­ vious six months is less than, equal to or greater than the state median income. If greater than, the filer must file a Chapter 13. If “less than” there is no challenge to the Chapter 7; and, 2. Filers must receive 1.5 hours of cred­ it counseling prior to filing bankrupt­ cy. Time requirements pertaining to Chapter 7 bankruptcy were also changed. As a consequence of the changes in the Chapter 7 rules, a significant increase in fil­ ings was observed prior to the new laws taking effect. The numbers of Chapter 7 cases filed in the Tenth Federal District has increased significantly. Chapter 7 filings in Colorado for example, were 3,487 in August, 5,057 in September, and 14,106 in October, 2005. This compares to 2,313, 2,115, and 2,094 for the August, September and October respectively in 2004. Filers no doubt were concerned about the changes and whether they would remain eligible for Chapter 7. Credit card companies and other related creditors were obviously suc­ cessful in getting changes implemented. The discharge of debt, particularly given the new qualifying criteria for Chapter 7, offers them some relief in debt recovery.

CHAPTER 11 Chapter 11 of the Bankruptcy Code is available to both individuals and corporate business debtors. Over 3,700 Chapter 11 bankruptcy cases were filed in the Tenth District over the last 20 years (1985–2004). No doubt a number of these cases were farmers and ranchers, although there are no statistics to identify the number of agri­ cultural related Chapter 11 bankruptcies. The purpose of Chapter 11 is much in the same view as a Chapter 12—to provide a mechanism by which a business can reorganize financially. One major differ­

ence is that all creditors must approve the reorganization plan submitted to the Bankruptcy Court, including the unsecured creditors, except in rare cases.

CHAPTER 13 Chapter 13 often is referred to as the wage earners reorganization option. Chapter 13 is available to individuals with regular income and whose debts do not exceed specific amounts. The reorganiza­ tion under this chapter is to provide a schedule of payments (based on debtors expected future earnings) to creditors so that they are paid in part or whole, including a provision for interest on unpaid debts.

ness. In the case of a Chapter 11 the court approved trustee is more involved in the business in a regular basis. Therefore, facil­ itating a Chapter 12 might be considered more flexible by a filer than a Chapter 11. A Chapter 11 is more complicated and expensive than a Chapter 12. In the introduction of this article, the major criteria to qualify a filer to utilize a Chapter 12 bankruptcy under the 1986 law were listed. Under the new law there are three major changes and one addition related to the criteria. The changes (enhancements) are:

1986 $1.5 million 80 percent of debts ag-related

2005 $3.237 million 50 percent of debts ag-related

Income

50 percent of income from agricultural sources

50 percent of income from agricultural sources, with the option of using year two and three to meet the income criteria

Capital Gains

Capital gains tax is in effect

Capital gains can become part of the unsecured claims

Inflation

No adjustment

Dollar requirements adjusted for inflation every third year

Maximum Debt

CHAPTER 12 For production agriculture, making Chapter 12 a permanent part of the bank­ ruptcy code is a welcome outcome. From a legal standpoint, a Chapter 12 is more easily administered as there are set dead­ lines for the various steps in the Chapter 12 bankruptcy process. A Chapter 12 trustee oversees the process and is instru­ mental in Chapter 12 being approved by the Bankruptcy court. Once a Chapter 12 is approved, the trustee is responsible for ensuring creditors are paid according to the reorganization plan. Of course the Chapter 12 filer must ensure the payments are made to the trustee in timely fashion. Failure to do so could result in the Chapter 12 being dismissed or converted to a Chapter 7. Mr. William Bass, Chapter 12 Trustee for Colorado and Wyoming, has served in this capacity since the Chapter 12 Bankruptcy code was initiated. Mr. Bass reports that, of the Chapter 12 filed and approved by the Federal Bankruptcy Court, some 60 per­ cent of these cases are successful. Success means that the filers meet the requirements of their reorganization plan and the case is dismissed three to five years after the reor­ ganization plan is approved. Under a Chapter 12 the filer continues to operate their businesses without the trustee being involved in the management of the busi­

if not resolved. Chapter 12 may likewise face objections by several creditors; however, the Federal Bankruptcy Court has the authority to approve the plan with the possibility of stipulations to address the objection. There is no voting in a Chapter 12 nor to deny an objection. This option is not available under a Chapter 11. Chapter 12 is well purposed in that the bankruptcy code is designated to meet the needs of those qualified agri­ cultural producers who may need to reorganize. Chapter 12’s reorganization

The first two changes, debt level and income criteria, will make it possible for more agricultural producers to qualify under the Chapter 12 bankruptcy code. The debt limitation in the original code did prevent some agricultural producers from utilizing Chapter 12, when they would likely have filed their case as a Chapter 11. The success rates of Chapter 11 as a reorganization option is notably less for agricultural producers—less than 10 percent. One of the key differences between a Chapter 12 and 11 is all cred­ itors in a Chapter 11 must approve of the plan. If one of the major creditors votes no then the plan stalls until the objection is resolved or the plan fails to go forward

success is certainly a positive outcome for production agriculture. Creditors, as well as agricultural producers, both ben­ efit from this bankruptcy code. Unsecured creditors are also ensured to receive some percentage of the debt returned to them. Under the new Chapter 12 criteria capital gains taxes could end up as an unsecured claim in the plan. This feature potentially offers significant tax relief to some future Chapter 12 files. Editor’s Note: Dr. Dalsted is a professor in the Department of Agricultural and Resource Economics at Colorado State University. CROP INSURANCE TODAY

15

TODAYcrop insurance

NCIS Regional/State

Committees:

AN INTEGRAL PART

OF THE INDUSTRY

By Dr. Laurence M. Crane, NCIS

The NCIS Regional/State Crop Insurance Committees are an integral part of the crop insurance industry. They are critical to the communication flow within the industry and are organized for the purpose of iden­ tifying issues that need attention and mak­ ing recommendations to the Board of Directors. These committees are authorized by the NCIS Bylaws and function within approved guidelines. To ensure that the committees understand their role, function properly, and are effective in accomplish­ ing their responsibilities, the chairman par­ ticipate in an annual training session. The primary objective of the chairman training session is to help the chairman of the NCIS Regional/State Crop Insurance 16

MAY 06

P. John Owen, NCIS Legal Counsel, leads a discussion on issues the Chairmen must be aware of from a legal viewpoint.

Committees succeed, by preparing them for their official responsibilities as chairman of an NCIS committee. Specific instruction is provided on:

• legal issues, including anti-trust con­ siderations; • NCIS organizational structure; • ensuring program integrity. • making recommendations to the NCIS Board of Directors;

• operating in accordance with the NCIS Bylaws; • planning and conducting effective meet­ ings and loss school activities; • parliamentary procedure; and, • understanding the range of products and services offered by NCIS. After the training, the participants better understand the role of the NCIS Regional/State Crop Insurance Committees,

what is expected of them as chairman, and are prepared to successfully fulfill their official duties. “The meeting was excel­ lent,” a new Chairman for 2006 comment­ ed. “I can certainly see why it is a must for anyone that has been elected as chairman of their state committee. I look forward to working closely with my NCIS liaison dur­ ing my term as chairman.” There are 18 committees, organized along geographical borders that are the eyes and ears of NCIS at the local level. They meet periodically to discuss develop­ ments in agriculture and insurance. RMA employees are invited and encouraged to attend committee meetings. Attendance by individual agents and adjusters is not per­ mitted. Other guests, educators, and nonNCIS members may be invited to partici­ pate in committee activities as conditions warrant. An NCIS staff person is assigned as a liaison to each committee and func­ tions as a resource to the committee. The liaison is the immediate point of contact between the committee and NCIS. The liaison is to be kept informed of all com­ mittee activities. These committees exist primarily to:

1. Recommend coverage and language changes to the Crop-Hail and MPCI policy forms, applications, endorsements and miscellaneous forms. 2. Recommend new or revised CropHail or MPCI loss adjustment pro­ cedures and forms. 3. Advise NCIS on public acceptance of crop insurance programs offered by the affiliated companies. 4. Promote communication and coop­ eration within the crop insurance industry, with the exception of pric­ ing and producer commissions. 5. Promote and participate in risk management education activities. New chairmen fully understand that the committee and its individual members are not authorized to agree to policy on behalf of NCIS nor any member company. Where policy or procedure changes are recommended by the committee, those

recommendations are to be treated as rec­ ommendations until they are reviewed by the appropriate NCIS standing committee(s) and approved by the NCIS Board of Directors. It is a personal and professional honor

to be elected chairman of an NCIS Regional/State Crop Insurance Committee. The expectations and responsibilities are great, but so are the rewards for being selected by one’s peers to serve in this important leadership capacity.

2006 NCIS

Regional/State Committee Chairmen California/Nevada—Guri Bhangoo, Rain & Hail L.L.C. Colorado/Wyoming—Robby Hasz, RCIS East—Dock Ayers, RCIS Gulf States—Shirley Ford, ARMtech Illinois/Wisconsin—David Meylor, RCIS Indiana/Ohio/Michigan—John Ross, Farmers Mutual Hail Ins. Co. of Iowa Iowa—Dave Bousselot, Producers Ag Insurance Group Kansas/Oklahoma—Pat Koster, RCIS Kentucky/Tennessee—Rob Young, NAU Country Insurance Minnesota—Jim Ron Spanier, Heartland Missouri—Greg Souder, Great American Insurance Montana—Tom Wilson, American Farm Bureau Nebraska—Charles Rother, Farmers Crop Insurance Alliance North Dakota—Dennis Biewer, Great American Insurance Northwest—Steve Wedel, Rain & Hail South Dakota—Jim Maroon, NAU Country Insurance Southeast—Curt Lewsader, Great American Insurance Southwest—Ray Farmer, Great American Insurance

CROP INSURANCE TODAY

17

TODAYcrop insurance

ASIAN SOYBEAN RUST

&

A Historic Perspective Current Assessment

By Dr. William F. Moore, Mississippi State University

It took Asian Soybean Rust (ASR) 102 years to reach the continental United States after it was first reported in Japan in 1902. The first reported occurrence of ASR in Hawaii in 1994, in Africa in 1996, in Paraguay in 2001, and in Brazil and Argentina in 2002 increased concern that it would soon be in the continental U.S. This significantly increased emphasis on research on all aspects of ASR with particu­ lar emphasis on ways yields could be max­ imized in its presence. Concern about possible introduction of ASR into the soybean production areas of the U.S. is not recent. Research on ASR was begun in 1972 in a containment facility at Fort Detrick, Maryland. Research from that effort has provided and continues to pro­ vide significant information on multiple aspects of ASR, including pathogen variabil­ ity, pathogen development, pathogen-host interactions, and host range studies. More recent studies by various governmental agencies have been directed on the effec­ tiveness of various fungicides in preventing losses, application technologies, and seek­ ing potential sources of resistance. The reaction to this potential problem by all involved has been unprecedented. Federal and state agencies, researchers and extension specialists, northern and south­ ern soybean producers, and the various 18

MAY 06

agriculture industries have very productive­ ly worked together in implementing plans, procedures, and management products and practices to lessen the potential impact on soybean production by ASR. Following its introduction by Hurricane Ivan and the occurrence of ASR on late maturing soy­ beans in the fall of 2004, the Environmental Protection Agency (EPA) reacted quickly to grant emergency use permits for several fungicides for use in preventing losses from ASR. Funding was made available by the USDA and the producer check-off program to establish and monitor an early planted network of sentinel plots throughout the soybean production states in 2005. Unlike areas of South America where the produc­ tion of inoculum occurs year round, in the continental U.S. it is not endemic in major soybean production states and will have to be blown in from overwintering sites fur­ ther south. The inoculum potential should be low during the early soybean produc­ tion season annually and increase as envi­ ronmental conditions favor disease devel­ opment. The last occurrence of a disease which resulted in a major loss in production in a widely planted field crop was Southern Corn leaf blight in 1970. Southern Corn leaf blight had previously been of common occurrence and was not considered to be a disease that caused major widespread yield losses. In May of 1970, in a three county area, with limited corn acreage in Southeast

Mississippi and Southwest Alabama, it was obvious that a very different, far more aggressive form of the pathogen was destroying corn. Field observations at polli­ nation by the late Dr. Maurice Futrell, USDA Plant Pathologist, credited the occurrence of the problem to male sterility in fields of blends of male sterile and male fertile plants. In 1970, approximately 70-90 per­ cent (depending on the state) of the corn in the U.S. carried a trait for male sterility called Texas male sterility or T-cytoplasm. This was used in the production of hybrids by seed companies in making crosses to reduce the time-consuming and costly hand-detasseling method. By September of 1970, Southern Corn leaf blight caused by the new race of the pathogen had spread throughout the corn producing states and into Canada, resulting in an estimated loss of one billion dollars. This all appeared to begin in a small southern area, and under extended optimum conditions the pathogen flourished, increased and spread rapidly. Prior to 1970, this form of Corn blight was not know to occur, there was no prior alert to promote research and planned manage­ ment techniques, and the results were dev­ astating. The problem, however, for future corn production was quickly alleviated by a switch to other methods of making crosses. Now, the approximately 73 million acres of soybeans grown in the U.S. are produced in roughly the same area as the U.S. corn crop. One-hundred percent of the soybean crop

is susceptible to ASR. Will an epidemic of ASR occur and cause widespread losses as did Corn blight in 1970? It is possible, but in my opinion, not probable. Corn blight occurred by surprise; we were not pre­ pared. ASR has been expected for years; much of the research on loss prevention with the products and technologies avail­ able has been done and proven in other countries and areas where ASR is endemic. Perhaps just as important, if not more so, is the widespread knowledge among all involved (scientists, industry, and the nation’s soybean producers) on all aspects of ASR, from its development requirements to effective loss prevention methods. The alert system through the nation’s sentinel network and the use of information tech­ nologies can quickly result in implementa­ tion of effective, proven loss prevention technologies in production fields. Published predictions on potential losses from ASR, made prior to 2005, were before the avail­ ability of the strobilurin and triazole chemistries that have since been granted emergency use labels. Risk, however, is a factor in effectively preventing losses from ASR, just as with any other aspect of production agriculture. Wind-blown inoculum into soybean pro­ duction areas in early- to mid-season under extended wet optimum conditions is a worst-case scenario. Production fields remain wet and there is too much acreage to be effectively protected by the limited number of aerial applicators. Why was ASR not a problem in most of the soybean producing areas of the U.S. in 2005? For most of the early part of the growing season, the direction of air cur­ rents across known infected areas in Florida did not move in the direction of major soybean production areas in the South. It was not until tropical storm Arlene (on June 11) moved up the border of Mississippi and Alabama that it was sus­ pected that urediniospores were brought into southern production areas. The first CROP INSURANCE TODAY

19

observed occurrence of ASR occurred in sentinel plots in Alabama and Mississippi on June 28th and July 13th respectively. Movement of urediniospores by wind in mid-July across these and other known infected areas could have been responsible for later infections occurring in Alabama, Georgia, South Carolina, and North Carolina. Those production areas were wetter than areas to the west, such as those in Mississippi, which were having a drought and unfavorably high daytime temperatures. Foliage wetness from dew at night when temperatures were more favor­ able for infection did not last long enough to support infection. Areas of known infection in overwinter­ ing areas have increased since the 2005

growing season. The pathogen can be wind blown not only from Florida, but also from Northern Mexico, where it is now known to occur. We are lucky; it has to be blown in from overwintering sites to the south, unlike Brazil which has high levels of the pathogen year round. Our neighbors to the far south have learned to produce

good yields in spite of ASR. We are in a better position of doing the same. Editor’s Note: Dr. Moore is an Extension Plant Pathologist, Emeritus, in the Department of Plant and Soil Sciences at Mississippi State University. Photos courtesy of Alan Henn and Ben Spinks.

SOYBEANRust In the previous issue of TODAY, NCIS Research Agronomist, Dr. Mark Zarnstorff, assessed the soybean rust situation and the 2005 soybean growing season. In this issue, Dr. William F. Moore provides a historic perspective, as well as a further assessment of soybean rust for the major U.S. soybean growing areas. As this issue of TODAY was being prepared, the Risk Management Agency (RMA) provided a press release on its website concerning soybean rust and the 2006 season. Below are selected excerpts from that release: Washington, Apr 11, 2006—USDA’s Risk Management Agency (RMA) today reminded insured producers that Asian soybean rust remains a concern for the 2006 crop year in parts of the country. While crop loss due to soybean rust is a cov­ ered loss under the Federal crop insurance program, farmers must use good farming practices by seeking and following rec­ ommendations of agricultural experts to control soybean rust. RMA further recommends that insured producers document the advice received and actions taken to combat this disease. Under the terms of the Common Crop Insurance Policy, a good farming practice is one that agricultural experts agree will allow the crop to make normal progress toward maturity and produce at least the yield used to determine the produc­ tion guarantee. Failure to purchase and apply adequate control measures due to economic reasons is not an insurable cause of loss. Producers must be knowledgeable of any pending outbreaks and the control methods recommended by local agricultural experts, such as extension agents and certified crop consult­ ants, used in their area to combat the disease. 20

MAY 06

Insured producers should follow developments as to the identification and spread of Asian soybean rust disease and continue to stay informed and updated concerning appropri­ ate treatments that may apply to their situation. Producers can find the latest information on the spread of Asian soy­ bean rust from local experts and from USDA’s website at http://www.usda.gov/soybeanrust and track the move­ ment of the infestation at http://www.sbrusa.net. Information about Asian soybean rust control measures may be obtained from crop consultants and plant patholo­ gists in agriculture departments of State governments, uni­ versities, and USDA’s cooperative State Research, Education and Extension Service who are familiar with the risks of expo­ sure to this disease. RMA’s efforts to help producers better manage soybean rust also included funding and support of state and commodity based risk management education. Funds for this initiative were provided through RMA’s Commodity Partnerships for Risk Management Education Program. NCIS participated in this RMA-sponsored program and partnered with the University of Arkansas, University of Kentucky, University of Tennessee, Mississippi State University, and Louisiana State University. A workshop was held in each state, focusing on the latest informa­ tion from state extension plant pathologists, as well as discus­ sions of risk management and the role of crop insurance in pro­ tecting farmers from soybean rust. If you are interested in infor­ mation that was distributed at these meetings, please contact Mark Zarnstorff or Tom Zacharias at NCIS at 913-685-2767 or via email at [email protected] or [email protected].

TODAYcrop insurance

Continued from President’s page

crop insurance program. The Board has invited representatives from the Industry and several agent and producer groups to meet with them and discuss the successes of the program as well as the areas that might need some improvement. This is a major step forward to improving commu­ nication throughout the entire Industry and I applaud them for it.

As you can see, the Industry and staff of NCIS are very busy with several major ini­ tiatives set out to ultimately make this Industry and the product it delivers better for the American farmer. There isn’t a shortage of work and activity going on around here. And to that end, I’d like to welcome Mike Sieben to the staff of NCIS. Mike has many years of experience working in the

Industry and he’ll need every bit of it as he jumps in with the other staff to start tackling these issues. We know Mike will prove to be yet another valuable staff member of NCIS and your association.

SIEBEN Joins

NCIS Staff

NCIS is pleased to announce the addi­ tion of Mike Sieben to the staff of NCIS. Mike began his employment on April 10 in the Loss Adjustment and Insurance Products department as Senior Project Director. Mike comes to NCIS with an extensive crop insurance background. He began his

crop insurance career as a crop hail adjuster for Farm Bureau Mutual of Kansas and a field representative for Insurance Company of North America and Continental Insurance Company. After Mike was hired by Farm Bureau Mutual on a full time basis, he became the MPCI Claims Manager and was then promoted to the Crop Insurance Manager. He remained in that position until the MPCI and Crop Hail business was transferred to American Farm Bureau Insurance Services (AFBIS), where he managed the regional office and was responsible for MPCI and Crop Hail for

Kansas and seven other states. In 2002, Mike rejoined Farm Bureau Mutual to head up the newly merged companies of Farm Bureau Mutual of Iowa, Farm Bureau Mutual of Nebraska and Farm Bureau Mutual of Kansas. In addition, Mike has served on several industry committees for NCIS, the Crop Insurance Research Bureau (CIRB), and the Conference Committee for the National Association of Mutual Insurance Companies (NAMIC). Mike was born and raised in Winchester, KS and is a graduate of Kansas State University. He and his wife, Cheryl, have two sons, Shane, and his wife Tori, and Scott. Please join us in welcoming Mike to NCIS!

CROP INSURANCE TODAY

21

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MAY 06

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TODAYOBITUARIES

DENNIS STRANG Dennis Strang, 61, passed away at his home on March 28 following a seven-year courageous battle with cancer. Dennis was born November 26, 1944, in Cedar Rapids, Iowa. He grew up toiling on the family’s Fairfax, Iowa, farm and learning a work ethic that defined his life. Dennis attended Prairie High School in Cedar Rapids, and earned a biology degree from The University of Iowa in 1967. He married Janice Oliver in 1965. The family settled in Sigourney, Iowa, where Dennis taught high school biology for 19 years. He earned a masters degree in biological sci­ ence at Syracuse University in 1970. Dennis spent summers as a crop insurance adjuster for National Farmer’s Union (NFU) beginning in 1972. In 1985, he left teaching to work full-time as a crop insurance field supervisor for NFU in Illinois and became claims manager in 1987. When NFU closed in 1988, he worked as a field supervisor at Farm Bureau before joining the Rain & Hail L.L.C. Omaha, Neb., office in 1989. There he steadily earned respect and responsibility before retiring as the Great Plains Division Manager in May 2005.

Anyone who met Dennis immediately picked up on his easy wit, dry sense of humor, and amazing intelli­ gence. Those who were fortunate enough to get to know and work with him quickly identified his dedication, integrity, kindness, hon­ esty and loyalty. And they knew of his passions—mainly family, the Iowa Hawkeyes, running, history, traveling, and a good beer. Dennis started running in 1977 and went 20 years without missing a day. He completed in more than 50 marathons. Dennis is survived by his wife, Janice; son Jon Strang and wife Jackie of Johnston, Iowa; daughter Michelle Moore and husband Jeff of Overland Park, Kan.; and, grandchildren Antonio Rodriguez, Haley Strang, T.J. Strang, and Emily Moore. Memorials can be made to the United Way of the Midlands Foundation, 1805 Harney Street, Omaha, NE 68102.

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TODAYOBITUARIES

JOHN E. LUND II

Longtime crop adjuster, John E. (Jack) Lund II, 65, of Garden City, Kan., died Thursday, March 2, 2006, at St. Catherine Hospital in Garden City. Jack was born March 29, 1940 to John E. and Rita Lund. He was a 1962 graduate of Yale University and later graduated from Columbia School of Law. He had a love for the crop insurance business. Jack began his career in the Crop-Hail business as an adjuster and became interested in the MPCI business when private companies entered the business in 1980. He worked for several com-

NCIS Under the direction of its Board of Directors, National Crop Insurance Services has developed two national awards to be given to individuals who achieve excellence in the criteria set out by the awards. The first award is the Outstanding Service Award. This award, primarily for agents, has actually been in existence since 2001 and has been awarded to several excellent individuals. The purpose of this award is to promote exceptional service industry-wide, and encourage outstanding outreach efforts to all farmers, especially limited-resource farmers, by highlighting an individual who has demonstrated exceptional service. 24

MAY 06

panies throughout his

career; The Hartford, CNA,

American Agrisurance, IGF,

and most recently Farmers Mutual Hail Insurance Company of Iowa. He was member of the St. Mary the Virgin Episcopal Church, New York, NY.

INDUSTRY AWARDS

The newest award established is the Industry Leadership Award. This award, targeted primarily to members of the NCIS regional/state crop insurance committees, was created to formally recognize individuals who are directly involved in the crop insurance industry and who consistently serve the industry by providing outstanding leadership. Company employees at both the field and management level are eligible to be nominated. The criteria for both awards are: 1. Strong personal and business ethics. 2. Demonstrated service above and beyond to the crop insurance industry. 3. Represents themselves, their company, and the crop insurance industry well.

The two winners will be presented with their awards at the crop insurance industry annual convention held in February of each year. All nominations must be submitted in writing to NCIS by October 15, 2006, for awards to be given at the 2007 Annual Convention. For nomination information and forms to be submitted, please go to the NCIS website at www.ag-risk.org to download. If you have any questions regarding the criteria or whom is eligible for either award, please contact Laurie Langstraat at NCIS at [email protected] or 913-685-2767.

CROP INSURANCE TODAY

25

PRSRT. STD. U.S. POSTAGE

PAID

Permit No. 656 LIBERTY, MO 64068 8900 Indian Creek Parkway, Suite 600 Overland Park, Kansas 66210