Federally subsidized crop insurance covered an estimated $1.5 billion in crop losses in Nebraska from the 2012 drought.
The same pattern of heavy claims in Iowa, South Dakota and other states hit hard by weather calamity underscores the importance of crop insurance as a risk management strategy, according to a report released this month by two economic analysts at the University of Nebraska-Lincoln.
"Our study says crop insurance performed its role," agricultural economist Brad Lubben said in a follow-up interview.
Lubben and fellow NU faculty member Eric Thompson prepared the look at the effect of crop insurance payments in Nebraska and surrounding states for Omaha-based Farm Credit Services of America, the region's largest agricultural lender.
The report sheds light on how revenue-based insurance allows farmers to lock in attractive prices on future sale of their crops, even when yield results are unknown.
It also calculates benefits from risk protection that extend to small-town main streets and even to major trade centers such as Omaha, Lincoln and Des Moines, Iowa.
According to Lubben and Thompson, insuring income potential against the ravages of a drought of historic proportions preserved an estimated 7,450 jobs in Nebraska and 20,900 in Farm Credit's four-state trade territory.
"These are jobs saved at agricultural suppliers and nonfarm businesses throughout the economy," the NU duo said, "such as retailers, restaurants, entertainment venues and health care providers, among others."
Their analysis showed the spin-off effect was worth about $15 million in economic activity and 114 jobs in Lincoln and Omaha combined.
In an interview, Lubben pointed to how revenue insurance protects farmers from situations in which they sell crops in advance and then confront the higher prices that go with drought.
Along with that comes the need to buy at that price to fulfill contract sales and make up for poor yields that fall short of contract terms.
"They've got to buy $7.50 corn to deliver on a $5.68 contract," he said. "That's what crop insurance was made to do."
Without revenue insurance, farmers would have to cover contract shortfalls entirely from their own pockets.
A positive spin on the importance of crop insurance emerges as a Friday deadline looms for locking in coverage on spring-planted crops. It also comes at a time when critics are suggesting coverage is too generous and some in Congress are talking about a substantial cutback in a taxpayer subsidy that averages more than 60 percent of what farmers would otherwise pay.
Despite the drought, irrigation and crop insurance positioned Nebraska farmers close to near-record net farm income.
But Lubben said the billions of dollars in payments to farmers reflect an unusual situation in which the 2012 drought was especially widespread and triggered a major surge in prices for corn, soybeans, wheat and other mainstream crops.
As a result, prices rose more than production fell.
"2012 was unique," he said. "Almost everybody shared in the drought."
In more normal years, the premiums farmers pay for coverage nationally are more than a match for claims resulting from weather extremes.
Lubben also noted that federal officials already have stepped in to contain the profits of insurance providers when claims volume is in a more normal range.
"Crop insurance for the better part of the last decade was somewhat vilified in political circles as too profitable."
The federal government involved private companies in crop insurance sales in the 1980s.
For many years after that, farmer participation was so low that coverage sometimes was required for anybody who got a crop disaster payment from taxpayers the previous year.
In 2012 in Nebraska, according to the NU economists, 90 percent of all corn and wheat acres and 91 percent of all soybean acres were insured.
A better product and growing awareness about how to use crop insurance tools -- not mandatory coverage rules -- has made uninsured producers a small minority in Nebraska, Iowa and South Dakota.