McAfee & Taft takes the lead in protecting American farmers’ right to 2014 Farm Bill’s APH Adjustment Option

published in McAfee & Taft AgLINC Alert | September 9, 2014

By Jeff Todd and Jeremiah Buettner

Farmers who insure their crops with an Actual Production History (APH) type of crop insurance policy — especially in areas affected by the recent severe droughts — received a welcome benefit in the 2014 Farm Bill known as the “APH Adjustment Option.” As part of the Farm Bill, Congress gave farmers the right to elect the APH Adjustment Option for calculating their APH, which is a 4- to 10-year database of a farmer’s historical yields used in setting insurance guarantees. The new option allowed farmers to exclude certain historical catastrophic years from their APH, thereby increasing their guarantee and potential indemnity payments.

However, on July 1, 2014, the Risk Management Agency (RMA) announced that it would not implement Congress’ new option until the 2016 crop year, and it is anticipated that the private insurance companies that offer federal crop insurance policies to farmers may refuse to allow their farmer customers to exercise the APH Adjustment Option authorized by Congress.

Throughout the country, but particularly in counties in western Oklahoma, the panhandle of Oklahoma, southwest Kansas, southeast Colorado, the panhandle of Texas and west Texas, farmers have experienced substantial, multi-year droughts in the past 10 years that have effectively dragged down their APH. The APH Adjustment Option allows farmers to exclude any year of their APH database where the average yield for their county (or any contiguous county) dropped below 50% of that county’s 10-year average. The elimination of these outlier years was clearly intended by Congress to benefit farmers by giving them a more optimistic baseline of historical production. The option also had a fairly simple application: insurance companies only had to identify the historical catastrophic years and allow farmers in the impacted counties (or contiguous counties) to exclude those years on their crop insurance documents.

The Farm Bill was signed into law in February 2014. Unfortunately, on July 1, 2014, RMA declared that it would not implement the APH Adjustment Option for the entirety of the 2015 crop year. We anticipate that the companies that offer federal crop insurance to farmers may likewise refuse to allow their insureds to elect the benefits of the APH Adjustment Option despite Congress’ mandate.

The inability to exercise the APH Adjustment Option will have a significant, negative impact on thousands of farmers and, conservatively, hundreds of thousands of acres planted in 2015. While the full extent of injury will not be known until the 2015 harvest, many farmers will suffer a loss when they renew their crop insurance policies this fall. Crop insurance is practically a mandatory risk management tool for any farmer who borrows money to produce a crop. Lenders look to the insured’s crop insurance guaranty to determine how much to loan on a crop. The higher the guarantee, the more borrowing power the producer has — typically, agricultural lenders will only loan the difference between the guarantee and the premium — which could make the difference between sufficient and insufficient inputs.

Next steps for impacted farmers

The legal team at McAfee & Taft, including judicially recognized crop insurance experts Jeff Todd and Jeremiah Buettner, have been analyzing the problem and potential avenues of redress for impacted farmers. Todd and Buettner believe that farmers have the right under their crop insurance policies to exercise the APH Adjustment Option for the 2015 crop year and have constructed a cost-effective way to represent farmers with any size operation to receive the benefit intended by Congress. However, the earlier this process can begin for a farmer, the higher likelihood of success. Todd and Buettner have identified September 30, 2014, the sales closing date for 2015 wheat crop insurance, as a key early deadline for ensuring farmers’ rights are preserved.

This alert has been provided for clients and friends of McAfee & Taft A Professional Corporation. It does not provide legal advice, and is not intended to create a lawyer-client relationship. Readers should not act upon information in this alert without seeking professional counsel.