Insured crop losses from the US drought could reach $US17 billion ($16.4 billion), according to a Munich Re report.

During the last severe Midwest drought in 1988 the loss to agriculture totalled $US15 billion.

About $US1 billion was paid in indemnities and the US Government paid another $US4 billion in disaster assistance.

But because insurance density and total liability covered by crop insurance have increased, last year’s drought was more expensive for insurers.

The public-private multiple-peril crop insurance program will cover $US15-17 billion ($14.5-$16.4 billion) in losses, which equates to a 105-135% net loss ratio for insurers.

In the US private insurers and the Government share crop risks. Private insurers have reported their highest-ever payments, even though the amount of liability is capped by the Government, Munich Re says.

“The losses to be borne by reinsurers are on a scale normally encountered only after major storms, floods or earthquakes,” the report says.

The US agricultural sector’s system of providing cover is more efficient than state relief paid elsewhere after disasters, according to the reinsurer.

Cover is tailored to individual farmers, claims are settled quickly and farmers pay much of the premium while taxpayers fund aid payments.

The crop insurance system is an “exemplary form of risk management for natural catastrophes in the agricultural sector and a model for other countries”, Munich Re says.

Last year was “exceptionally warm”; in Midwestern states, where most of the country’s main crops are grown, the first six months were the warmest since records began in 1895.

About 39% of mainland US experienced severe or extreme drought last August.

In July 40% of soybeans and 50% of corn was in poor or very poor condition, although the soybean crop improved slightly by harvest time.

Between the northern spring and harvest, soybean prices rose more than 20% and corn prices grew 30%. This affected livestock producers, the food processing industry and manufacturers of industrial products including ethanol.

If last year’s conditions continue a further deterioration in supply this year could trigger a “drastic” rise in food prices worldwide, Munich Re says.

The drought also increased fire risk, made navigation of the Mississippi river system more difficult because of low water levels and affected the power industry.