The drought that left farmland barren and ravaged crop production throughout the country may add up to total crop insurance losses of more than $13 billion, disaster modeler AIR Worldwide said on Tuesday.
The company forecast that losses from the worst drought in a quarter century could reach as high as $20 billion, Fox Business reported.
Last year, dry conditions led to below-normal corn production, especially in Texas, which recorded agricultural losses of $7.62 billion with crop insurance losses of $2.58 billion. This year is expected to be even worse, slated to surpass the 1988 drought.
"After the hottest July on record, the 2012 drought is now expected to surpass the 1988 drought in terms of industry losses," AIR said.
After accounting for recoveries from the federal government, crop insurers and their reinsurers could be on the hook for $1 billion to $3 billion in losses, AIR said.
The federal government pays on average 60 cents of every dollar of crop insurance premiums. On top of that, if there are losses, the federal government shares with insurers the cost of paying them.
The 1988 agricultural drought was by far the most severe experienced in the last quarter century until this year. The total economic loss of the 1988 drought was $77.6 billion when adjusted to 2012 dollars, making it the second most expensive U.S. weather disaster since 1980.