Changes to Crop Insurance Keith Coble
advertisement
Changes to Crop Insurance Keith Coble Crop Insurance had grown by five-fold --- apparently supplanted Ad hoc programs --- Insured price risk --- Insured area yield and revenue U.S. Crop Insured Acres 300.0 250.0 200.0 150.0 100.0 50.0 2008 Farm ARPA 2000 Reform Act or 1994 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2012 0.0 Current Rice Coverage Levels Current Corn Coverage Levels Current Soybean Coverage Levels Current Wheat Coverage Levels Title XI Crop Insurance • Creates two new shallow loss county triggered programs – Supplemental Coverage Option (SCO) – Stacked Income Protection Program (STAX) for cotton • Conservation Compliance for crop insurance Agricultural Act of 2014 Budget Implications (Total Savings of $23,008 million) -$14,307 Sequester -$6,400 Commodity Programs -$3,967 Conservation Trade Nutrition -$8,000 Credit Rural Development Research & Extension Forestry Energy Horticulture Crop Insurance Miscellaneous $139 $0 $228 $1,145 $10 $879 $694 $5,722 $953 Change in Baseline Funding (Millions) Title XI Crop Insurance • Traditional crop insurance changes – Enterprise units by dryland/irrigated practice – Separate coverage level by practice – Beginning farmers (provides 10 percentage point discount for all crop insurance premiums) – Authority to do peanut revenue insurance – Establishes fund to combat crop insurance fraud – Crop margin coverage & peanut revenue coverage Title XI Crop Insurance – Adjustment in APH insurable yields • Producer may opt to exclude any year from APH if yield in county in that year is less than 50% of ten-year county average; Also applies to contiguous counties and allows for the separation of irrigated and non-irrigated acres – Studies or policies are also required on insuring: • Specialty crop producers for food safety and contamination-related losses, • Swine producers for a catastrophic disease event, • Producers of catfish against reduction in the margin between the market prices and production costs, • Commercial poultry production against business disruptions caused by integrator bankruptcy, • poultry producers for a catastrophic event, • Producers of biomass sorghum or sweet sorghum grown as feedstock for renewable energy, • Alfalfa crop insurance. • Whole farm diversified risk management insurance plan Supplemental Coverage Option (SCO) • • • • • RMA delivered beginning in 2015. 65% premium subsidy. No payment limit. Top coverage of 86% coverage County-level optional endorsement for crop insurance policies. – “Tops up” crop insurance to cover deductible. – Yield or revenue triggered depending on underlying crop insurance policy. – Expected county yield = GRP trend yield. Expected revenue = GRP trend yield x crop insurance base price. – Actual county yield = County yield. Actual revenue = county yield x crop insurance harvest price. – Coverage ceases at coverage level for underlying insurance policy. • May purchase STAX and SCO, but not on same acres. • Must purchase underlying insurance policy 11 Example of SCO with underlying RP insurance πππππππ πππ π΄π΄π΄π΄ (86% − ππππππ πππππππ % ππ ππππππππ) × πΏπΏπΏπΏπΏπΏπΏπΏπΏ πππ π΄π΄π΄π΄ = 86% − πΆπΆπΆπΆ πΌπΌπΌπΌπΌπΌπΌπΌπΌ πΆπΆπΆπΆπΆπΆπΆπΆ πππππ = (86%−78% 86%−70% × πΏπΏπΏπΏπΏπΏπΏπΏπΏ πππ π΄π΄π΄π΄ = (8%) 16% × πΏπΏπΏπΏπΏπΏπΏπΏπΏ πππ π΄π΄π΄π΄ Note: the term in the bracket is bounded between 0 and 1. where πΏπΏπΏπΏπΏπΏπΏπΏπΏ πππ π΄π΄π΄π΄ = πΉπΉπΉπΉ π΄π΄π΄ π¦π¦π¦π¦π¦ × πππ ππππππππ π‘π‘π‘π‘ πππππ, π»π»π»π»π»π»π» πππππ × 86% − πΆπΆ πΆπΆπΆπΆπΆπΆπΆπΆ πΏπΏπΏπΏπΏπΏ . 12 SCO Worksheet Row 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Calculation/value Projected price (1/15-2/14 average for Dec corn contract) APH yield Crop insurance coverage level Expected farm revenue (Row 1 x Row 2) SCO coverage (86% − Row 3) × Row 4 Expected area-wide yield (bu.)per planted acre (higher of trend yield or 5-year moving average) Area-wide projected income (Row 1 × Row 6) SCO coverage level November average of December corn futures price Actual area-wide yield per planted acre (bu.) Area-wide realized income (Row 9 × Row 10) Revenue ÷ expected revenue (Row 11 ÷ Row 7) Percent shortfall as a percent of deductible % [Row 13 ÷ (Row 8 − Row 3) Bounded at 100%] Indemnity (Row 5 × Row 14) 1 2 4 5 $3.92 $3.92 $3.92 $3.92 160 160 160 160 70% $627.20 $100.35 70% $627.20 $100.35 70% $627.20 $100.35 70% $627.20 $100.35 140.0 140.0 140.0 140.0 $548.80 0.86 $3.40 140.0 $476.00 $548.80 0.86 $3.40 130.0 $442.00 $548.80 0.86 $3.40 110.0 $374.00 $548.80 0.86 $3.40 100.0 $340.00 87% 81% 68% 62% 0% 34% 100% 100% $0.00 $34.25 $100.35 $100.35 Crop Insurance Choices Coverage Level 50% 55% 60% 65% 70% 75% 80% 85% Basic & Optional Enterprise Unit Subsidy % Subsidy % 67% 64% 64% 59% 59% 55% 48% 38% 80% 80% 80% 80% 80% 77% 68% 53% SCO Subsidy 65% 65% 65% 65% 65% 65% 65% 65% STAX Subsidy % 80% 80% 80% 80% 80% 80% 80% 80% 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Area Products – SCO & STAX - a shallow loss version of area insurance Example County Yield Trend 300 250 200 150 100 50 0 Actual Yield Actual Yield predicted yield 2015 Pred 2014 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 From the history one must predict expected yield two years out Example County Yield Trend 300 250 200 150 100 50 0 Now for the hard part- Using Historic Deviations from trend to assess the odds of deviation from trend next year Example County Yield Trend 300 250 200 What will the weather of 1976 for do to yields today? 150 100 50 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014 0 Actual Yield predicted yield 2015 Pred Now for the hard part- Using historic deviations from trend to assess the odds of deviation from trend next year Example County Yield Trend Frequency 300 More 100 250 80 60 40 200 20 0 150 -20 -40 -60 100 -80 -100 -120 50 -140 0 0 Actual Yield predicted yield 2015 Pred 2 4 6 8 10 12 Many counties lack long series - How to augment rating short series? - How to accommodate missing series? Example Short County Yield Trend 300 250 200 150 100 50 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014 Actual Yield predicted yield 2015 Pred Final thoughts • Crop risk management portfolio – Commodity programs – Crop Insurance – Input cost – Finances • Learn about crop insurance – Ask about enterprise units and SCO Questions • Coble@agecon.msstate.edu • @DrKeithHCoble
