THE 2014 FARM BILL ONE YEAR
ON…
DARREN HUDSON AND KISHOR LUITEL
INTERNATIONAL CENTER FOR AGRICULTURAL COMPETITIVENESS
COMBEST ENDOWED CHAIR IN AGRICULTURAL COMPETITIVENESS
2015 Plains Cotton Ginners Meeting, Lubbock, TX
MAJOR FARM BILL CHANGES—
RISK AND INSURANCE
•
“Shallow loss” provisions
—STAX and SCO
•
Yield exclusion
•
Insurance by practice
SHALLOW LOSS—EXPECTATIONS
VERSUS REALITY
PERCENTAGE
•
Survey of Texas cotton
producers in Feb 2015
•
•
28% of respondents
expected to purchase
shallow loss coverage
RMA data shows that around
11% of Texas producers
actually purchased shallow
loss products.
PARTICIPATION
28
21
14
7
0
Expected
Actual
WHY THE APPARENT CHANGE
OF PLANS?
•
Complication
•
A large number of moving parts to
understand
•
shallow loss
•
yield exclusion
•
irrigated/dryland
•
overall farm bill choices
•
Weather/anticipated probability of
payoff
•
“Locking in a loss.”
•
•
Lack of a reference price harms the
efficacy when prices are low
Poorly prepared crop insurance agents
WHAT DOES THE ANALYSIS
SAY?
•
Simulation of optimal product
choice without yield exclusion
shows:
•
70% coverage level
generally best
•
STAX is a good purchase,
especially for producers with
below county average yield
•
SCO becomes more
attractive the higher the
farm yield
WHAT IS THE IMPACT OF YIELD
EXCLUSION?
•
•
Yield exclusion allows producers to potentially increase their
APH average yield, thereby increasing the potential yield
guarantee. Two choices:
•
Keep the same coverage level—premiums rise substantially
but payouts rise proportionally
•
Lower coverage level to decrease the premium and maintain
same (or similar) yield/revenue protection levels
Because SCO is based on farm yield, YE should make SCO more
attractive relative to STAX when compared with no YE on the
same farm
YIELD EXCLUSION ELIGIBILITY
-120°
-110°
-100°
-90°
-80°
-70°
40°
45°
-130°
Links directly to the state table
(double click)
0
125
2015 CROP YEAR
NON-IRRIGATED COTTON
YIELD EXCLUSION (YE)
250
500
750
1,000
Miles
35°
25°
-90°
-80°
-70°
Irrigated
Coordinate System: Albers
Central Meridian: 96°0'0"W
1st Std Parallel: 20°0'0"N
2nd Std Parallel: 60°0'0"N
Latitude of Origin: 40°0'0"N
Metadata:
County Files - US Census Tiger
Files 2013
YE Coverage - USDA - RMA
December 2014
STATEMENT
The Maps produced represent
the number of years (since 1995)
eligible for yield exclusion for
the 2015 crop year.
Pacific
Ocean
Atlantic
Ocean
Number of Years Eligible for
Yield Exclusion (YE)
0 years
1 year
2 to 4 years
Gulf of Mexico
5 to 7 years
8 to 10 years
11 to 15 years
TABLE
Links directly to the state table
(double click)
0
125
2015 CROP YEAR
IRRIGATED COTTON
YIELD EXCLUSION (YE)
250
500
750
1,000
Miles
Coordinate System: Albers
Central Meridian: 96°0'0"W
1st Std Parallel: 20°0'0"N
2nd Std Parallel: 60°0'0"N
Latitude of Origin: 40°0'0"N
Metadata:
County Files - US Census Tiger
Files 2013
YE Coverage - USDA - RMA
December 2014
STATEMENT
The Maps produced represent
the number of years (since 1995)
eligible for yield exclusion for
the 2015 crop year.
Document Path: K:\APH\Irrigated\Cotton\IrrigatedCotton.mxd
TABLE
Non-Irrigated
30°
11 to 15 years
Gulf of Mexico
25°
8 to 10 years
-100°
40°
0 years
1 year
5 to 7 years
-110°
Atlantic
Ocean
Number of Years Eligible for
Yield Exclusion (YE)
2 to 4 years
-120°
45°
Pacific
Ocean
Document Path: K:\APH\NonIrrigated\Cotton\Non-IrrigatedCotton.mxd
30°
35°
-130°
COVERAGE LEVELS
•
Average coverage level
across all policies in 2014
was 67%
•
Average anticipated
coverage level in 2015
for irrigated was 66%
•
Average anticipated
coverage level in 2015
for drylands was 67%
WEAKNESS OF INSURANCEONLY APPROACH
•
No other price safety net for
cotton
•
Cotton price set during Jan/
Feb time frame (depending
on location)
•
No downside price
protection other than loan
price or insurance price,
whichever is higher (and
price only relevant to
insurance when RP is used)
ELEPHANT IN THE ROOM…DID
COTTON GET LEFT OUT IN THE COLD?
•
Yes and No.
•
•
Yes
•
Cotton did not get to participate in ARC/PLC programs; other crops have a
“reference price” but cotton does not (PLC, not insurance)
•
Marketing loan gains were rolled into payment limits—puts cotton, who uses the
marketing loan program, at a payment limit disadvantage compared to other
commodities in some years
No
•
Generic base acres allows producers flexibility to plant other crops and
participate in the commodity programs on an annual, not five year, basis
•
Received a higher subsidy on shallow loss STAX plus the flexibility to use SCO if
desired
THE PATH FORWARD
•
Improve our (producers and insurance agents) understanding of STAX
and SCO costs and benefits
•
Explore new sources of revenue from the bill (oilseeds is an example)
•
Focus on producing quality cotton, controlling costs, and focus attention
on marketing plans…