WASHINGTON, May 13, 2015 – USDA data is revealing a picture of which producers chose which crop insurance policies under the 2014 farm bill. Although the number of acres covered and premiums paid during the signup period for spring crops, which ended March 1, will not be available until later this year, the data show that new programs tailored for Southern crops like cotton may be having trouble getting off the ground due to the vast array of options and policy combinations.
The new programs forced USDA’s Risk Management Agency (RMA), crop insurers and farmers alike to sort through a complex list of insurance options that presented entirely new safety net models for some growers.
RMA Administrator Brandon Willis noted that the crucial question of whether crop insurance “influenced producer choices” in what crops to grow and what coverage levels to buy has yet to be determined, but additional data by the end of the year may provide more answers.
The new insurance program for cotton, the Stacked Income Protection Plan (STAX), may be purchased on its own or in conjunction with another policy, including Yield Protection or Revenue Protection. Under STAX, the federal government will pay 80 percent of the premium cost. STAX provides coverage for a portion of the expected revenue in a growers’ area, usually the county. The policy pays off when there is an area-wide loss in revenue.
According to RMA, less than 10,000 policies have been sold this year under STAX, a fraction of the more than 73,000 individual revenue and yield policies sold for cotton. Jody Campiche, the director of economics and policy analysis at the National Cotton Council, said the number is lower than expected likely due to an “information overload” for growers.
“[Cotton growers] are just not that familiar with area plans,” Campiche said, adding that more growers may sign up next year after there is more time to learn about their options. Notably, cotton prices dropped significantly earlier this year, hitting a four-year low in January, which didn’t incentivize growers to choose the policy.
Willis said he expects STAX numbers to increase next year. Campiche noted, “You have to have a really good crop insurance agent to work through all” of the changes.
Growers also had to make a decision between two new commodity programs that replaced direct payments in the farm bill: Agricultural Risk Coverage and Price Loss Coverage.
“Many producers just wanted to focus on that decision and then think about insurance choices later,” Campiche said.
Cotton growers could also choose the Supplemental Coverage Option (SCO), a new program also available to spring barley, corn, soybeans, wheat, sorghum, and rice under the farm bill. SCO provides additional coverage for a portion of the underlying crop insurance policy deductible. The grower must buy it as an endorsement to the Yield Protection or Revenue Protection policies, and the federal government pays 65 percent of the SCO premium cost.
STAX has a higher subsidy so many cotton producers were looking at STAX instead of SCO. Only about 100 polices were sold for that crop, according to RMA data as of May 11, 2015.
Wheat growers bought most of the SCO policies sold this year. Of more than 24,800 policies, more than 16,000 were sold for wheat.
Willis said the overall participation in SCO “aligned with what we would expect.” He said rice growers’ participation was solid, with over 2,800 policies sold. Again, Willis noted with “so many changes in the farm bill…we may see an uptick next year.”
Growers also had to weigh the benefits of yield exclusion. Under the new farm bill, yields can be excluded from a farm’s actual production history when data shows that the county average yield for that crop year is at least 50 percent below the 10 previous consecutive crop years' average yield. The amount of insurance available to a farmer is based on the farmer's average historical yields, or actual production history (APH).
About 19 percent of cotton growers in qualified counties chose the yield exclusion provision.
Campiche noted that many growers didn’t realize that once they increased their APH through yield exclusion, they may want to look closer at SCO since the SCO payment does account for the producer’s APH yield, while STAX does not. The county still has to have a loss for SCO to trigger, but if the APH is higher, the payment to the producer will also be higher.
“For those producers who didn’t want to take the yield exclusion due to the higher premium, they may have found an option to only exclude some years, lower their overall coverage level, receive a higher premium subsidy, and purchase SCO,” Campiche said.
Among the qualified counties for all crops, preliminary data from RMA show that about 19 percent of the policies sold have taken advantage of the yield exclusion provision. Willis said this number should increase next year, as the agency had to rush to implement the provision.
The variety of options mean farm bill programs for growers are more complex than ever, and Campiche expects more extension programs to focus on crop insurance so that growers have additional outlets for education.
When it comes to new insurance for specialty crop farmers, Willis said participation in Whole Farm Revenue Protection exceeded his expectations.
In previous years, RMA sold an average of 800 policies of Adjusted Gross Revenue (AGR) that the Whole Farm policy replaced. This year, growers bought over 1,000 Whole Farm policies. “That’s a big deal…it’s a brand new program,” Willis said. “I do believe that new number will continue to grow as people get more comfortable.”
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