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Crop Insurance and ACRE Update. Dr. Jody Campiche Oklahoma State University April 26, 2013. Drought Damaged Crops Irrigated Prevented Planting. Possibility of reduced water availability for irrigation for the 2013 crop year Alternatives - PowerPoint PPT Presentation
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Dr. Jody CampicheOklahoma State University
April 26, 2013
Crop Insurance and ACRE Update
Possibility of reduced water availability for irrigation for the 2013 crop year
AlternativesTo insure crop as irrigated, must apply
appropriate quantity of water at appropriate times to produce minimum yield used to determine the production guarantee (based on APH yield)
Drought Damaged CropsIrrigated Prevented Planting
If a producer plans to apply less water than used to establish the irrigated APH yield, there are several options:
Apply amount of water to produce APH yield on a reduced # of acres and report remaining acres as non-irrigated
Apply less water to the total acreage than used to establish irrigated APH yield and report total acreage as non-irrigated
Apply amount of water needed to produce irrigated APH yield on a reduced # of acres and leave remaining acres idle – then claim a prevented planting guarantee
Drought Damaged CropsIrrigated Prevented Planting
Failure to plant an insured crop with the proper equipment by the final planting date designated in the insurance policy’s Special Provisions or during the late planting period
Coverage when an insurable cause of loss, such as drought, prevents planting on non-irrigated acreage, or results in an inadequate irrigation water supply for irrigated acreage
Prevented Planting Guarantee60% of production guarantee for timely planted
acres
What is Prevented Planting?
To be eligible due to drought:
Area that is prevented from being planted must, on the final planting date (or within the late planting period), have insufficient soil moisture for germination of seed or progress toward maturity due to a prolonged period of dry weather
Prevented Planting for Non-Irrigated Acreage
On the final planting date (or late planting period),
No reasonable expectation of having adequate water available to carry out an irrigated practice due to an insured cause of loss (such as drought) that occurred during the prevented planting insurance period
Prevented Planting for Irrigated Acreage
How does a producer qualify for the prevented planting guarantee
Must have a reasonable expectation that adequate water will be available
An insurable cause of loss must have occurred within the prevented planting insurance period
Drought Damaged CropsIrrigated Prevented Planting
Are both sources of irrigation water (surface and wells) eligible for prevented planting?
Yes, but in most cases, can’t determine the amount of reduction in well water attributable to an insured cause of loss that occurred within the insurance period
So it is difficult to prove prevented planting eligibility
Drought Damaged CropsIrrigated Prevented Planting
What are the cropping restrictions on prevented planting acres?
Other than approved cover crops, no crops can be planted on the acreage if a prevented planting payment is issued without a payment reduction
Cover crop cannot be hayed or grazed prior to November 1
If the cover crop is harvested for grain, seed, etc., the policy provisions for 2nd crops or crops planted prior to the late planting period would apply
Drought Damaged CropsIrrigated Prevented Planting
Insured producer selects 75-percent coverage level, resulting in $30,000 in total coverage (liability)
Multiply $30,000 x 60* percent to get PP payment$30,000 x 60 percent = $18,000 the insured
producer would receive
Prevented Planting Example
Prevented planting coverage does pay when a producer suffers a loss – significant portion of total indemnities
Covers when a drought causes shortage of irrigation water
If prevented from planting due to lack of irrigation water, not required to plant non-irrigated crop
If producers can’t get water from water provider after crop is planted (and is due to an insured cause of loss during the prevented planting insurance period), may be insurable
Prevented Planting Key Points
If continued drought is predicted, crop insurance policies do not require producers to plant or not plant
Prevented planting covers multi-year droughts
Coverage limited to losses caused by effects of drought in current crop year
Can get prevented planting payments on the same acreage in 2012 and 2013
Prevented Planting Key Points
May be able to get insurance coverage on the cotton crop – bit complicated
You can enroll wheat acres in ACRE but the cotton acres would not be eligible if this is not an FSA STC approved double-cropping activity in your county
Things to consider if you plant cotton on your failed wheat
acres
Here is a link to the discussion on damaged wheat acres and potentially shifting to cotton in the southwestern part of the state.
http://www.youtube.com/watch?v=XAWBoRKg9Es&list=UU8YmKQOMZdq5-X7u--snBXQ&index=1
Jody Campiche and Bambi Sidwell talk about crop insurance for damaged wheat and ACRE payments in the link below.
http://www.youtube.com/watch?v=1ry7M135smQ&list=UU8YmKQOMZdq5-X7u--snBXQ&index=2
SUNUP April 27th
Sequestration
FSA Programs8.5% cut to 2013 direct payments (152 million
dollars)Transfer money from DP program to other
programs30 day hold on 2011 SURE, 2012/2013 NAP,
and MILC payments
Across the board cuts of 5% - additional 3.5% from continuing resolutionSince payments have already went out for
2011 SURE, 2012 and 2012 NAP, and MILC, USDA decided to cut DPDidn’t want 350,000 farmers to have to
repay 5% of their payments under SURE, NAP and MILC
2013 ACRE vs. DCP
What do you lose if you enroll in ACRE?
20% cut in direct payments
CCP paymentsFor cotton, marketing year price needs to be less than $0.65
30% loss in marketing loansDP cotton loan rate: $0.52ACRE cotton loan rate: $0.364Marketing year price too high for LDP
2009/10 Average U.S. Direct Payments
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Direct Payments What does a wheat producer lose if he enrolls in
ACRE?
Average direct payment for wheat is about $15/acre8.5% reduction due to sequestration
So average DP for wheat is now $13.72/acre (8.5% loss is $1.27/acre)
Enroll in ACRE, the 20% loss is $2.72 so DP is $11/acre
Enroll in DCP $13.72/acre paymentEnroll in ACRE $11.00/acre payment
ACRE payment needs to be at least $2.72 per acre to make it a better option than DCP
ACRE vs. DCP for WheatPreliminary wheat yield estimate on May 10
OK State Wheat Yield
ACRE Payment (per
acre)
Benchmark Revenue Guarantee
2009
21.9 $46.84 $187.36
2010
31.0 $0.00 $168.62
2011
18.3 $19.27 $151.76
2012
36.0* Probably $0.00 $156.64
2013
? ? $172.30
ACRE vs. DCP for Wheat
17 18 19 20 21 2205
1015202530354045ACRE Payment - $7.80 MYA Price
ACRE Payment
State Wheat Yield
$/ac
re
Max. ACRE payment
$2.72 Breakeven Point (21.8 bu/acre)
ACRE vs. DCP for Wheat
17 18 19 20 21 2205
101520253035
ACRE Payment - $8.20 MYA Price
ACRE Payment
State Wheat Yield
$/ac
re
Breakeven Point (20.7 bu/acre)$2.72
ACRE vs. DCP for Wheat
7
7.2
7.4
7.6
7.80
5
10
15
20
ACRE Payment 22 bu/acre State Wheat Yield
ACRE Payment
2013/14 MYA Price
$/ac
re
Breakeven Point ($7.72)
$2.72
What does an Irrigated Cotton producer lose if he enrolls in ACRE?
Average direct payment for irrigated cotton - $50/acre8.5% reduction due to sequestration
So DP for irrigated cotton is now $45.75/acre (8.5% loss is $4.25/acre)
Enroll in ACRE, 20% loss is $9.15 so DP is $36.60/acre
Enroll in DCP $45.75/acre paymentEnroll in ACRE $36.60/acre payment
ACRE payment needs to be at least $9.15 per acre to make it a better option than DCP
ACRE vs. DCP for Irrigated Cotton
OK State Yield
ACRE Payment (per
acre)
Benchmark Revenue Guarantee
2009
1232 $0.00 $472.27
2010
1097 $0.00 $517.55
2011
85 $142.33 $569.31
2012
? ? $626.24
2013
? ? $699.60 (not final)
ACRE: Irrigated Cotton
Breakeven Point (968 lbs/acre)
$9.15 610 700 750 775 800$0
$20$40$60$80
$100$120$140$160$180$200
MYA Price $0.701
ACRE payment
State Yield
$/ac
re
Max ACRE payment $171/acre
ACRE: Irrigated Cotton
Breakeven Point (800 lbs/acre)
$9.15 610 700 750 775 800
0255075
100125150175200
MYA Price $0.85
ACRE payment
State Yield
$/ac
re
Max ACRE payment $171/acre
Direct Payments What does a non-irrigated cotton producer lose if
he enrolls in ACRE?Average direct payment for irrigated cotton -
$19.84/acre8.5% reduction due to sequestration
So DP for irrigated cotton is now $18.15/acre (8.5% loss is $1.69/acre)
Enroll in ACRE, 20% loss is $3.63 so DP is $14.62/acre
Enroll in DCP $18.15/acre paymentEnroll in ACRE $14.62/acre payment
ACRE payment needs to be at least $3.63 per acre to make it a better option than DCP
ACRE vs. DCP for Non-Irrigated Cotton
OK State Yield
ACRE Payment (per
acre)
Benchmark Revenue Guarantee
2009
367 $0.00 $221.42
2010
503 $0.00 $209.91
2011
21 $57.33 $230.90
2012
? ? $253.99
2013
? ? $278.30 (not final)
ACRE vs. DCP for Non-Irrigated Cotton
Breakeven Point (390 lbs/acre)
Max. ACRE payment $69/acre
300 350 375 395$0
$10$20$30$40$50$60$70$80
MYA Price $0.701
ACRE payment
State Yield
$/ac
re
$3.63
ACRE vs. DCP for Non-Irrigated Cotton
Breakeven Point (325 lbs/acre)
Max. ACRE payment $69/acre
250 275 300 325$0
$10$20$30$40$50$60$70$80
MYA Price $0.85
ACRE payment
State Yield
$/ac
re
$3.63
ACRE Webinar: May 16th
9:30am
You can view online any time after 9:30 am on May 16th. It will be recorded and available on the OSU Extension website.
Please leave your email address if you want to receive an email link to the
webinar.
Pasture, Rangeland, Forage Insurance
Subsidized insurance program offered by RMA designed specifically for hay and livestock producers
Drought insurance based on a Rainfall IndexInsure pastures as grazing land or hay land
Similar to group risk insuranceProvides area-wide coverage
Pasture, Rangeland, Forage Insurance
Based on the average rainfall in the geographic areaNot on the individual farm
Rainfall measured using NOAA Climate Prediction Center (CPC) data
Rainfall Index
Each grid’s rainfall index is normalized so that the value of 100 represents average rainfall
Rainfall Index
Each grid is 12 by 12 miles
Grids do not follow county lines or township boundaries
Does not directly reflect rainfall amounts at a specific weather station in a grid
Grid
Select at least two, 2-month time periods where rain is important to the operation
Time periods are called index intervals and can cover both hay and/or grazing land
Do not have to insure all insurable acreage
Interval Selection
Concerned that lack of rainfall in early Spring could lead to less forage in summerInsure half of land in March-April
Also concerned about availability of 2nd hay cutting and fall forage due to lack of rain in summerInsure half of land in June-July
Interval Selection
Indemnity when final grid index falls below the trigger grid index
Rainfall in the area falls below the normal historical levelIndex falls below 100 (minus the
deductible) in each index interval100 – 10% (for the 90% coverage level)
Indemnity Payment
No loss adjustments, records, etc.
Timely payments
Does not reward poor management practices
Producer cannot influence outcome/losses
Pasture, Rangeland, Forage Insurance
Pasture or hayland crops initially seeded to perennial crops before July 1 of previous year
GrazinglandIntended for grazing by livestock Acreage must be suitable for grazing
HaylandIntended for haying Acreage must be suitable for haying
Insurable Crops
Producers should check the correlation between their annual hay/forage production and the annual index
Indexes are good at risk transfer when the index and hay/forage production move in the same direction
Pasture, Rangeland, Forage Insurance
When index is low, expectation that production will also be low
Index reflects how much precipitation is received for a given 2-month interval for a specified weather gridRelative to a long term average
Pasture, Rangeland, Forage Insurance
Rainfall is highly correlated with forage production, but does not directly predict forage production
Pasture, Rangeland, Forage Insurance
Pasture, Rangeland, Forage Insurance
Coverage Level
Subsidy
70 59%75 59%80 55%85 55%90 51%
Grid Location Determinationwww.rma.usda.gov/policies/pasturerangeforage
Grid Location Determinationwww.rma.usda.gov/policies/pasturerangeforage
Grid 1
County A
County B
Grid 2
Grid 3 Grid 4
Use USDA Grid LocatorTract A
Grid 2 – 75 ac grazingTract B: Option 1
Grid 1 – 85 ac grazingGrid 3 – 155 ac grazing
Tract B: Option 2Grid 1 or 3 – 240 ac
grazingTract C
Grid 4165 ac grazing50 ac hay
A
B
C
Hay Meadow 50 Ac
75 acres
240 Total Acres
85 acres
155 acres
165 acres
Jody Campiche528 Ag Hall
http://agecon.okstate.edu/agpolicy/index.asp?type=newsletters