Crop Insurance Alternatives for Hay Crop Insurance Conference Fargo, North Dakota January 20, 2003...

Crop Insurance Alternatives for Hay

Crop Insurance ConferenceFargo, North Dakota

January 20, 2003

Matthew A. Diersen, Ph.D.Economics Department

South Dakota State University

Outline

• Why look at hay insurance?

• National perspective

• Tri-state perspective

• Why isn’t it working?

• Looking ahead

Motivation

• Structural changes

• Drought bringing awareness

• Historic disaster aid ties

• Refinements in product(s)

Literature

“The U.S. Hay Market: Higher Prices in 1996/97”

- Shields and Baker, Agricultural Outlook (1996)

“U.S. Hay Production”

- Dismukes and Zepp, Economic Research Service Staff Paper No. 9607 (1996)

“Should This Crop Be Insured?”

- Harvey, Hay & Forage Grower (1998)

Literature (cont.)

“Crop Insurance for Hay and Forage”

- Dismukes, Zepp and Smith, ERS report on the RMA website (1996)

“Crop Insurance Alternatives for Hay in South Dakota”

- Diersen, SDSU ExEx 5044 (2002)

“Noninsured Crop Disaster Assistance Program”

- Johnson, AMPC Briefing No. 14 (2002)

U.S. Hay Insurance Policies

0

10,000

20,000

30,000

40,000

1995 1996 1997 1998 1999 2000 2001 2002

U.S. Insured Hay Acres

0

500

1,000

1,500

2,000

2,500

3,000

1995 1996 1997 1998 1999 2000 2001 2002

1,00

0 A

cres

U.S. Hay Insurance Loss Ratio

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1995 1996 1997 1998 1999 2000 2001 2002

Percent of Land in Hay

0%

2%

4%

6%

8%

10%

SD ND MN

Potential Demand Factors

• Yield variability

• Presence of subsidy

• Hay is valued input

• Some revenue dependence

Percent of Operators Producing and Selling Hay

0%

20%

40%

60%

80%

100%

SD ND MN

Producing Selling

Dollars Related to Hay

0

100

200

300

400

500

600

SD ND MN

$ m

illio

ns

Value of Production Cash Receipts

2002 Hay Acreage

0

1,000

2,000

3,000

4,000

SD ND MN

1,00

0 A

cres

Alfalfa All Other

NAP Coverage

• Noninsured Crop Disaster Assistance Program

• Administered by Farm Service Agency

• Similar to CAT coverage

• Deadline is December 1

• Coverage for pasture and grass hay

Insured Acres in 2002

0%

5%

10%

15%

20%

SD ND MN

Alfalfa Total

Common Tendencies in 2002

• ¼ S.D. acres under CAT

• ½ S. D. acres at 50% level

• ¾ N.D. acres under CAT

• ¼ M.N. acres under CAT

• ¼ M.N. acres under GRP

Shortcomings

• Ignorance about availability

• Record-keeping demands

• Lack of quality provisions

• Only yield products offered

North Dakota Hay Production

0

1000

2000

3000

4000

5000

<25 25-49 50-99 100-249 250-499 500+

Acres of Hay Produced

Nu

mb

er o

f F

arm

s

0

500000

1000000

1500000

2000000

2500000

3000000

Cu

mu

lati

ve A

cres

H

arve

sted

farms cumulative acres

Product Refinements

• Can the DOT weigh bales?

• Is there a place for GRP?

• Is a revenue product feasible?– Quality seems distributed like wheat’s– Current yield and price are correlated

• Do WE just need to get the word out?

Summary

• Customer base is slowly changing

• Current products may not match needs

• NAP may be viable alternative

• YOUR input will likely bring change

For More Information

• diersen.matthew@ces.sdstate.edu

• Phone: (605) 688-4864

• http://sdces.sdstate.edu/– Click on the “Markets” tab– Scroll to ExEx 5044

• AMPC website