Crop Insurance and the 2018 Farm Bill Bill Summit/Coble...revenue insurance • ARPA really define...

Crop Insurance and

the 2018 Farm Bill

Keith Coble

coble@agecon.msstate.edu @DrKeithHCoble

All pictures from Mississippi

State Extension Service

Context - Increasing Partisanship

AGRICULTURAL IMPROVEMENT

ACT OF 2018 BIPARTISAN VOTES

- HOUSE 369-47

- SENATE 87-13

The Farm Group –

Nutrition

bipartisan

coalition endures!

CROP INSURANCE

BACKGROUND

A Time Line of U.S. Recent

Crop Insurance Policy

• 1990 Began flex acres

• 1994 Linked crop insurance

participation to Title I

• 1996 fixed payments and

revenue insurance

• ARPA really define modern

crop insurance

• 2014 risk was the justification

in vogue

• 2018 ditto

U.S. Adult Preferred

USDA Allocation

(Gould, Collart, Coble)

Program USDA budget ALL Respondents

Actual % Desired % Change

Farm programs 18 19 6%

Conservation 7 22 214%

Nutrition 69 40 -42%

Other 6 18 200%

Crop Insurance Program Growth

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

19

89

19

90

19

91

19

92

19

93

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96

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i

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o

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r

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b

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d

y

1989-2017 Subsidy Percentage & Net Acres Insured for U.S. Crop Insurance

Subsidy % Acres

Crop Insurance, ARC and PLC

Projected Payments

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2017 2019 2021 2023 2025 2027

Mill

ion

s

April 2018 CBO Baseline

Price Loss Coverage ARC County Coverage Crop Insurance

Insurance Plan Premium Shares

STAXSCO1%

WFRP1%

YP5%

RP77%

RPHPE0%

RAINF3%

All other11%

All Area2%

Revenue Protection

is the dominate form

of crop insurance

Corn

Soybeans

Corn

Soybeans

Differing Risk Levels

Crop Insurance Subsidy Levels

Coverage

Level

Basic &

Optional

Subsidy %

Enterprise Unit

Subsidy %

SCO

Subsidy

50% 67% 80% 65%

55% 64% 80% 65%

60% 64% 80% 65%

65% 59% 80% 65%

70% 59% 80% 65%

75% 55% 77% 65%

80% 48% 68% 65%

85% 38% 53% 65%

0

0.5

1

1.5

2

2.5

3

Lo

ss R

atio

Year

RMA Aggregate Loss Ratio 1980-2017

Loss Ratio 80-95 AVG 96-17 AVG Expon. (Loss Ratio)

1980-1995 Avg. =1.48

1996-2017 Avg. = 0.83

Why good loss experience? Good weather, risk pool,

production systems, or better crop insurance program

2018 FARM BILL AND

CROP INSURANCE

Big Changes for Crop Insurance in

the Farm Bill

1.

2.

3.

4.

What did not happen to crop

insurance?

•Capping subsidy at $40,000

• Applying AGI limits

•Removing or unsubsidizing

Harvest Price Option (HPO)

•Reducing subsidy percentages

What the Media is Talking

About

• Industrial hemp mentioned in the Bill and conference report 114 times

• Including hemp insurance

– “You can barbecue it, boil it, broil it, bake it, sauté it. There's uh, hemp-kabobs, hemp creole, hemp gumbo. Pan fried, deep fried, stir-fried. There's pineapple hemp, lemon hemp, coconut hemp, pepper hemp, hemp soup, hemp stew, hemp salad, hemp and potatoes, hemp burger, hemp sandwich. That- that's about it.“

Paraphrase of Pvt. Benjamin Buford 'Bubba' Blue in the Movie “Forrest Gump”

• LIMITED IRRIGATION

PRACTICES FOR

RICE

• GREENHOUSE

CROPS

• BATTURE LAND

• LOCAL FOOD

PRODUCERS

• QUALITY LOSS

• TROPICAL STORM

OR HURRICANE

• CITRUS

• HOPS INSURANCE

• SUBSURFACE

IRRIGATION

PRACTICE

• IRRIGATED GRAIN

SORGHUM

Research Projects Mandated

2019 Crop Insurance Price

Guarantees and Volatility

Commodity

Name

Projected

Price

Price

Volatility

Rice $ 0.114 12%

Cotton $ 0.74 14%

Corn $ 4.00 15%

Soybeans $ 9.54 12%

If ARC is great risk protection why overlap

it with crop insurance?

ARC

86%

76%

Crop

Insurance

coverage

level

15%

Co-Pay

$2.02 billion of 2016 corn &

soybean insurance liability

overlapping with ARC &

costing producers over 0.5

billion

85%

Price

0.0 0.80 1.6 2.4 3.2 4.0 4.8 5.6 6.4 7.2 8.0

0 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

40 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

70 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

100 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

130 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

Yield 160 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

190 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

220 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

250 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

280 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

310 225.0 225.0 225.0 195.0 75.0 0.0 0.0 0.0 0.0 0.0 0.0

PLC Payments

RP Price

0.0 0.80 1.6 2.4 3.2 4.0 4.8 5.6 6.4 7.2 8.0

0 480.0 480.0 480.0 480.0 480.0 480.0 576.0 672.0 768.0 864.0 960.0

40 480.0 448.0 416.0 384.0 352.0 320.0 384.0 448.0 512.0 576.0 640.0

70 480.0 424.0 368.0 312.0 256.0 200.0 240.0 280.0 320.0 360.0 400.0

100 480.0 400.0 320.0 240.0 160.0 80.0 96.0 112.0 128.0 144.0 160.0

130 480.0 376.0 272.0 168.0 64.0 0.0 0.0 0.0 0.0 0.0 0.0

Yield 160 480.0 352.0 224.0 96.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

190 480.0 328.0 176.0 24.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

220 480.0 304.0 128.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

250 480.0 280.0 80.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

280 480.0 256.0 32.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

310 480.0 232.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Revenue Protection Payments

RP+

PLC+

Market Price

0.0 0.80 1.6 2.4 3.2 4.0 4.8 5.6 6.4 7.2 8.0

0 705.0 705.0 705.0 675.0 555.0 480.0 576.0 672.0 768.0 864.0 960.0

40 705.0 705.0 705.0 675.0 555.0 480.0 576.0 672.0 768.0 864.0 960.0

70 705.0 705.0 705.0 675.0 555.0 480.0 576.0 672.0 768.0 864.0 960.0

100 705.0 705.0 705.0 675.0 555.0 480.0 576.0 672.0 768.0 864.0 960.0

130 705.0 705.0 705.0 675.0 555.0 520.0 624.0 728.0 832.0 936.0 1040.0

Yield 160 705.0 705.0 705.0 675.0 587.0 640.0 768.0 896.0 1024.0 1152.0 1280.0

190 705.0 705.0 705.0 675.0 683.0 760.0 912.0 1064.0 1216.0 1368.0 1520.0

220 705.0 705.0 705.0 723.0 779.0 880.0 1056.0 1232.0 1408.0 1584.0 1760.0

250 705.0 705.0 705.0 795.0 875.0 1000.0 1200.0 1400.0 1600.0 1800.0 2000.0

280 705.0 705.0 705.0 867.0 971.0 1120.0 1344.0 1568.0 1792.0 2016.0 2240.0

310 705.0 705.0 721.0 939.0 1067.0 1240.0 1488.0 1736.0 1984.0 2232.0 2480.0

Market + PLC +RP

The 4% Rule of Crop Insurance Demand

Crop Insurance Rating

• Corn insurance (Revenue

Protection)

• 697 counties in Corn Belt

States

• Soil productivity: National

Commodity Crop

Productivity Index (NCCPI),

USDA/NRCS

• The future of crop

insurance rating will

utilize geo-spatial data

• especially soil mapping

Are Larger Farms Less Risky?

2

2.5

3

3.5

4

4.5

100

700

1300

1900

2500

3100

3700

4300

4900

5500

6100

6700

7300

7900

8500

9100

9700

10300

10900

11500

12100

12700

13300

13900

14500

15100

15700

16300

16900

17500

18100

18700

19300

19900

$ P

er

Acre

Total Policy Acres

Soybean Per Unit Average Yield Indemnity Per Acre

Roughly 25% Less Risky

1. Financial Management

2. Cost control – managing expenses

3. Integrated crop insurance, farm program, and forward pricing

4. Data and Records for Assessment

$

$

$

$

Holistic Crop Risk Management

1. What about enterprise units across county lines?

2. May I qualify for trend adjusted yields?

3. May I qualify for APH yield exclusions?

4. What is the premium for different coverage levels?

5. What about separate coverage levels by practice?

Five Questions for Your Crop

Insurance Agents

Final Thoughts

• Potential Flooding in

2019

• Ad hoc Disaster

Legislation