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 Programs

8.5% 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 Wheat

Preliminary 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

1015202530354045

ACRE Payment - $7.80 MYA Price

ACRE Payment

State Wheat Yield

$/a

cre

Max. ACRE payment

$2.72 Breakeven Point (21.8 bu/acre)

ACRE vs. DCP for Wheat

17 18 19 20 21 220

5

10

15

20

25

30

35

ACRE Payment - $8.20 MYA Price

ACRE Payment

State Wheat Yield

$/a

cre

Breakeven Point (20.7 bu/acre)$2.72

ACRE vs. DCP for Wheat

7

7.2

7.4

7.6

7.8

0

5

10

15

20

ACRE Payment 22 bu/acre State Wheat Yield

ACRE Payment

2013/14 MYA Price

$/a

cre

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

$/a

cre

Max ACRE payment $171/acre

ACRE: Irrigated Cotton

Breakeven Point (800 lbs/acre)

$9.15 610 700 750 775 800

0

25

50

75

100

125

150

175

200MYA Price $0.85

ACRE payment

State Yield

$/a

cre

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

$/a

cre

$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

$/a

cre

$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

405-744-9811jody.campiche@okstate.edu

http://agecon.okstate.edu/agpolicy/index.asp?type=newsletters