Category: Policy

The Stacked Income Protection Plan (STAX) was first offered to cotton producers in 2015.  Along with the Supplemental Coverage Option (SCO), STAX is one of the area-wide plans of insurance that are designed to help a grower cover a portion of their underlying crop insurance deductible.  Unlike the underlying Multi-Peril Crop Insurance (MPCI) policies, both STAX and SCO trigger indemnities based solely on area-wide losses (i.e., only if the entire county triggers a loss). Both STAX and SCO are taking on newfound importance in the 2023 Farm Bill debate, as improvements to both could serve to reduce the need for ad hoc disaster assistance.  Currently STAX is still only available to cotton producers whereas SCO is widely available across the country.

In our travels around the country over the last several months, we’ve often been asked about the future of policies like STAX and SCO, and we’ve repeatedly been told that they are simply too expensive. That wasn’t too surprising to us in the case of SCO, because the premium support is just 65%. On the other hand, we were considerably more surprised in the case of STAX because the premium support is 80% – growers must pay just 20% of the premium. Consequently, in this article, we take a closer look at STAX premiums across the country for the 2023 crop year.

In the maps that follow, we present STAX premium rates (dollars of premium per dollar of liability) for the 2023 crop year assuming a coverage band ranging from 70% to 90% with a 120% protection factor (resulting in the maximum level of coverage of 24%). STAX was also assumed to include the harvest price (i.e., the guarantee can increase at harvest if prices increase during the growing season). Figure 1 illustrates dryland STAX premiums and Figure 2 illustrates irrigated STAX premiums.  

As noted in the maps, there is significant variability in premium rates both within and across states, ranging from 28.83% to 81.87% for dryland and 26.7% to 75.82% for irrigated. The highest rate (81.7%) is for dryland cotton production in Bee County, TX. In other words, if the maximum indemnity possible is $1,000 per acre, RMA is charging $817 per acre to insure the crop!  If premiums are actuarily fair, this implies that RMA expects the average indemnity over time to be $817. In reality, indemnities have been zero in Bee County seven of the eight years since STAX was first introduced.  Even with an 80% premium subsidy, the coverage is cost prohibitive.   Neighboring San Patricio County has had a very similar indemnity experience (one indemnity in eight years), and they faced a 72.69% premium rate in 2023. On close examination of the maps, it’s clear that almost every state faces situations where there is considerable variability in rates between neighboring counties.

Congress may very well choose to provide additional premium support for area-wide policies in the 2023 Farm Bill. Arguably, buying additional area-wide coverage would make considerably more sense than giving away free deductible coverage via ad hoc assistance after disaster strikes. But, the additional premium support is only effective if the underlying premiums being charged by RMA are reasonable and rational and not otherwise pricing producers out of the market for area-wide insurance, a point Congress may wish to explore as they continue their work on the next farm bill.

Figure 1:  2023 Dryland STAX Premium Rates by County

Figure 2:  2023 Irrigated STAX Premium Rates by County

Fischer, Bart L., Joe Outlaw, and Henry L. Bryant. “Crop Insurance Rating: the Curious Case of STAX.” Southern Ag Today 3(37.4). September 14, 2023. Permalink

Fall is right around the corner, and for many of us that means baking goodies with pecans. Pecans are native to the Southern region of the US, particularly along the Mississippi River flood plain. In 2022, Georgia was the top producer of improved varieties of pecans, contributing almost 43% of the US value of production^[1].  Native pecans are a much smaller portion of total US pecan production. Oklahoma was the top producer of native varieties of pecans, contributing 72% of the US value of production¹. 

Pecan producers, like other agricultural sectors, have been faced with rising input costs in the last 3 years. Pests, diseases, and predation are big challenges in pecan production, and the costs of managing those challenges are forcing producers to make hard management decisions.  Native pecan grove owners have been particularly hard hit since their groves also have lower yields as compared to improved pecan varieties. This, along with higher maintenance costs for existing trees, leads to issues for those hoping to draw a profit from their pecan harvest. Higher input costs open producers to greater risks when it comes to price and yield declines. Insurance exists to help cover essential costs should a disaster event happen.

Whether a producer is involved in managing a native pecan grove or an improved pecan orchard, the risks for each can be equally damaging to profitability. Insurance can be combined with disaster programs in many cases in extreme events. There are many risks that affect the health and yield of a pecan operation; however, some of the main factors are listed below:

• Freeze – An early fall freeze prior to shuck split can reduce yields. Shucks may be frozen and incapable of opening to release the pecans.
• Drought – Oklahoma has been in a drought for several years. This can stunt the growth of trees, trigger nut drop, and cause yield reductions for 3-5 years. 
• Insects – The pecan weevil and other pests can be controlled with approved pesticides and maintenance practices. View additional fact sheets for more information here.  
• Disease – Make sure to spray fungicides at the proper rate and time for maximum effectiveness.
• Predation – Utilize various methods including sound deterrents, trapping, or hunting for multiple species, and make sure to pick up harvested nuts as quickly as possible to reduce loss.

Pecans are considered to be a specialty crop which means they are not eligible for commodity safety net programs like Agricultural Risk Coverage and Price Loss Coverage. Pecan producers are primarily dependent on crop insurance, disaster programs like the Tree Assistance Program (TAP), and more traditional risk management like operation diversification. USDA RMA offers a variety of insurance coverage plans for specialty crop producers. How much insurance a farm will need is determined, in part, by the level of costs that are “essential” in any given year. This will vary widely from farm to farm. An improved pecan farm that does its own processing and sells directly to retail will have quite different risks and costs of production than a native pecan farm selling primarily wholesale.  

In Oklahoma, pecans can be insured if the grove or orchard is at least one acre and the insured trees have produced a minimum production, which is: 600 pounds in one of the last 4 years for improved variety pecans in irrigated orchards, and 300 pounds in one of the last 4 years for native pecans or improved variety pecans without irrigation. The Pecan Revenue Insurance product covers unfavorable weather, declines in market prices, irrigation failure, fire, insects, disease, and other acts of God. If you are interested in Pecan Revenue Insurance, ask your neighbors about nearby crop insurance agents that offer that coverage. 

Pecan Revenue Insurance can provide a needed safety net in the event of a significant weather event. As shown in the figure, the 2018 drought which was severe for Southwestern pecan producers, in particular, resulted in insurance payouts to help cover production costs. Similarly, Pecan Revenue Insurance meant the difference in paying the bills for producers in Oklahoma that were impacted by drought in 2022. As an example of how the insurance product might work, consider an improved variety pecan operation based in Northeast Oklahoma. Starting with an estimated production cost for 2023 of $1,546 per acre for a producer that has irrigated, improved pecan groves and sells in the premium market. In a year where the weather cooperates and prices are reasonable (not the best but not the worst), the producer might make a net profit of $506/acre. However, what about a drought year that reduces yield by 26% and prices remain around the same level? That producer could experience a 163% reduction in net returns or a net loss of $800 per acre. What if they purchase Pecan Revenue Insurance? In this particular scenario, the producer has a cost of insurance that reduces the net return per acre in a typical year to $369/acre; however, in a drought year, the producer experiences a shallower financial loss (132% reduction in net returns).

Risk management for specialty crop producers has come up in several of the 2023 farm bill listening sessions. Supply chain disruptions and restaurant closures hit the pecan sector in 2020, followed by severe weather events that impacted regional production. It takes years for pecan groves to recover from tree damage or to establish replacement trees. Risk management is individual to a farm, and insurance may play a role in that overall risk management plan. For more information on Pecan Revenue Insurance in your local area, contact your local crop insurance agent. 

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^[1] USDA NASS Pecan Production Report https://downloads.usda.library.cornell.edu/usda-esmis/files/5425kg32f/n5840623x/ww72cn927/pecnpr23.pdf

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Hagerman, Amy. “Pecan Risk Management.” Southern Ag Today 3(35.4). August 31, 2023. Permalink

The planting phase of the crop production cycle comes with many risks. The amount of time available for planting is significant in determining whether all the fields intended for planting can actually be planted. For crops insured under the Federal Crop Insurance Program (FCIP), the final planting date, a component of the prevented planting provision of the FCIP, establishes the tail end of the planting window and helps to determine the amount of time available for planting crops each year. 

Final planting dates vary by crop and location. The dates are chosen to increase the likelihood that insured crops achieve their highest attainable yields each year for a given county and crop. After the final planting date passes, farmers with crop insurance must decide whether to proceed with planting their intended crop or make a prevented planting claim.^[1]Prevented planting claims have been known to vary significantly across states. How the final planting dates may influence those differences has not been thoroughly investigated. Generally, final planting dates are set earlier in the calendar year moving from north to south, reflecting the growing seasons that increase in length as one moves further south in the United States. For example, the final planting date for corn is May 31^st in Kossuth County, Iowa; May 31^st in Thomas County, Kansas; April 25^th in Lonoke County, Arkansas; and April 15^th in Evangeline Parish, Louisiana. 

Differences in seasonal weather patterns, though, may affect the effective length of time available to plant as final planting dates change across states. Early spring rains and other weather variables (like temperature) can shorten or lengthen the planting window each year. To account for these differences, we can estimate the effective planting window between the first day available for planting and the final planting date by combing the USDA NASS estimate of days suitable for fieldwork with the final planting date. Here we construct the variable by using the first suitable day for planting according to the NASS estimate and calculate the average number of days suitable for fieldwork that occurs between that date and the final planting date for a county and crop. We use the average for the period 2011-2020 for corn for this example.

Figure 1a shows how the average effective planting windows change across states using corn as our example. Indiana, where the final planting date for each county is June 5^th has, on average, roughly 29 suitable days for planting corn. Louisiana, having the earliest final planting date of April 15^th of the states sampled, has the fifth greatest average number of days suitable for planting at roughly 25 days. A clear consequence of a shorter effective planting window is the effect it has on prevented planting claims. Figure 1b shows the percent of insured corn acres with a prevented planting claim for the period 2011-2020. In Figure 1a, the states are ordered by increasing effective planting window. 

In general, both panels of Figure 1 together show that the prevalence of prevented planting acres runs roughly counter to the effective planting window prior to RMA’s final planting date. The exception, though, seems to be the Midwest states (Iowa, Illinois, and Indiana in this example) where the effective planting window appears to play no significant role at all, suggesting that other factors may be fundamental differences worth exploring in the Midwest states. Factors such as larger farm sizes and greater crop diversity in many southern states, for example, or a higher degree of tiled acres in the Midwest states, potentially play roles, likely compounding the effect of the shorter planting windows on the share of prevented planting acres relative to the Midwest. 

Nevertheless, the final planting date paired with the NASS days suitable for planting appears highly correlated with the differences in prevented planting acres across states. The significance here is that final planting dates have been designed to consider total potential yield at harvest; however, the cost side of this cost benefit equation may include the risk of prevented planting claims during the planting period. Optimal final planting dates may consider both outcomes in determining optimal final planting dates. 

Figure 1: a) Average number of suitable days for planting corn for 9 states across the Midwest and Southern United States. b) Average share of county acres with prevented planting claims. 

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^[1] More information on the decisions farmers face for planting occurring after the final planting date can be found here: Connor (2022); Biram and Connor (2023)

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Connor, Lawson. “Final Planting Dates and the Impact on Prevented Planting Acres.” Southern Ag Today 3(33.4). August 17, 2023. Permalink

Given all the discussion in Washington these days focused on updating crop base acres, it made me wonder whether farm program yields (PFC payment yields) have kept pace with actual crop yields.  Most people refer to the mid-1980s as when crop bases as we currently know them were set based off of a producer’s planting during the early 1980s.  It made sense to start with the U.S. average payment yields from the target price/deficiency payment program from 1985.  The 1985 yields were compared to PFC payment yields from 2021 for the major crops.  As seen in the table, corn (35.2%), rice (26.6%) and wheat (19.7%) experienced the highest percent change in payment yields over the 1985 to 2021 period. Seed cotton, soybeans, and peanuts all became normal program commodities after 1985 so there isn’t a comparison yield for that time period. 

The percent changes in actual yields were evaluated from 1985 to 2021 for all of the listed commodities with upland cotton replacing seed cotton in the actual yield evaluation.  Several commodities (corn, soybeans, upland cotton, rice, and peanuts) all experienced a significant increase in actual yields.  

While this is only evaluating 2021 relative to 1985 it does indicate that nationwide, corn, wheat, and rice producers have done a good job of using yield updating opportunities to increase payment yields.  On the other hand, both actual and payment yields for grain sorghum have largely stayed the same over the period.

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Outlaw, Joe. “Have Payment Yields Kept Up with Actual Crop Yields?” Southern Ag Today 3(31.4). August 3, 2023. Permalink

In previous updates, we have talked about the likelihood of Congress passing a new farm bill “on time” which means by September 30^th of this year.  Through the middle of July, neither the House nor the Senate agriculture committee leadership have released their farm bill drafts.  If they don’t release their drafts next week, it appears that this will likely happen during the August recess or when they return in September.   

Looking at the calendars for both the House and Senate indicates the Senate is in session 17 days in September and the House is in session 12 days.  While we are certain getting the entire farm bill completed by September 30^th would be welcomed by House and Senate agriculture committee members and staff, we feel that a more realistic goal would be to have bill completed before the members leave for the Christmas holidays.  The Senate is in session 44 days from October to December, while the House is in session 24 days during that period.

Getting the farm bill completed by the end of the year would still be considered somewhat of a surprise as, to date, there hasn’t been a significant new source of funds provided to agricultural committee leadership to develop the new farm bill.   During farm bill hearings in both the House and Senate this spring and summer, the near unanimous request by commodity groups testifying was for higher reference prices that would protect a meaningful amount of their production costs.  Our estimate is that a 20 percent increase in reference prices for all 23 covered commodities will cost between $55 and $60 billion over 10 years.  The increase doesn’t have to be for all covered commodities nor does it have to be the same percent for each commodity, although doing so might be politically easier.  

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Outlaw, Joe, and Bart L. Fischer. “Time Running Out on a New Farm Bill This Year.” Southern Ag Today 3(29.4). July 20, 2023. Permalink