Producers across the United States and the Southern States are increasingly adopting the Livestock Risk Protection Program, commonly known as LRP. This program, which is designed to protect ranchers against falling cattle prices, has witnessed a remarkable surge. From a mere 71 thousand head covered in 2017, the usage of LRP has increased rapidly to 5.2 million head by October 2023. In 2022, ranchers insured 3.4 million head, up from 1.8 million in 2021. Ranchers’ use of LRP in the Southern region has contributed significantly to this growth (Figure 1). As of October 2023, ranchers have insured approximately 1 million head annually through the LRP program, with Texas and Oklahoma insuring 56% and 34% of this total, respectively.
Figure 1: LRP Usage in the Southern States
This increase occurs alongside increases in subsidy levels and other changes to LRP and the significant improvement in the market feeder and live cattle prices (Figure 2). During 2019 and 2021, the USDA introduced several modifications to the LRP program. These changes not only reduced the producers’ portion of premium payments but also allowed them to defer premium payments until the end of the endorsement period. The option to pay premiums at the ending date offers ranchers a considerable cash-flow advantage. Another benefit of the LRP program is it doesn’t require a minimum number of cattle to be insured, meaning cow-calf or stocker producers with just a few head can use it.
Additionally, the rise in cattle prices has emphasized the importance of implementing a solid price risk management plan. LRP can help minimize financial losses, secure profit margins, and reduce the risk of business failure, particularly in the face of higher investment levels. The increased adoption of LRP reflects a growing number of ranchers who are utilizing risk management plans in their operations.
Figure 2: LRP Head per Year and Feeder and Live Prices per Month
In the international rice arena, much of the attention has been focused on the Indian Government’s July 2023 decision to ban non-basmati white rice exports. This is significant to the global rice market as India is the world’s largest rice exporter. The USDA reports India’s 2022-2023 marketing year share of total global rice exports at 40%, as shown in Figure 1 (USDA ERS, FAS, 2023). India has dominated the international market for some time due to low domestic prices and high stocks – resulting from a bevy of trade-distorting subsidies – which allows India to offer rice at substantially lower prices to international buyers. Almost half of India’s exports are non-basmati parboiled rice, with the ban affecting approximately 15% of global rice trade.
The decision by India to ban rice exports was a means of countering rising food inflation and ensuring sufficient domestic supplies heading into an election year. Also factoring into the government’s decision were uncertain weather conditions attributed to El Niño (warming conditions and potential drought). Indian rice stocks remain plentiful, due in part to their much-scrutinized subsidization policy for rice. The non-basmati rice ban has not been the only policy action on rice taken by India over the last year. In September 2022, India banned exports of broken kernel rice and placed 20% tariffs on rough rice, brown rice, and regular milled white rice. In August 2023, a 20% tariff was placed on parboiled rice exports through mid-October and a $1,200 per ton minimum export price was placed on basmati rice.
The Indian government has insulated Indian rice farmers from falling domestic rice prices. It sets market support prices and subsidizes crop inputs like fuel, fertilizer, and water to support farmer incomes and lower food prices. In April 2023, a consortium of grain exporting countries, including the U.S., filed a second counter notification at the World Trade Organization, formally challenging India for obscuring the true level of price supports and subsidies it provides for its wheat and rice producers (USA Rice, 2023).
While policy decisions by the Indian government have had an impact on global rice prices, the question remains: Will U.S. rice prices see support from this policy-induced market shock? The short answer is ‘not immediately – but opportunity might exist later in the year.’
Global rice prices can support the domestic market to a certain degree as a result of trade flows of both Indian and U.S. rice. Rice exports from India are primarily destined for African countries (e.g., Benin, Senegal, Kenya, Togo, Guinea, and the Ivory Coast). These countries predominantly import broken rice, which is much cheaper than milled rice. In addition, the Philippines, Malaysia, and Vietnam are also reliant on Indian rice exports. Whereas, for the U.S., major rice markets include Mexico, Canada, Haiti, and Latin America. Mexico is primarily a buyer of U.S. rough rice. The Middle East is a region that imports from both the U.S. and India. However, sales to the Middle East – while important – are not ‘core’ markets for U.S. rice.
The USDA FAS reports that Thai, Vietnamese, and Pakistani export rice prices have increased (Figure 2) because of the Indian ban as countries begin to cover their needs, raising concerns that other countries will also restrict or ban exports (notably, Myanmar recently announced that it was temporarily restricting exports). Thai export prices had risen rapidly from late July through mid-August, peaking at about $650 per ton. Currently, Thai prices are quoted at $595 per ton. Like Thailand, Vietnamese export prices rose quickly but have since retreated to $616 per ton. Asian buyers are holding off from making purchases in hopes that prices continue to fall. U.S. rice export prices for No. 2 4% broken long grain milled rice remain quoted at $760 per ton, unchanged since late January and the highest since October 2008. U.S. quotes for Latin American markets were also unchanged since late January at $725 per ton. Indian price quotes have been unavailable since the start of the export ban which came into effect on July 20th. Prior to the ban, India rice was quoted around $450 per ton.
Expectations of a significant increase in U.S. rice supplies has helped keep U.S. rice prices stable. However, the export ban in India ultimately will benefit U.S. rice producers in the short run with stronger U.S. export demand likely developing in the Middle East (e.g., Iraq). U.S. rice may also be able to secure additional exports into the Caribbean and Central and South American markets which will contribute to capturing lost market share. U.S. rough rice sales to other Latin American markets are expected to increase in 2023/24. In the previous marketing year, the U.S. saw significant erosion of its market share in Mexico to South American suppliers, mostly Brazil, due to their more competitive prices. Long term, high global prices will increase global rice production. Growing stockpiles of rice in India – compounded by India’s extensive use of trade-distorting subsidies – will ultimately be dumped on the world market, thus causing world rice prices to over-correct (CoBank, 2023).
Figure 1. Global Rice Exports, by Country Share (%), USDA FAS.
Figure 2. Weekly FOB Export Quotes ($/ton) for Long Grain Milled Rice, USDA FAS.
References
CoBank. “India’s Rice Export Ban: Short-Term Benefit, Long-Term Challenge for U.S. Rice”. August 17, 2023.
USA Rice Federation. “India’s Rice Subsidies Under Fire at WTO by U.S., Thailand, and Others”. USA Rice Daily, April 6, 2023.
The recent U.S. Supreme Court ruling in Sackett v. EPA appears to settle the question of where water ends and land begins under Section 404 of the federal Clean Water Act (CWA). The ruling that the CWA only covers wetlands with a continuous surface connection to a traditionally navigable waterway has been heralded by farming interests for providing clarity to farmers, presumably on decisions whether to alter wetland features on their lands. However, farmers and landowners should be reminded that wetlands conversion still may carry risks under state and other federal law, and that Sackett should not be taken as an indication that other wetlands protections will not be enforced on wetlands no longer covered by the CWA.
Importantly, the Sackett surface connection rule does not change the federal government’s wetlands policy and regulation authority under the Swampbuster provision of the 1985 Farm Bill. Swampbuster denies eligibility for federal subsidy programs to farmers and landowners who convert wetlands, carving out an exception for wetlands converted prior to 1986. Though the Natural Resources Conservation Service (NCRS) may refer to the Army Corps of Engineers’ Wetlands Delineation Manual (the guidance document on CWA 404 determinations) in its own determinations, the Sackett decision does not restrict NRCS to the “surface connection rule’ when identifying wetlands for purposes of Swampbuster benefit determinations.
NRCS wetlands authority under Swampbuster was recently addressed by the 9th Circuit in Foster v. USDA. The case supports the policy that farmers can apply for reconsideration of wetlands designation, which obligates NRCS to make a new determination.
Additionally, non-CWA wetlands may still benefit from state protections. Most southern states have laws protecting isolated wetlands, though North Carolina recently aligned state wetlands definitions with the new post-Sackett rules (Tennessee has introduced a similar measure). In short, though Sackett will likely result in fewer determinations of wetlands for purposes of CWA 404 permits, the decision should not be taken by farmers as an invitation to self-determine wetland status and the resulting consequences of draining or filling habitually wet areas on their farms.
Some of the most considerable negative impacts on agricultural production are from extreme weather events. Extreme weather events include prolonged drought, record-breaking floods, and extreme temperatures. Scientists predict that extreme weather events will occur more frequently and more intensely. Drought is particularly concerning because water is already a limited resource in many regions of the United States, and the cost of accessing water can prohibit irrigation. The immediate impacts of drought can include water restrictions, brush fires, loss of recreation days due to low lake levels, and economic losses in the crop and livestock sectors. Drought does not just impact agricultural producers. It impacts the entire local community to different degrees.
From 2011 to 2013, the Southern United States, including parts of Texas, Louisiana, Arkansas, Mississippi, Alabama, Georgia, South Carolina, North Carolina, Florida, and Oklahoma, experienced severe to exceptional drought conditions. Severe drought (D3) is defined as dryland crops being severely reduced, stressed pasture, stressed cattle, and burn bans. As conditions worsen, drought is categorized as extreme (D4) or exceptional (D5). Exceptional drought is characterized by cracking ground, failed and abandoned crops, high costs of hay and water, scarce input supplies, herd liquidation, and increased burn restrictions.
Producers feel drought losses first in crop and forage losses, livestock stress, and income loss. These losses affect businesses that provide agriculture with inputs or use agricultural production to make food for animals and people. When the drought outlook is unfavorable, crop and livestock producers may not spend as much on inputs to their operation, such as seed, water, machinery, and custom harvesting. During drought, producers may not need workers. Agribusinesses like local grain elevators or cotton gins may not run as many hours. Consequently, employment and income in supporting sectors will be negatively affected. Drought effects are also felt by downstream businesses, like feedyards and wheat mills. These outcomes eventually result in higher consumer prices at the grocery store. When these effects are combined, there are substantial losses to the value of agricultural sales, employment, and profits for businesses in the economy. However, disaster relief payments or crop insurance payments can mitigate some of these effects. These payments allow producers to pay off operating lines, purchase inputs for the next season, and patronize local businesses.
Crop insurance use is higher today than ever, going back to the establishment of federal crop insurance programs in the 1930s and even immediately following crop insurance reform in the 1980s and 1990s. In recent years, the share of eligible US crop acreage enrolled in federal insurance has been 80% or higher for most crops. Federally authorized multi-peril crop insurance (MPCI) covers the loss of crop revenues or yields resulting from drought, damaging wind or rain, deep freezes, and other natural causes is common in more drought-prone areas. MPCI also helps offset the losses for agricultural producers. But how effective are these crop insurance payments at reducing producer losses and, more generally, local economic losses due to drought or other extreme weather events?
This case study estimates drought impacts for Tillman County, Harmon County, and Jackson County, Oklahoma. These three rural, farming-dependent counties experienced exceptional drought (D5) from 2011 to 2013 and 2022. Over the 2011 to 2013 drought period, there was a total loss of $209 million in agricultural revenue or output value. The economic loss includes reduced crop acres harvested, reduced crop yields on acres that were harvested, and reduced value of livestock herds, reflecting significant culling. After accounting for the loss to sectors that provide inputs to and purchase outputs from the impacted agricultural sectors, the total revenue loss increases to $343 million. These three counties alone experienced a loss of 3,699 full-time equivalent jobs due to drought over this period. The job losses could have occurred in several ways. For someone who works a second job seasonally in the cotton gin, that seasonal job may not be available to supplement their annual income. This translates into a loss of economic activity in the local community of 172 million dollars of value added to the economy.
What impact does crop insurance have on the 3-county area? These indemnity payments moderated drought impacts by 65% in agricultural output value, 62% in employment, and 58% in value-added over the entire period. Crop insurance significantly reduced economic damages for the farmers in the area, reducing the drought agricultural output value loss to 121 million dollars. For the local economy, the job loss was also reduced by more than half to 1,400 jobs. While the cotton gin may not run the additional shift, the local supply store may still be able to keep their employees at full employment. Participation in crop insurance also reduced the losses to the local economy overall, moderating losses to 71.5 million dollars for that same period. Even with insurance, these rural, agriculture-dependent areas still experienced reduced profits, jobs, and local economic activity due to drought. However, insurance policies protect against the worst drought outcomes as it is designed to do.
What else can a producer do to protect themselves? Other management strategies beyond crop insurance can reduce drought loss severity. Producers who diversified their production activities garnered more protection against loss in addition to protection provided by crop insurance. For example, in 2012, Oklahoma experienced a bumper wheat crop. Higher crop yields on harvested acres helped offset other crop and livestock losses. For livestock producers, 2013 brought record-high cattle prices due to the smallest national cattle herd since 1951. Of course, we broke those cattle price and inventory records again in 2023 after another drought. The ability to counter losses in one farm business activity with higher revenue in another activity highlights the potential value of whole farm risk management plans that include but are not limited to crop insurance. Consider the bars shown in Figure 1, where the relatively lower drought impacts are shown in 2012 and 2013 when other sources of income offset drought production losses compared to 2011. However, the largest driver of loss reduction was from the indemnities paid out by crop insurance. Graphically, this is the decrease from the dark orange (potential loss without insurance) to the light orange (total loss with insurance indemnities). While this was a case study for only three counties and policy effectiveness likely varies over the southern region, crop insurance is shown to be vital to American producers in cases of drought.
Figure 1. Drought Related Revenue Loss, Profit Loss (Value Added), and Employment Loss by Year and Insurance Assumption
The total length of the bar for revenue loss (output) and profit loss (value added), including the light and dark orange, are in millions of dollars without accounting for crop insurance. The light orange area shows the loss after accounting for the mitigating effect of crop insurance. The employment bars are in numbers of jobs in the 3-county area, with the same interpretation of the bar colors. The vertical axis measures the loss due to drought. Each result would be interpreted as a change in the potential revenue (or value added to the economy) the affected industries could have received, with a value of 0 representing no loss or gain.
Using crop insurance to guarantee debt obligation coverage is one of many ways insurance can be used as a risk management tool. Additionally, adequate crop insurance will often be a lender requirement on operating loans. Operating loans are typically revolving lines of credit that assist in covering pre-harvest expenses (e.g., seed cost, fertilizer, fuel, etc.). Table 1 below contains example revenue and pre-harvest expenses that might be incurred by a soybean and cotton producer in the southern region. Assume an example soybean producer in Crittenden County, Arkansas and a cotton producer in Lubbock County, Texas, where the farm-level soybean and cotton Actual Production History (APH) yields are equal to the state average of 50 bushels per acre and 1,196 pounds per acre, respectively. Furthermore, we assume the Projected Price for the 2024 growing season to be $12.60 per bushel for soybeans and $0.87 per pound for cotton.
Table 1. Simplified Sample Budget for a Southern Soybean and Cotton Producer
Revenue
Soybean
Cotton
APH Yield
Per Acre
50
1,196
Projected Price (USDA-RMA)
$12.60/bu
$0.87/lb
Expected Revenue (446 Acres)
$280,980.00
$464,072.00
Pre-Harvest Expenses
Expected Pre-Harvest Expenses (446 Acres)
$144,058.00
$247,084.00
446-acre farm size was derived from Farms and Land in Farms, February 2023 Summary. Pre-harvest expenses are derived from budgets across the southern region.
Consider a producer who finances an operating loan to cover their pre-harvest expenses (e.g., $145,000 based on a 446-acre soybean operation). Additionally, they elect to use Revenue Protection (RP) crop insurance to guarantee a level of revenue. For example, at a coverage level of 50%, a soybean producer would be guaranteed $140,490 based on an expected revenue of $280,980 ($280,980 * 0.50 = $140,490). The question becomes, at what level will the RP guarantee cover the entire operating loan obligation in the case of a complete loss? Additionally, we consider a producer taking Catastrophic Risk Protection Endorsement (CAT) coverage that triggers in the event of a yield loss of 50% or more. CAT coverage provides producers with low-cost coverage on 50% of APH yield and 55% of the RMA projected price (Biram and Coble, 2023). We assume total yield loss (e.g., 0 bushels per acre). Tables 2 and 3 below highlight realized returns to a soybean and cotton producer net of their operating loan obligation. Returns are compared over an interest rate range of 5% to 10% (.5% increments), and RP elected coverage levels from 50% to 65% (5% increments).
*Note: CAT coverage levels based on data in Table 1 for yield and projected price are 25 bushels and $6.93, respectively. CAT coverage administrative fees are $655.00 for each crop per county. Per acre RP premiums for Crittenden County, Arkansas Soybeans are $7.20, $9.06, $10.51, and $13.87 for 50%, 55%, 60%, and 65% coverage levels, respectively.
If the dollar value within Tables 2 and 3 is positive, then operating loan debt is covered with additional funds to pay other obligations. If the amount is negative, a producer would be unable to re-pay their entire operating loan only using RP or CAT indemnities. It’s important to note that pre-harvest expenses are only an estimate. We assume an annual interest rate with the producer paying the operating loan in one lump-sum at the end of harvest; that is, if the annual interest rate is 5% and payment is made at the end of harvest (assuming 9 months) with an operating loan of $145,000, the final payment will be $150,529 (principal plus $5,529 accrued interest).
Crop type plays an important role in this decision since positive cash flow is heavily dependent on coverage levels and operating loan interest rates for a specific crop. Also, under no circumstance does CAT coverage ensure either producer can cover their operating loan debt at the representative loan, farm size, and crop type. Tables 2 and 3 show that operating debt coverage based on a 50% RP coverage level will be negative regardless of crop type. Increasing coverage to 60% would mean a soybean producer could guarantee covering their operating loan, while a cotton producer needs at least 65% coverage to guarantee operating debt repayment in the event of a catastrophic loss.
References
Biram, H.D. & Coble, K. H. (2023). A Brief History of Crop Insurance. University of Arkansas System Division of Agriculture, Cooperative Extension Service Fact Sheet No. FSA70. (Link)
