Dr. Jody Campiche Oklahoma State University April 26, 2013 Crop Insurance and ACRE Update

Possibility of reduced water availability for irrigation for the 2013 crop year Alternatives To 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 Crops Irrigated 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 Crops Irrigated 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 Guarantee 60% 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 Crops Irrigated 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 Crops Irrigated 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 2 nd crops or crops planted prior to the late planting period would apply Drought Damaged Crops Irrigated 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. KQOMZdq5-X7u--snBXQ&index=1 Jody Campiche and Bambi Sidwell talk about crop insurance for damaged wheat and ACRE payments in the link below. QOMZdq5-X7u--snBXQ&index=2 KQOMZdq5-X7u--snBXQ&index=1 QOMZdq5-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 programs 30 day hold on 2011 SURE, 2012/2013 NAP, and MILC payments Across the board cuts of 5% - additional 3.5% from continuing resolution Since payments have already went out for 2011 SURE, 2012 and 2012 NAP, and MILC, USDA decided to cut DP Didn’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 payments For cotton, marketing year price needs to be less than $ % loss in marketing loans DP cotton loan rate: $0.52 ACRE cotton loan rate: $0.364 Marketing year price too high for LDP

Direct Payments What does a wheat producer lose if he enrolls in ACRE? Average direct payment for wheat is about $15/acre 8.5% 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 payment Enroll 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 $46.84$ $0.00$ $19.27$ *Probably $0.00$ ??$172.30

ACRE vs. DCP for Wheat Breakeven Point (21.8 bu/acre)

ACRE vs. DCP for Wheat $2.72

ACRE vs. DCP for Wheat $2.72

What does an Irrigated Cotton producer lose if he enrolls in ACRE? Average direct payment for irrigated cotton - $50/acre 8.5% 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 payment Enroll 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 $0.00$ $0.00$ $142.33$ ??$ ?? $ (not final)

ACRE: Irrigated Cotton Breakeven Point (968 lbs/acre) $9.15 Max ACRE payment $171/acre

ACRE: Irrigated Cotton Breakeven Point (800 lbs/acre) $9.15

Direct Payments What does a non-irrigated cotton producer lose if he enrolls in ACRE? Average direct payment for irrigated cotton - $19.84/acre 8.5% 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 payment Enroll 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 $0.00$ $0.00$ $57.33$ ??$ ?? $ (not final)

ACRE vs. DCP for Non-Irrigated Cotton Breakeven Point (390 lbs/acre) Max. ACRE payment $69/acre $3.63

ACRE vs. DCP for Non-Irrigated Cotton Breakeven Point (325 lbs/acre) Max. ACRE payment $69/acre $3.63

Pasture, Rangeland, Forage Insurance

Subsidized insurance program offered by RMA designed specifically for hay and livestock producers Drought insurance based on a Rainfall Index Insure pastures as grazing land or hay land Similar to group risk insurance Provides area-wide coverage Pasture, Rangeland, Forage Insurance

Based on the average rainfall in the geographic area Not 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 summer Insure half of land in March-April Also concerned about availability of 2 nd hay cutting and fall forage due to lack of rain in summer Insure 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 level Index falls below 100 (minus the deductible) in each index interval 100 – 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 Grazingland Intended for grazing by livestock Acreage must be suitable for grazing Hayland Intended 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 grid Relative 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

Coverage LevelSubsidy 7059% 7559% 8055% 8555% 9051%

Grid 1 County A County B Grid 2 Grid 3Grid 4 Use USDA Grid Locator Tract A Grid 2 – 75 ac grazing Tract B: Option 1 Grid 1 – 85 ac grazing Grid 3 – 155 ac grazing Tract B: Option 2 Grid 1 or 3 – 240 ac grazing Tract C Grid ac grazing 50 ac hay A B C Hay Meadow 50 Ac 75 acres 240 Total Acres 85 acres 155 acres 165 acres

Jody Campiche 528 Ag Hall