Dr. Jody Campiche Oklahoma State University April 26, 2013

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

2. Drought Damaged Crops Irrigated Prevented Planting • 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)

3. Drought Damaged Crops Irrigated Prevented Planting • If a producer plans to apply lesswater 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

4. What is 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

5. Prevented Planting for Non-Irrigated Acreage • 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

6. Prevented Planting for 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

7. Drought Damaged Crops Irrigated Prevented Planting • 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

8. 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

9. 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 2nd crops or crops planted prior to the late planting period would apply

10. Prevented Planting Example • 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

11. Prevented Planting Key Points • 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

12. 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

13. Things to consider if you plant cotton on your failed wheat acres • 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

14. SUNUP April 27th 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=1Jody 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

15. Sequestration

16. 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

17. 2013 ACRE vs. DCP

18. 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 $0.65 • 30% loss in marketing loans • DP cotton loan rate: $0.52 • ACRE cotton loan rate: $0.364 • Marketing year price too high for LDP

19. 2009/10 Average U.S. Direct Payments

20. 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

21. ACRE vs. DCP for Wheat • Preliminary wheat yield estimate on May 10

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

23. ACRE vs. DCP for Wheat $2.72

24. ACRE vs. DCP for Wheat $2.72

25. 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

26. ACRE vs. DCP for Irrigated Cotton

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

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

29. 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

30. ACRE vs. DCP for Non-Irrigated Cotton

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

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

33. ACRE Webinar: May 16th9:30amYou 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.

34. Pasture, Rangeland, Forage Insurance

35. 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

36. Rainfall Index • Based on the average rainfall in the geographic area • Not on the individual farm • Rainfall measured using NOAA Climate Prediction Center (CPC) data

37. Rainfall Index • Each grid’s rainfall index is normalized so that the value of 100 represents average rainfall

38. Grid • 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

39. Interval Selection • 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

40. 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 2nd hay cutting and fall forage due to lack of rain in summer • Insure half of land in June-July

41. Indemnity Payment • 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)

43. Pasture, Rangeland, Forage Insurance No loss adjustments, records, etc. Timely payments Does not reward poor management practices Producer cannot influence outcome/losses

44. Insurable Crops • 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

45. Pasture, Rangeland, Forage Insurance 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

46. 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

47. Pasture, Rangeland, Forage Insurance Rainfall is highly correlated with forage production, but does not directly predict forage production

48. Pasture, Rangeland, Forage Insurance

49. Grid Location Determinationwww.rma.usda.gov/policies/pasturerangeforage

50. Grid Location Determinationwww.rma.usda.gov/policies/pasturerangeforage • 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 4 • 165 ac grazing • 50 ac hay A 75 acres 240 Total Acres B 85 acres 155 acres Hay Meadow 50 Ac 165 acres C