New USDA Provision Will Help Cotton Farmers

By Will McClure

 

In February, the new 2014 Farm Bill was signed into law, eliminating direct payments and increasing crop insurance. While the bill would not affect cotton farmers directly for at least two years, crop insurance would still be affected thus requiring all farmers to choose between two insurance plans: Price Loss Coverage and Agricultural Risk Coverage. In the original provision, however, the USDA’s Risk Management Agency would not have been able to calculate commodities until 2016, resulting in a possible reduction in the amount of crop insurance available to farmers as well as affect potential loans. To correct this, the USDA will enact a new plan titled the Actual Production History (APH) Yield Exclusion Plan.

By definition, APH plans such as Price Loss Coverage and Agricultural Risk Coverage insures producers against yield losses due to extreme weather. The farmer selects how much average yield, or amount produced, between 50 to 75 percent as well as how much predicted price to insure, usually between 55 to 100 percent. If the crop falls below the insured yield, the difference will be paid by the insurance plan. This new plan, which will be in effect next spring, will allow eligible farmers who have been hit with severe weather, including drought, to receive a higher yield on their selected insurance plan. Without this provision, farmers would be unable to exclude yields from exceptionally bad years during severe weather conditions. In doing so, the bad yields would adversely affect farmers’ crop insurance plans, causing lower premiums and a reduction in coverage. This would negatively impact cotton farmers as insurance coverage would be diminished for a number of years, which may cause more problems if a farmer faces partial or complete loss. To be able to exclude a yield, the crop must be at least 50 percent or more below the average of the previous ten average yields. With the ability of the Risk Management Agency to calculate more quickly, farmers will be able to exclude this year’s crop if needed.

When the new Farm Bill came into effect, the Risk Management Agency was initially unable to calculate the average yield until 2016, thus if a farmer experienced a bad 2014, insurance premiums would have been reduced. Now that the USDA has allowed the agency to move forward more quickly, farmers can collectively rest easier knowing that their selected crop insurance will not be diminished in the case of a bad year. The USDA, along with their Risk Management Agency, will release more information about the new Exclusion Plan in December 2014, which will help not only cotton crops, but also corn, soybeans, wheat, grain sorghum, rice, barely, canola, sunflowers, peanuts and popcorn.

For more information about the new provision, please visit www.usda.gov or the Risk Management Agency at www.rma.usda.gov. 

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