In 2009, a paper titled "Impacts of Including Cottonseed Production in the Revenue Stream for Calculating Crop Insurance Coverage for Producers in the Lower Coastal Bend of Texas" was developed by Texas AgriLife Extension Service agricultural economists, including Dr. Larry Falconer of Corpus Christi. In this paper, it was shown that the relative price of cottonseed to cotton lint increased from 15 percent to 31 percent over the 2004 to 2008 time period. This increase implies that cotton producers are not able to insure an increasingly important part of their revenue stream. Because of increasing cost of production for cotton in the Coastal Bend of Texas, producers are finding it necessary to acquire increasing amounts of credit for their operations. It would be helpful in acquiring credit if producers could insure the larger percentage of the total revenue stream from their cotton production by including cottonseed values in yield guarantee calculations.

In this paper, Texas AgriLife Extension Service agricultural economists reported that by adjusting APH yields for cottonseed values, the increase in expected indemnities would exceed increased outlays for premiums by ratios ranging from a low of 10.7:1 to a high of 50.8:1 for different selected yield guarantees. On November 18, 2010, the board of directors of the Federal Crop Insurance Corporation released the Cottonseed (Pilot) Endorsement for sale for the 2011 crop year. The first 2011 crop year sales closing date for purchase of the Cottonseed Endorsement is January 30, 2011.

No new records

The Cottonseed (Pilot) Endorsement does not require the producer to maintain records on cottonseed yield to establish coverage levels, according to Falconer.  Instead, a conversion factor provided in the special provisions of insurance is applied to lint yield records. For the 2011 crop year in Nueces County, the conversion factor is established at 1.447 pounds of cottonseed per cotton lint. Premiums for the Cottonseed (Pilot) Endorsement will be calculated using a national cottonseed price (set at $0.09 per pound, or $180 per ton, for the 2011 growing season) and the premium rate applicable to the grower’s APH of cotton lint.

In the event of a loss, growers incurring losses to their cotton lint sufficient to trigger an indemnity would be paid for the corresponding level of loss on cottonseed. Cottonseed losses will be determined by subtracting the cottonseed production (actual lint yield times conversion factor) from the cottonseed production guarantee (APH lint yield times conversion factor).

Given the current high prices for cotton lint and cottonseed and increasing production costs, producers are encouraged to contact their crop insurance agent for further details as to how this new insurance product might fit into their risk management program.