Drought-stricken cotton growers are encouraged to take advantage of new crop insurance provisions and consider insurance add-ons such as the Cottonseed Pilot Endorsement (CPE) to increase coverage levels, as the March 15 crop insurance deadline approaches.
Producers have several changes to consider as they determine best insurance options for 2018, says Shawn Wade, director of policy analysis and research at Plains Cotton Growers, Lubbock, Texas. Wade, spoke to producers at the Seeking Solutions to Economic Risk meeting in Lubbock.
“If a grower has a yield loss and the insurance price is 74 cents on the lint, the cottonseed endorsement is going to add a little over 11 cents to their coverage to account for the loss associated with cottonseed. So, it’s a good addition when you have experienced a physical loss,” Wade says.
For 2018, the CPE yield loss coverage for cottonseed has been set at 9 cents per pound, the equivalent of $180 per ton. “The way this works, you can add it to a yield policy or a revenue policy but the cottonseed coverage will only kick in with an actual physical loss below that yield guarantee,” explains Wade. “If you have a 1,000-pound Actual Production History (APH) with 70 percent coverage, when that actual yield falls below 700 pounds, those lost pounds would trigger an indemnity under the cottonseed endorsement.”
Since its inception, CPE has paid out over $650 million in extra insurance payments to producers, with Texas growers accounting for the most users. “In 2017, out of about 50,000 cotton policies sold nationwide, we have just under 30,000 that added the cottonseed endorsement, or about a 58 percent use rate nationwide,” says Wade. “It’s a cost-effective way to add a little extra bit of value to your insurance policy.”
For 2018, the statewide seed-to-lint conversion factor in Texas is a little over 1.3, according to Wade. “As these newer varieties have come on these last 10 or 15 years, we’ve seen the seed size go down, and we’re seeing that reflected in the calculated seed-to-lint ratio.”
Before growers make their final insurance decisions, Wade says they need to be aware of several changes including:
A new definition for a “Replanted Crop” in the common crop insurance policy will consider any failed crop acreage replanted to the same crop prior to the end of an established Late Planting Period, or within the time specified in the Special Provisions (which impacts cotton specifically), to be a replanted crop from which any production will be determined and used to establish any possible indemnity that might be payable.
Enterprise units by practice
RMA also has announced that beginning in 2018 producers who choose to insure their farms with Enterprise units will now be able to, not only, create separate enterprise units by practice, but also elect to mix enterprise unit coverage on one practice with optional unit coverage on a different practice. “The ability for a grower to choose, for instance, to insure non-irrigated cotton under an enterprise unit, but maintain optional unit coverage on their irrigated units will greatly enhance a producer’s ability to fine-tune their insurance coverage to match the financial risks they face on their farm.” notes, Wade.
Another change of which growers need to be aware is with yield cups. In the past, this provision, which prevented a grower’s APH from dropping more than 10 percent from year to year, was automatically a part of the policy. Now, growers must request yield cups be added to their database, Wade cautions. “It’s a one-time election. It doesn’t cost anything. So, just make sure it has been elected for your policy.”
Trend Adjusted Yield
RMA has extended the applicability of yield cups to both Trend Adjusted Yield (TA) and the 2014 farm bill’s Yield Exclusion (YE) adjusted APH databases, which should help prevent large year-to year fluctuations in TA- or YE-adjusted APH database yields.
Cotton quality adjustment
A new provision in the cotton quality adjustment procedures “eliminates the 15 percent deductible and replaces it with a 10 percent trigger. Beginning in 2018, growers who can show a 10 percent quality reduction, can trigger the quality loss provision and calculate a production adjustment factor, they’re going to calculate that loss all the way from 100 percent of the applicable state base quality value, all the way down, to each bale’s actual loan value.”
Conservation compliance dates
The deadline for receiving revised AD-1026 Conservation Compliance forms was shifted from June 1 to the premium billing date, to allow more time for updated forms to be submitted to the USDA Farm Service Agency (FSA) and then to RMA to avoid loss of premium subsidy benefits.
Crop insurance is a complex issue that will require a close examination of multiple options. Producers should check with crop insurance representatives as soon as possible to determine the best policy options for each farm, crop and level of acceptable risk.