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Most Texas growers find crop insurance a paying proposition over long term

ALTHOUGH FEDERAL CROP insurance is “a very complex program,” it has been a paying proposition for most Texas producers, thanks to government subsidies, according to Dr. Kenneth Stokes, economist for the Texas Agricultural Extension Service.

And under the Risk Protection Act of 2000, the government will put up $8.1 billion over five years “to make crop insurance better and make coverage more affordable,” he told producers attending the recent Southwest Farm Press-sponsored Southwest Crops Production Conference at Lubbock.

Stokes says discount subsidies are being increased and “the act addresses the issue of multi-year losses for the producers who have seen their APH yields drop.

“The biggest improvement is that the additional subsidies that have been provided over the past few years have now been built into the law.

“It also equalizes subsidies paid for crop revenue coverage (CRC) versus APH. Rates are still based on your average APH, so if your yields drop your rates are going to increase under the equalized coverage policy.

“Comparing past APH with the new law should make CRC much more attractive than in the past.”

Most producers, Stokes says, “probably won't see much difference in the dollars they're paying per acre now than in years past because of the subsidies that are already built in.”

A significant change is that for cotton it will now be possible to get 80 percent to 85 percent coverage. “This addresses an issue that many have been concerned about — the deductible being too high.

But, be aware that with 80-85 percent coverage your rates go up quite a bit. That applies to cotton across the entire U.S.”

For grain sorghum, corn, and soybeans, High Plains growers have an option to go to 85 percent coverage, he says.

“A big change is that the Risk Management Agency is getting out of the development of new insurance products. That will be shifted to the private sector. Also, livestock is going to be brought in, although we don't know yet to what extent.”

The new law also expands the dairy options pilot program for another two years and makes available additional money for crop insurance for under-served sectors such as vegetables and other minor crops.

“A big issue that will be of concern to many,” Stokes says, “is increased compliance. There will be much tighter auditing of producers, insurance agents, and adjusters, as well as expanded penalties. There's nothing wrong with using the rules to your advantage, but anyone who ‘stretches’ the rules is going to be subject to close auditing.”

The group risk plan (GRP) for wheat “has not paid out very well for growers in this area,” Stokes notes, “but I would urge you to look at income protection (IP) for grain sorghum, because I think you can get some coverage that's very similar to CRC without having to spend as much money.”

For irrigated cotton, based on a 650-pound APH, there's not that much difference in rates compared to CRC at lower coverage levels, he says. “But when you start getting into the 75 percent to 85 percent range, rates increase pretty sharply.

“I would suggest getting your insurance agent to print out all the options so you can make choices based on the numbers, rather than simply doing whatever you've done in the past.”

Also, Stokes notes, growers can access the Rick Management Agency Web site at, where there is a section entitled Tools and Calculators. Under that can be found actuarial tables, where there is a function that will allow growers to calculate their own premiums.

Since the Crop Insurance Reform Act of 1994 went into effect, the government has averaged spending $1.5 billion a year on crop insurance for U.S. farmers, Stokes says. During that period, there has also been “a big increase” in acreage covered by crop insurance.

The government bases crop insurance rates on a 1.07 ratio, he notes — “that is, they expect to pay out $1.07 for every $1 of premiums paid, whether the premium is paid by the government or the producer. So, if the government can maintain that 1.07 loss ratio, it's happy.”

However, since 1994 “there hasn't been a year when payments to farmers nationwide haven't exceeded premiums paid in by farmers.”

In Texas, looking at all crops from 1995-2000, Stokes says cotton has been dominant in terms of dollars of coverage, “and the amount of money producers paid in has been much lower than the money they received. Since 1995, Texas cotton producers have received $2.82 for every $1 they paid in. Crop insurance has been a paying proposition for these producers. Combining the farmers' premium payment with the government subsidy has generated a total loss ratio for Texas cotton of 1.26 since 1995.”

In the northern High Plains, Stokes says, loss ratios have averaged less than 1.0 “and it has been about a break-even situation for these producers.” In the dryer areas of the southern High Plains, “loss ratios are much higher and, with the exception of 1995 and 1997, payments to farmers far exceeded total premiums paid, and very much exceeded the premiums paid by producers.”

In comparing APH and CRC, both “have paid out fairly well” for producers in the High and Low Plains, he says, “so it's hard to look at the numbers and say there's a lot of difference between what they paid and what they received.

It's also hard, he says, to say that one coverage level has paid better than the other (65 percent and above versus below 65 percent).

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