Rejesus Sure Presentation June V2


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Rejesus Sure Presentation June V2

  1. 1. The SURE Disaster Assistance Program and Crop Insurance Choices Rod M. Rejesus Assistant Professor and Extension Specialist Dept. of Ag. and Resource Economics NC State University
  2. 2. Introduction <ul><li>In the past – temporary ad hoc disaster assistance payments </li></ul><ul><li>2008 Farm Bill – create more permanent disaster assistance program </li></ul><ul><ul><li>Supplemental Agricultural Disaster Assistance (SADA) Program </li></ul></ul>
  3. 3. Introduction <ul><li>SU pplemental RE venue Assistance (SURE) Program </li></ul><ul><li>Four other programs: </li></ul><ul><ul><li>Tree Assistance Program (TAP), Emergency Assistance Program for Livestock, Honeybess, and Farm-Raised Fish (ELAP), Livestock Indemnity Program (LIP), Livestock Forage Disaster Program (LFP) </li></ul></ul>
  4. 4. Goals Today <ul><li>Provide a basic overview of the SURE program </li></ul><ul><li>Provide some implications for crop insurance decision making </li></ul><ul><li>CAVEAT : Some details of the legislation still being interpreted by FSA </li></ul>
  5. 5. SURE Program Basics <ul><li>Whole-farm disaster assistance program </li></ul><ul><ul><li>Similar to revenue insurance </li></ul></ul><ul><ul><li>Tied to crop insurance coverage and farm planted acreage </li></ul></ul><ul><li>If whole-farm actual revenue less than SURE guarantee, then receive SURE payment that is 60% of difference </li></ul>
  6. 6. SURE Program Basics
  7. 7. SURE Eligibility and Requirements <ul><li>Located in a declared disaster county (or contiguous to a disaster county) </li></ul><ul><ul><li>Or must have 50% revenue loss due to weather-related causes </li></ul></ul><ul><ul><li>For farms in multiple counties, need to have at least one located in a disaster or contiguous county </li></ul></ul>
  8. 8. SURE Eligibility and Requirements <ul><li>Requires purchase of crop insurance or NAP policies for all crops </li></ul><ul><ul><li>Crops of “ Economic Significance ” (expected revenue from crop must be at least 5% of total or NAP fee exceeds 10% of NAP guarantee) </li></ul></ul><ul><li>At least a 10% yield loss on one crop of economic significance </li></ul>
  9. 9. SURE Eligibility and Requirements <ul><li>Note sales closing dates for crop insurance and NAP </li></ul><ul><ul><li>Crop insurance: Feb 28/March 15 (spring planted crops), Sept. 30 (fall planted crops), perennials (Nov 20) </li></ul></ul><ul><ul><li>NAP: March 15 (for 2009 Spring Planted Crops) </li></ul></ul><ul><ul><li>Waiver for limited resource, socially-disadvantaged, beginning farmers; pasture excluded </li></ul></ul>
  10. 10. SURE Guarantee and Cap <ul><li>SURE Guarantee </li></ul><ul><ul><li>Sum of all crop insurance guarantees increased by 15% for insured crops (by 20% for NAP crops) </li></ul></ul><ul><ul><li>Whole-farm guarantee (all crops all counties ) </li></ul></ul>
  11. 11. SURE Guarantee and Cap <ul><li>Note: Stimulus Bill of 2009 </li></ul><ul><ul><li>70% coverage level floor for 2008 </li></ul></ul><ul><ul><li>Increase insurance guarantee by 20% for insured crops and 25% for NAP crops </li></ul></ul><ul><li>SURE Cap </li></ul><ul><ul><li>90% of SURE Expected Revenue on all crops </li></ul></ul>
  12. 12. SURE Guarantee and Cap <ul><li>SURE Guarantee Calculation </li></ul>
  13. 13. SURE Guarantee and Cap <ul><li>SURE Cap </li></ul><ul><ul><li>90% of the sum of SURE Expected Revenues calculated as: </li></ul></ul><ul><ul><li>“ SURE Guarantee to use” based on minimum of guarantee or cap </li></ul></ul>
  14. 14. SURE Actual Revenue <ul><li>If SURE Actual Revenue, below SURE Guarantee then receive SURE payment </li></ul><ul><li>SURE Actual Revenue is sum of: </li></ul><ul><ul><li>All revenues from each crop, 15% of DP, all CCP or ACRE payments, all mktg. loan benefits, all crop insurance/NAP indemnity (including prevented planting payments), all other disaster assistance payments </li></ul></ul>
  15. 15. SURE Actual Revenue <ul><li>Actual Revenue calculated as: </li></ul><ul><ul><li>Natl. Season-Ave. Price - Marketing Year Price determined by USDA; not known till Sept/Oct of following crop year </li></ul></ul>
  16. 16. SURE Payment <ul><li>SURE Payment = </li></ul><ul><li>60% x (SURE Guarantee – </li></ul><ul><li> SURE Actual Revenue) </li></ul><ul><li>- SURE Payment limit of $100,000 per year per eligible producer & also $500k limit for non-farm AGI </li></ul>
  17. 17. Example SURE Calculation <ul><li>200 acre farm with 100 corn acres 100 soybean acres </li></ul><ul><li>75% APH crop insurance </li></ul><ul><li>APH Yield = 97 bu/ac corn, 30 bu/ac soybeans </li></ul><ul><li>Base prices - $4.78/bu corn, $11.85/bu soybeans </li></ul>
  18. 18. Example SURE Calculation <ul><li>SURE Guarantee = $70,652.55 </li></ul><ul><li>Below SURE cap of $73,724.40 </li></ul><ul><ul><li>0.9 x SURE Expected Revenue = 0.9 x $81,916 = 73,724.40 </li></ul></ul>
  19. 19. Example SURE Calculation <ul><li>Assume low yields at harvest due to drought. 50 bu/ac corn, 10 bu/ac soybeans </li></ul><ul><li>County declared as disaster county </li></ul><ul><li>Assume marketing year price is $5.00/bu for corn and $12/bu for soybeans </li></ul><ul><li>Received $4000 DP for whole farm </li></ul><ul><li>No other program benefits </li></ul>
  20. 20. Example SURE Calculation <ul><li>SURE Actual Revenue is based on sum of actual revenues for corn and beans, indemnity payments for corn and beans, and 15% of direct payments in this case. </li></ul><ul><li>Actual Revenue = $37,000 </li></ul>
  21. 21. Example SURE Calculation <ul><li>Crop Insurance Indemnities = $25,687 </li></ul><ul><ul><li>Have payments since actual yield below yield guarantee </li></ul></ul><ul><li>15% of DP = $600 </li></ul>
  22. 22. Example SURE Calculation <ul><li>SURE Actual Revenue = </li></ul><ul><li>$37k + $25,687 + $600 = $63,287 </li></ul><ul><li>SURE Guarantee = $70,652.55 </li></ul><ul><li>SURE Payment = </li></ul><ul><li>60% x [$70,652 - $63,287] = $4,419.33 </li></ul><ul><li>** See handout for more details </li></ul>
  23. 23. <ul><li>Base Price vs. Harvest Price for revenue insurance with harvest price option </li></ul><ul><ul><li>For CRC/RA-HPO, will higher of harvest vs base be used to set guarantee? </li></ul></ul><ul><ul><li>Erodes value if not </li></ul></ul>Language Still to be Interpreted
  24. 24. <ul><li>How to calculate APH yields for GRP, GRIP? Use county yields? </li></ul><ul><li>How to verify losses at field level for GRP/GRIP/AGR-Lite? </li></ul>Language Still to be Interpreted
  25. 25. <ul><li>What coverage levels for GRP/GRIP? Prevented Planting? </li></ul><ul><li>What is equitable treatment? </li></ul><ul><li>Net versus Gross Indemnity to count against SURE Guarantee? </li></ul>Language Still to be Interpreted
  26. 26. Enterprise Unit Subsidies <ul><li>Farm bill introduced a pilot to increase premium subsidies for enterprise units and whole-farm units </li></ul><ul><ul><li>Enterprise units are all acres of a single crop within a county (i.e. consolidated basic units) </li></ul></ul><ul><ul><li>Whole-farm has multiple crops (RA) </li></ul></ul>
  27. 27. Enterprise Unit Subsidies Coverage levels Subsidy Before Subsidy Now 50% 0.67 0.80 55% 0.64 0.80 60% 0.64 0.80 65% 0.59 0.80 70% 0.59 0.80 75% 0.55 0.77 80% 0.48 0.68 85% 0.38 0.53
  28. 28. Enterprise Unit Subsidies <ul><li>Increasing coverage from 65% optional to 70% enterprise, increases subsidy from 0.59 to 0.80. </li></ul><ul><li>Discounts for insuring at enterprise </li></ul><ul><li>Increases SURE coverage </li></ul><ul><li>Reduces risk of claim (i.e. spot losses) </li></ul>
  29. 29. Enterprise Unit Subsidies <ul><li>Cover spot loss with private insurance (i.e. hail, wind, fire, etc.) </li></ul><ul><ul><li>Indemnity will not count in SURE </li></ul></ul><ul><li>Consider enterprise unit definitions of CRC vs RA-HPO (i.e. very different premiums & discounts) </li></ul>
  30. 30. Price Limits in Rev Insurance <ul><li>Increased CRC upside price limit to 2 times the base price and no downside price limit </li></ul><ul><ul><li>At $5.40/bu for corn, price limit before is +/- $1.50 (i.e. upside limit of $6.90 is now $10.80) </li></ul></ul><ul><li>RA is the same, but different enterprise unit definitions </li></ul>
  31. 31. Conclusions & Implications <ul><li>SURE – additional safety net related to crop insurance choices </li></ul><ul><li>Need to sign-up for crop insurance and NAP coverage </li></ul><ul><li>Note the “lag” in receiving SURE payments </li></ul>
  32. 32. Conclusions & Implications <ul><li>Insure at higher coverage levels (but not at or above 80% -- will hit 90% cap) </li></ul><ul><li>Consider insuring at the enterprise unit level given the new subsidies </li></ul><ul><li>Weigh expected returns from insurance and SURE against premium costs </li></ul>
  33. 33. Conclusions & Implications <ul><li>If “large” farm, SURE may not be very important (since $100,000 payment limit) </li></ul><ul><li>Over time, SURE provides incentives for less diversification (since whole-farm revenue guarantee) </li></ul>
  34. 34. Additional Resources <ul><li>USDA FSA webpage </li></ul><ul><ul><li>Calculators and fact sheets </li></ul></ul><ul><li>Various university extension publications </li></ul><ul><ul><li>NC State Crop Insurance Webpage </li></ul></ul>
  35. 35. Thank You! <ul><li>Questions? Contact: </li></ul><ul><ul><li>Rod M. Rejesus </li></ul></ul><ul><ul><li>Dept. of Agricultural and Resource Economics </li></ul></ul><ul><ul><li>NC State University </li></ul></ul><ul><ul><li>Tel. No. (919)513-4605 </li></ul></ul><ul><ul><li>Email: [email_address] </li></ul></ul>