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Crop and Revenue Insurance
Prices, Marketing, and Contracting
Financial Conditions and Risk Management
Government Policy and Programs for Risk
Management
Crop and Revenue Insurance
Managing
Risk With Revenue Insurance. Crop revenue insurance
offers farmers a way to manage revenue variability that
results from yield and price risks. Commodity-level revenue
insurance, particularly for corn, soybeans, and wheat,
has become a major part of the subsidized Federal crop
insurance program. Whole-farm revenue insurance, based
on combined revenue from all commodities produced on a
farm, is a more broad-based approach, but is difficult
to administer (May 2007).
Why
Hasn't Crop Insurance Eliminated Disaster Assistance?
Since the early 1980s, the U.S. Government has promoted
crop insurance as a replacement for disaster payments
as the primary form of risk management aid for farmers.
Despite increased participation in crop insurance, ad
hoc disaster assistance packages have continued to be
enacted. This article discusses the government costs of
crop insurance and how participation varies by type of
farm and region (June 2005).
U.S.
Crop Insurance: Premiums, Subsidies and Participation.
How have producers responded to increased premium subsidies,
a prominent feature of the U.S. crop insurance program
since the early 1980s, and expansion of insurance coverage
choices? Premium discounts were added to existing premium
subsidies in 1999 and again in 2000, and the Agricultural
Risk Protection Act of 2000 revised subsidy rates and
increased government funding of premium subsidies for
2001-05 (December 2001).
Production
and Price Impacts of U.S. Crop Insurance Programs.
Subsidized crop insurance results in relatively small
increases in crop plantings, with the increase concentrated
in the Plains states. Although planted acreage rises for
all insured crops, wheat and upland cotton account for
three-fourths of the expansion (December 2001).
Managing
Farm Risk: Issues and Strategies.
A compilation of articles from Agricultural Outlook
magazine covers topics such as farmers' views of risk,
the effectiveness of various risk management strategies,
commodity price variability, and tax-deferred savings
accounts for farmers (February 2000).
Managing Risk in Farming:
Concepts, Research, and Analysis. Comprehensive assessment
of risk in agriculture, risk management strategies available
to farmers, and the effectiveness of various risk management
strategies (March 1999).
Agriculture
and Rural Economy: Contracting Changes How Farmers Do
Business.
Contracting can improve efficiency, shift regional patterns
of production, but sometimes reduce farmers' managerial
independence (July 2000).
Asymmetric Information
in the Market for Yield and Revenue Insurance. Differences
in yield and revenue risk help explain farmers' choice
of insurance product or coverage level (April 2001).
The Effects of
the Federal Crop Insurance Program on Wheat Acreage.
Net benefits from crop insurance appear to slightly raise
acreage for wheat and other crops (March 2001).
Participation
in Yield and Revenue Insurance Products. Risk levels,
premium costs, farm income, insurance coverage levels,
and previous insurance choices all have significant effects
on farmers' insurance decisions (Winter 2001).
Demand
for Yield and Revenue Insurance: Factoring In Risk, Income,
and Cost.
Farmers' choice of insurance product and coverage level
depends on yield risk, income, and other factors (December
1999).
Crop
and Revenue Insurance: Bargain Rates but Still a Hard
Sell.
Premium subsidies make insurance more attractive to producers,
though other factors may still limit participation (August
1999).
Recent
Developments in Crop Yield and Revenue Insurance.
Several new crop insurance products have become available
and are growing in popularity (May 1999).
Insurance
and Hedging: Two Ingredients for a Risk Management Recipe.
Insurance and hedging can be combined to reduce risk,
but effectiveness depends on price-yield correlation and
yield variability (April 1999).
Prices, Marketing, and Contracting
Agricultural Contracting Update, 2005 reports that a growing share of U.S. farm production is produced and sold under agricultural contracts. Contracts are far more likely to be used on large farms than on small ones. Marketing and production contracts covered 41 percent of the value of U.S. agricultural production in 2005, up from 39 percent in 2003 and 36 percent in 2001 (April 2008).
Agricultural
Contracting: Trading Autonomy for Risk Reduction.
The share of production under contract grew from 11 percent
in 1969 to 39 percent in 2003. For farm operators, contracts
provide benefits from reduced risks, but also result in
loss of managerial control and reduced autonomy (February
2006). For the full report, see Agricultural
Contracting Update: Contracts in 2003 (January 2006).
Forecasting
the Counter-Cyclical Payment Rate for U.S. Corn: An Application
of the Futures Price Forecasting Model. This report
provides background information on the model for corn,
its data requirements, the forecast procedure, and forecast
results for crop years 2003/04 and 2004/05 (January 2005).
The Excel spreadsheet models for corn, soybeans, and wheat
are available at Season-Average
Price Forecasts.
Agriculture
and Rural Economy: Contracting Changes How Farmers Do
Business.
Contracting can improve efficiency, shift regional patterns
of production, but sometimes reduce farmers' managerial
independence (July 2000).
Forward
Contracting of Inputs: A Farm-Level Analysis. Use
of output marketing and production contracts, managerial
ability, regional location, farm size, and specialization
in cash grain production are all correlated with greater
forward contracting of inputs among farmers (November
1999).
Farmers' Use of Marketing
and Production Contracts. Contracting can reduce risk
by helping lock in prices, secure input supplies, and
guarantee market outlets. Contracting practices vary across
commodities, regions, and farm size and may influence
risk, returns, and market structure (December 1996).
"Determinants of Endogenous Price Risk in Corn and
Wheat Futures Markets," Journal of Futures Markets,
Vol. 20, No. 8, pp. 753-74. Stocks-to-use ratios, futures
market activity, and other factors affect price variability
for corn and wheat futures contracts (August 2000).
Assessing
Agricultural Commodity Price Variability.
Several factors affect commodity price variability both
within a growing season and also over longer periods of
time (October 1999).
Long-Run
Price Risk in U.S. Agricultural Markets. Commodity
stocks, demand and yield shocks, input prices, and policy
changes show various effects on the longrun price variability
for corn, soybeans, and wheat (May 1999).
More
Farmers Contracting to Manage Risk
(scroll down to page 6 of document). The share of commodities
grown or sold under contract is growing, though contracting
practices vary significantly across commodities (January
1999).
Contracting—A
Business Option for Many Farmers.
Contracting can stabilize farm income by guaranteeing
market outlets and prices, while enhancing product uniformity
and reducing costs for processors (May 1997).
Financial Conditions and Risk
Management
An
Analysis of Risk Premia in U.S. Farm-Level Interest Rates.
Risk is considered higher for farms with lower net worth
and higher debt. Interest rates also vary significantly
across different types of lenders (January 2000).
An Economic Assessment
of the 1999 Drought: Agricultural Impacts Are Severe Locally,
but Limited Nationally. The 1999 drought had serious
effects for farmers in the northeastern United States
but limited overall effects at the national level (September
1999).
Farmers
to Cut Borrowing Amid Income Uncertainty.
Expectations of lower farm income projected to cause farm
debt to decline by about $1.3 billion in 1999 after 7
consecutive years of debt expansion. (May 1999).
Tax-Deferred
Savings Accounts for Farmers: A Potential Risk Management
Tool.
Effectiveness of these proposed accounts would depend
mostly on farm size and income level (May 1999).
Agricultural
Boom and Bust: Will History Repeat in the 1990s?
Farm incomes, prices, exports, land values, and interest
rates show both similarities and differences from earlier
periods of downturn in the farm economy (April 1999).
Farmers
Sharpen Tools to Confront Business Risks.
Farmers identify their most important risks and risk management
strategies under the current farm economic environment
(March 1999).
Limited-Resource
Farmers: Their Risk Management Needs.
Insurance availability for more crops or even livestock
production, along with improved outreach by government
agencies, would help limited-resource farmers with risk
management (May 1997).
Characteristics and Risk
Management Needs of Limited-Resource and Socially Disadvantaged
Farmers. This group of farmers tends to specialize
more in livestock production, which is not covered by
federally subsidized insurance and is eligible for few
other government supports (April 1997).
Government Policy and Programs
for Risk Management
Valuing Counter-Cyclical
Payments: Implications for Producer Risk Management and
Program Administration. This study illustrates an
improved method for estimating counter-cyclical payment
rates by accounting for the variability in market price
forecast errors. Forecasters and producers can use the
model to calculate the probability of having to repay
advanced counter-cyclical payments (February 2007).
Environmental Effects
of Agricultural Land-Use Change: The Role of Economics
and Policy. ERS examines environmental outcomes of
land-use conversion prompted by two agricultural programs
that others have identified as potentially having important
influences on land use and environmental quality: Federal
crop insurance subsidies and the Conservation Reserve
Program (CRP), the Nation's largest cropland retirement
program (August 2006). See also a related Amber Waves
article, Agricultural
Policy Affects Land Use and the Environment (September
2006).
Whole-Farm Approaches
to a Safety Net. "Whole-farm revenue"
programs have been proposed as a new form of income
stabilization that would be available to all U.S.
farms. This report looks at the risk management potential
for such programs, which are not linked to production
of particular commodities, and the obstacles to implementing
such an approach (June 2006).
The Value of Plant Disease
Early Warning Systems: A Case Study of USDA's Soybean
Rust Coordinated Framework. This report examines USDA’s
system to provide real-time, county-level forecasts of
soybean rust in the United States. The information provided
by Federal, State, industry, and academic partners is
estimated to have increased U.S. soybean producers' profits
by between $11 million and $299 million in 2005, or between
16 cents and $4.12 per acre depending on assumptions,
especially those concerning the accuracy of rust infection
forecasts (April 2006).
Risk
Management Tools in Europe: Agricultural Insurance, Futures,
and Options.
A variety of agricultural insurance products with different
levels of government support are available to farmers
in Europe, reflecting the variety of crops grown and growing
conditions in various countries. Changes in economic and
agricultural policies in Europe over the past 10 to 15
years appear to have created conditions conductive to
the development of futures and options markets (February
2004).
Risk, Government Programs,
and the Environment. Private and public tools used
to manage financial risk in agriculture may influence
farmers' production decisions. These decisions, in turn,
can influence environmental quality. This technical bulletin
summarizes research and provides some perspective on private
and public attempts to cope with financial risks and their
environmental consequences (March 2004).
The 2002 Farm Act: Provisions
and Implications for Commodity Markets. This report
provides an initial assessment of the legislation's effects
on agricultural production, commodity markets, and net
farm income over 10 years (November 2002).
U.S.
Farm Program Benefits: Links to Planting Decisions and
Agricultural Markets.
A number of U.S. farm programs, including crop insurance,
affect planting decisions, with subsequent effects on
output and prices (October 2000).
A Safety Net for Farm
Households. This report, comparing the benefits of
four different farm assistance programs, finds that distribution
of benefits varies widely across programs (October 2000).
The
Agricultural Risk Protection Act of 2000. Text of
the legislation (May 2000).
The
Agricultural Risk Protection Act of 2000: What it Does,
What it Means.
Summary of the expected impact of the legislation (May
2000).
A
Safety Net for Farm Households?
Farm income support programs based on household income
levels rather than commodity price levels would distribute
payments very differently from current farm programs (January
2000).
Ag
Policy: Marketing Loan Benefits Supplement Market Revenues
for Farmers.
Loan deficiency payments and marketing loan gains could
top $5 billion for 1999 (December 1999).
Potential
Impacts of an Agricultural Aid Package.
The 1999 farm aid package should raise farm incomes by
about $6.7 billion, partially offsetting the effects of
low prices and regional drought (September 1999).
Legislation
Boosts Farm Assistance to Highest Levels Since 1993.
Emergency funding for agriculture in 1999 brings overall
farm spending back to earlier levels (July 1999).
1996
Agricultural Legislation Cuts Link Between Income Support
Payments and Farm Prices.
The 1996 Farm Act replaced the deficiency payment system
with direct payments that have less effect on crop production
and prices (February 1997).
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