ERS Charts of Note

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Changes in U.S. corn area enrolled in crop insurance vary by state

Tuesday, July 22, 2014

The Federal crop insurance program has grown significantly over the last 20 years, expanding from about 82 million acres in 1992 to more than 282 million acres in 2012, but changes in coverage have varied by both state and commodity. Producers of corn, soybeans, and wheat—the three largest U.S. crops—remain the largest consumers of crop insurance, although the share enrolled in other crops has been rising as new programs and policies have been offered. Federal crop insurance enrollments for corn, the largest U.S. field crop by area, are indicative of the variation in enrollment changes across states. For example, in 1990, more than 60 percent of Iowa’s corn acres were enrolled in the program, with that share rising to 91 percent by 2012. In contrast, about 20 percent of Indiana’s corn acres were enrolled in 1990, climbing to about 74 percent by 2012. The variations likely reflect both differences in production risks across states and changes in federal program provisions, including subsidies for crop insurance premiums. Despite the variation among States, the differences in coverage between states shrank between 1990 and 2012. For corn, the lowest share of acres insured within a State rose from about 12 percent in 1990 (Michigan) to 70 percent in 2012 (Wisconsin). Find additional analysis in Premium Subsidies and the Demand for Crop Insurance, released July 2014.

Coverage of Federal crop insurance programs is expanding

Thursday, July 10, 2014

Producers of corn, soybeans, and wheat—the three largest crops produced in the United States—are the largest consumers of Federal crop insurance, although producers of other crops are a growing share of program enrollment. In 1997, corn, soybeans, and wheat crops accounted for 80 percent of all acres enrolled in the program; including cotton and sorghum raised the share to nearly 90 percent of all acres enrolled. Over the last 15 years, with new types of policies being offered and more crops added to the program, the share of enrolled acres attributed to these major crops fell as participation in the Federal crop insurance program continued to rise. Pasture, forage and range land have accounted for the bulk of recent gains in enrolled acres, expanding from zero in 1997 to 48 million acres in 2012. By 2012, corn, soybeans, and wheat made up roughly 68 percent of all acres enrolled, with cotton and sorghum accounting for an additional 7 percent. The share of acres enrolled in crop insurance varies by crop and region, but these differences decreased between 1990 and 2012 as coverage rates increased. For more data and analysis, see The Effects of Premium Subsidies on Demand for Crop Insurance, released July 2014.

Changes in U.S. double-cropped acreage roughly mirror commodity prices

Friday, June 27, 2014

Double-cropped acreage has varied from year to year. Because decisions about double cropping are made annually, fluctuations are likely as farmers respond to changing market and weather conditions. For example, higher commodity prices give farmers more incentive to intensify production and could offset revenue shortfalls from lower potential yields when double cropping. From 2004 to 2012, total double-cropped acreage roughly paralleled soybean, winter wheat, and corn prices. When commodity prices at the time of planting decisions were increasing or relatively high, total double-cropped acreage also increased. Total double-cropped acreage peaked at 10.9 million acres in 2008, when prices for soybeans, winter wheat, and corn also peaked. In 2005 and 2010, nearly every region witnessed declines in double-cropped acreage amid commodity price declines. This chart is found in the ERS report, Multi-Cropping Practices: Recent Trends in Double-Cropping, EIB-125, May 2014.

Crop insurance premium subsidies now subject to environmental compliance

Tuesday, June 24, 2014

The 2014 Farm Act adds crop insurance premium subsidies to the list of benefits that could be withheld for noncompliance with conservation provisions, further supporting farmer incentives for environmental stewardship. Producers who fail to apply approved soil conservation plans on highly erodible cropland or who drain wetlands could become ineligible for all or part of a number of commodity programs, conservation programs, disaster assistance, and now crop insurance premium subsidies. In recent years, the value of such subsidies has increased as premium subsidy rates, crop insurance participation, and commodity prices all rose. On average, the Federal Government pays roughly 60 percent of crop insurance premiums, and about 80 percent of acreage for all major commodity crops is now covered by crop insurance. In 2012, crop insurance premium subsidies were roughly $6.7 billion or about 60 percent as large as commodity, conservation, and disaster assistance payments combined. This chart is found on the Conservation page in Agricultural Act of 2014: Highlights and Implications, on the ERS website.

Double-cropped acreage varies by region

Thursday, May 29, 2014

Over the last decade, growing demand for agricultural commodities—for both food and fuel—has increased the incentives for farm operators to raise production. Double cropping, the harvest of two crops from the same field in a given year, has drawn interest as a method to intensify production without expanding acreage. In the U.S., the prevalence of double cropping varies by region. The variation across regions reflects farmers’ response to local conditions such as weather, climate (particularly growing season length), policy differences, and market incentives. The Southeast, Midwest, and Southern Plains regions lead the country in total double-cropped acreage. About one-third of the total double-cropped acreage over 1999-2012 was in the Southeast (2.7 million acres on average), and slightly more than one-fifth was in the Midwest (1.8 million acres on average). However, relative to each region’s total cropland acreage, the Northeast, Southeast, and Southwest all have larger shares of cropland used in double cropping than other regions. The Northeast had the largest share of double-cropped acreage (nearly 10 percent, on average) of the region’s total cropland, and the Northern Plains had the smallest (less than 0.5 percent on average). This chart is found in the ERS report, Multi-Cropping Practices: Recent Trends in Double-Cropping, EIB-125, May 2014.

Drought affects California agriculture, irrigation water deliveries a growing concern

Thursday, May 8, 2014

The driest year on record for California, following several prior years of drought, is likely to have an impact on the State’s agricultural production in 2014. On January 17, 2014, the Governor of California declared a drought emergency and as of March 4, over 94 percent of California’s nearly $45 billion agricultural sector was experiencing severe, extreme, or exceptional drought. The livestock sector is more directly exposed to exceptional drought (about 62 percent) than the crop sector (just over 50 percent). Given that much of California’s agricultural production takes place on irrigated land, effects of the drought depend on the cost and availability of water from irrigation in addition to local rainfall. Shortages of irrigation water sourced from snowfall are already evident, and the extent to which growers will be able to offset these reduced surface water supplies by pumping groundwater is uncertain. Find the table underlying this chart and additional analysis in California Drought 2014: Farm and Food Impacts.

U.S. dairy producers have faced increasing price and feed cost volatility

Wednesday, March 5, 2014

Over the last 20 years, U.S. dairy producers have faced rapidly changing milk prices and input prices, primarily for feeds. The monthly average U.S. all-milk price has been highly volatile since 1990, particularly in more recent years. Factors that account for the increasing variability in milk prices include increased U.S. involvement in (and dependence on) export markets, and weather events in both the United States and other exporters that affected production and dairy stock levels. More recently, dairy producers also faced higher feed costs. Dairy producers generally have low adoption rates of traditional price risk management tools, such as forward contracting, and the use of futures and options markets and trading. The Livestock Gross Margin for Dairy (LGM-Dairy) insurance program is a relatively small and new public risk management program overseen by USDA’s Risk Management Agency (RMA) designed to protect margins between milk prices and input (feed) costs, rather than simply supporting prices. Analysis of the LGM-Dairy program shows that it can be effective in reducing risks, but is unlikely to substantially change farmer’s production level decisions. Find this chart and more analysis in Livestock Gross Margin-Dairy Insurance: An Assessment of Risk Management and Potential Supply Impacts.

Crop insurance indemnities and disaster assistance payments reflect the impact of drought on crop farms

Friday, February 28, 2014

Drought is the leading single cause of production losses to crop farms, followed by excess moisture, hail, freezes, and heat. Over the past four decades, a portion of the farm losses from all these weather-related causes have been covered by a combination of crop insurance and disaster assistance payments. Over this period, crop insurance has gradually grown in significance and is now a major component of the Federal safety net for crop farmers. The rise in total insurance indemnity payments is due to a combination of expanded enrollment in crop insurance, increased liabilities due to higher yields and commodity prices, and a series of major droughts in recent decades, capped by the 2012 drought. More than 80 percent of the acres of major field crops planted in the United States are now covered by Federal crop insurance, which can help to mitigate yield or revenue losses for covered farms. Droughts also have a major impact on livestock producers, principally through their effect on feed prices. (The accompanying chart does not include livestock-related assistance or pasture/rangeland indemnity payments.) This chart updates one found in The Role of Conservation Programs in Drought Risk Adaptation, ERR-148, April 2013.

Contract changes improve convergence of futures and cash prices for soft red winter wheat

Friday, January 24, 2014

Futures markets play an important role in price discovery (determination of prices through the interaction of market supply and demand) for major agricultural commodities, and provide a tool for growers, traders, and processors to mitigate risk. For futures markets to perform these functions effectively, the price of a commodity held in a futures contract must match (or “converge”) with its price in the cash—or spot—market when the futures contract expires. During 2005-2011, cash and futures prices for soft red winter (SRW) wheat failed to converge to the generally acceptable “basis”—or difference between the cash price and futures price—of plus or minus $0.10/bushel. At times the basis exceeded $1.00/bushel. In response, the futures exchanges modified their SRW contracts to better align contract terms with changes occurring in cash markets for factors including storage rates, major delivery locations for SRW, and quality specifications. Following these changes, cash and futures market prices for SRW have moved closer together, improving the effectiveness of futures contracts in determining prices and as a tool to manage risk. This chart is based on Recent Convergence Performance of Futures and Cash Prices for Corn, Soybeans, and Wheat, FDS-13L-01, released December 30, 2013.

Crop insurance indemnities rise with drought

Friday, November 22, 2013

Federal crop insurance has become a key component of producer risk management in the United States. Producers participate by purchasing policies from private insurance companies to cover possible losses on the commodities they expect to harvest in a particular crop year, with premium rates set by the Federal Government. Most producers choose revenue loss policies, which cover potential losses to both their average yield and the expected price of the commodity at harvest. The Federal Government pays a share of the producer’s premium. In most years, total premiums (including both the producer and government shares) have been above indemnities (outlays for losses). Severe drought and other weather losses in 2011 and 2012 caused indemnities to rise above premiums in those years. In any given year, individual producers may pay more for their premium than they receive in indemnities, but even in years of low losses, total indemnities have been higher than the premiums paid by producers. For additional information, see the Risk Management topic pages.

Non-converging futures and cash prices likely due to storage-rate difference

Friday, August 30, 2013

From 2005 to 2010, the prices of expiring U.S. grain futures contracts routinely exceeded the corresponding delivery market cash prices. This phenomenon, termed “non-convergence,” was particularly noteworthy in wheat markets. By appearing to simultaneously imply different prices for the same grain, non-convergence can create market uncertainty. What explains this phenomenon? When grain futures contracts expire, the seller gives the buyer a certificate that can be exchanged for a specific amount of grain, rather than transferring the actual physical commodity. Because the buyer can hold these certificates indefinitely, they provide a method to store grain, and futures exchanges charge the buyer a recurring certificate storage fee. During 2005-2010, market conditions often led the price of storing the physical commodity to exceed certificate storage fees, so expiring futures contracts became a more attractive way to store grain than holding physical grain in a warehouse. As a result, the same grain became more valuable when represented by an expiring futures contract, so the price of futures contracts rose above cash market grain prices. Addressing the divergence in storage rates is the most effective way to prevent future episodes of non-convergence. This chart is from ”Solving the Commodity Markets’ Non-Convergence Puzzle,” in ERS’s August 2013 Amber Waves magazine.

Emergency haying and grazing on land in the CRP peaked in 2012

Friday, August 23, 2013

USDA’s Conservation Reserve Program (CRP) engages farmers in long-term (10- to 15-year) contracts to establish conservation covers on environmentally sensitive land. As of June 2013, about 27 million acres of farmland were enrolled in the program. An important provision within CRP is that under certain circumstances, farmers can utilize their CRP lands for managed or emergency haying and grazing. The haying and grazing of CRP land can provide important benefits to farmers, particularly during major droughts when other sources of livestock feed are scarce, and, if done correctly, can also improve the environmental value of the conservation covers. During the 2012 drought, farmers conducted emergency haying and grazing on almost 2.8 million acres and managed haying and grazing on another 700,000 acres. This chart is found in the Amber Waves article, “The Role of Conservation Program Design in Drought-Risk Adaptation,” July 2013.

Simulating the interactions between climate adaptation and conservation program design

Monday, May 20, 2013

Farmers can adapt to their local climate in many ways, including through participation in USDA programs. In regions of the country that face higher levels of drought risk, farmers are more likely to offer eligible land for enrollment in the Conservation Reserve Program (CRP). As a consequence, CRP is both more competitive in these regions and drought-prone counties are more likely to face a binding CRP acreage enrollment cap. When counties are near their enrollment cap, farms are less likely to offer eligible land for CRP because those offers are less likely to be accepted for enrollment. In simulations of offer rates based on observed historical data, a national increase in the county CRP acreage enrollment cap to 35 percent of cropland in each county (from the current level of 25 percent), results in more offers from eligible farmers in drought prone regions of the Great Plains and the Intermountain West. This map is found in the ERS report, The Role of Conservation Programs in Drought Risk Adaptation, ERR-148, April 2013.

Climate change projected to increase cost of the Federal Crop Insurance Program

Wednesday, August 7, 2019

Recent ERS research explored how climate change could affect the cost of the Federal Crop Insurance Program (FCIP). Researchers trained statistical models to predict crop yields from historical weather data, and used weather simulations from climate models to build scenarios showing how yields might respond to climate change. Economic models then simulated how farmers and markets might respond to changes in weather and yields. The study explored potential impacts in the year 2080, and compared climate scenarios arising from different projections of greenhouse gas emissions levels to a hypothetical future with climate similar to that of the past several decades. Under the scenario with moderate emissions reductions, in which farmers adapt to changes in climate with adjustments to what they plant, where they plant it, and how they manage it, the cost of today’s FCIP would be on average about 3.5 percent higher than under a future with a climate similar to that of the recent past. Under the scenario in which emissions trends continue, the cost of FCIP would increase by an average of 22 percent. The estimated increases in the cost of FCIP are an average across the climate models shown in the chart—some models are more optimistic, while others more pessimistic. Cost estimates are higher in scenarios with no adaptation. This chart appears in the ERS report, Climate Change and Agricultural Risk Management Into the 21st Century, released July 2019.