Carrying crop insurance becomes much more important to farmers under the 2014 Farm Bill. But what kind of coverage is best?

Agricultural economists at Mississippi State University took up that question. In a computer analysis of risk management programs within the bill, they concluded that for Mississippi soybean producers county-level Agricultural Risk Coverage would pay out more than Price Loss Coverage and its supplemental coverage option.

“When you consider all of the options for producers, it can get a little confusing,” said Keith Coble, a Mississippi State agricultural economist and a member of the analysis team. “We have analyzed the different alternatives by constructing a representative farm for each of the major soybean-producing counties in Mississippi to simulate future payments and determine the most beneficial program.”

Credit: Mississippi State University

Agricultural Risk Coverage (ARC) payments kick in when actual county revenue drops below a benchmark amount. Farmers must select either individual or county-level plans and cannot purchase supplemental coverage. Price Loss Coverage (PLC) provides payments whenever the national market average price falls below a reference price. Under PLC producers can purchase supplemental coverage – a shallow-loss product for growers who buy Yield Protection or Revenue Protection crop insurance.

In their computer analysis MSU agricultural economists simulated thousands of farm soybean yields, county yields and price outcomes. Then, using soybean yield trends and anticipated future market prices, they looked at how crop insurance programs would cover farmer losses. Because of differences in farm operations, individual-level ARC was not included in the analysis.

When the numbers were crunched ARC payouts in 2014 were found to be between about $10 and $14 per acre in the six soybean production districts analyzed. Payouts per acre for PLC plus supplemental coverage in 2014 ranged from about $3.50 to just over $4 per acre. However, from 2015 to 2018 ARC payouts fell to about $4 to $6 per acre, while PLC plus supplemental rose to between about $4 to almost $5 per acre.

Barry Barnett and John Michael Riley, MSU agricultural economists who also were part of the analysis team, said farmers should not expect future crop insurance payouts to mirror those of the past.

“It is often easiest to recall the most recent years when considering these types of impacts,” Barnett said. “However, those vibrant memories are only part of the story when considering the possible outcomes of tomorrow.”

Added Riley: “In all of our analysis, future federal payments were relatively small. Based on current price projections, these payments are unlikely to be large enough to have any appreciable impact on planting decisions or decisions regarding crop insurance coverage levels.”

The computer analysis was funded by the Mississippi Soybean Promotion Board through producer check-off dollars. For more information about the analysis and specific estimated crop insurance payout amounts, read MSU Ag Policy Brief 2014-05, “Analyzing Mississippi Soybean Producers’ Farm Bill Alternatives.”

By Steve Leer

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