Revenue Protection Crop Insurance and Prices Rising from Spring to Fall (original) (raw)

Crop Insurance Decision under Expected Revenue

2020

The Federal Crop Insurance Program is the safety net for U.S. farmers that protect them from natural disasters and market instability. To understand potential subjective determinants that affect producers' crop insurance decisions over time, this study explores a revenuebased theoretical framework on crop insurance decisions that incorporates behavioral concepts of reference-dependent and loss aversion. Empirical results using individual-level panel data provide supportive evidence that producers' experience in indemnity and revenue fluctuation affects their choices of crop insurance coverage. This study evaluates producer responses to crop insurance policies over time, which offers timely policy implications under the recent debates on a potential significant cut of crop insurance subsidy.

2013 Crop Insurance Projected Prices, Volatilities, and Harvest Price Impacts

2013

crop-insurance-projected.html The Risk Management Agency (RMA) "resets" various features of the crop insurance programs annually to reflect the market's estimate of the value of crops intended for production in the current year. Among the most important factors are (1) projected prices, (2) volatility factors, and (3) harvest prices. Projected prices directly determine the insurable value of production, and thus impact premiums as well. The volatility factor is a measure of the price risk the market associates with potential price changes in the production year, and thus directly impacts the calculated costs of insurance. Finally, the harvest price has the potential to increase the amount of insurance coverage in effect if prices increase between the end of the projected price discovery period and the harvest price determination period. The purpose of this article is to describe the processes used to establish each of these features and to discuss important implications for crop insurance in 2013. We request all readers, electronic media and others follow our citation guidelines when re-posting articles from farmdoc daily. Guidelines are available here. The farmdoc daily website falls under University of Illinois copyright and intellectual property rights.

Mitigating Price and Yield Risk Using Revenue Protection and Agriculture Risk Coverage

Journal of Agricultural and Applied Economics, 2022

This article evaluates Agriculture Risk Coverage (ARC) and Revenue Protection (RP) used in conjunction as an optimal risk management strategy for representative producers in the Corn Belt and Mississippi Delta. Using a simulation procedure to produce representative farm revenues, we find it is optimal under expected utility for producers to enroll in RP, despite having RP through ARC. Results are robust across alternative sampling methods and regions. These findings imply that ARC is better suited as a complementary program, and that it is optimal for a producer to enroll in higher coverage levels than we currently observe.

Fair Value of Whole-Farm and Crop-Specific Revenue Insurance

2003

The U.S. market in subsidized commodity revenue insurance contracts has expanded rapidly since 1996. By far the most prevalent contract forms are crop-specific, rather than the wholefarm design which has a better claim to being optimal. For an arbitrary acre allocation vector, this paper inquires into absolute and relative determinants of the actuarial costs of these forms.

Hedging the Price Risk Inherent in Revenue Protection Insurance

Journal of Agricultural and Applied Economics, 2021

Crop revenue insurance is unique, because it involves a guarantee subsuming yield risk and highly systematic price risk. This study examines whether crop insurers could use options instead of, or in addition to, assigning policies to the Commercial Funds of the USDA Federal Crop Insurance Corporation (FCIC) as per the Standard Reinsurance Agreement (SRA) to hedge the price risk of revenue insurance policies. The behavioral model examines the optimal hedge ratio for a crop insurer with a book of business consisting of corn Revenue Protection (RP) policies. Results show that a mix of put and call options can hedge the price risk of the RP policies. The higher optimal hedge ratios of call options as compared to put options imply that the risk of increased liability due to upside price risk can be hedged using options better than downside price risk. This study also analyzed the combination of options with the SRA at 35, 50, and 75% retention levels. The zero optimal hedge ratios at eac...

Investigating the Implications of Multi-crop Revenue Insurance for Producer Risk Management

2000

This study investigates the potential for alternative multi-crop revenue insurance designs in comparison to single crop yield and revenue insurance designs. A non-parametric multi-crop insurance model is developed which subsumes the single crop designs. The results compare alternative designs in terms of rate levels and risk reduction gains for representative Mississippi producers.