New Disaster Assistance Programs in the 2008 Farm Bill: Focus on SURE

Rod M. RejesusAssistant Professor and Extension SpecialistDept. of Ag. and Resource EconomicsNC State University

Introduction

• In the past – temporary ad hoc disaster assistance payments

• 2008 Farm Bill – create more permanent disaster assistance program– Supplemental Agricultural Disaster

Assistance (SADA) Program

Introduction

• Supplemental Revenue Assistance (SURE) Program

• Four other programs:– Tree Assistance Program (TAP), Emergency

Assistance Program for Livestock, Honeybess, and Farm-Raised Fish (ELAP), Livestock Indemnity Program (LIP), Livestock Forage Disaster Program (LFP)

Goals Today

• Provide a basic overview of the SURE program

• Provide some implications for crop insurance decision making

• CAVEAT: Some details of the legislation still being interpreted by FSA

SURE Program Basics

• Whole-farm disaster assistance program– Similar to revenue insurance– Tied to crop insurance coverage and farm planted acreage

• If whole-farm actual revenue less than SURE guarantee, then receive SURE payment that is 60% of difference

SURE Eligibility and Requirements

• Located in a declared disaster county (or contiguous to a disaster county)– Or must have 50% production loss due to

weather-related causes

• Requires purchase of crop insurance or NAP policies for all crops

SURE Eligibility and Requirements

• Note sales closing dates for crop insurance and NAP– Crop insurance: Feb 28/March 15 (spring planted

crops), Sept. 30 (fall planted crops), perennials (Nov 20)

– NAP: December 1 (for 2009)

SURE Guarantee and Cap

• SURE Guarantee– Sum of all crop insurance guarantees increased

by 15% for insured crops (by 20% for NAP crops)– Whole-farm guarantee

• SURE Cap– 90% of SURE Expected Revenue on all crops

SURE Guarantee and Cap

• SURE Guarantee CalculationFor insurable crops: SURE Guarantee for each insurable crop =

(Planted acres) x (Crop Insurance Coverage Level) x (Crop Insurance Price Election) x (Maximum of Actual production history (APH) yield or countercyclical payment (CCP) yield) x 115%

For NAP crops: SURE Guarantee for each NAP crop = (NAP revenue guarantee for the crop) x (Planted acres) x 120%

SURE Guarantee and Cap

• SURE Cap– 90% of the sum of SURE Expected Revenues

calculated as:

– “SURE Guarantee to use” based on min of guarantee or cap

SURE Expected Revenue for each crop = (Planted acres) x (Maximum of APH or CCP Yield) x (Crop Insurance Price Election)

SURE Actual Revenue

• If SURE Actual Revenue, below SURE Guarantee then receive SURE payment

• SURE Actual Revenue is sum of:– 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

SURE Actual Revenue

• Actual Revenue calculated as:

– Natl. Season-Ave. Price - Marketing Year Price determined by USDA; not known till Sept/Oct of following crop year

Actual Revenue for each crop = (Harvested Area) x (Actual Crop Yield) x (National Season-Average Price for the Crop).

SURE Payment

SURE Payment =

60% x (SURE Guarantee –

SURE Actual Revenue)

-Payment limit of $100,000 per year per eligible producer

Example SURE Calculation

• 200 acre farm with 100 corn acres 100 soybean acres

• 75% APH crop insurance

• APH Yield = 97 bu/ac corn, 30 bu/ac soybeans

• Base prices - $4.78/bu corn, $11.85/bu soybeans

Example SURE Calculation

• SURE Guarantee = $70,652.55

• Below SURE cap of $73,724.40– 0.9 x SURE Expected Revenue = 0.9 x $81,916 = 73,724.40

Corn: 100 acres x 0.75 coverage x $4.78/bushel x 97 bushels/acre x 115% = $39,990.68 Soybeans: 100 acres x 0.75 coverage x $11.85/bushel x 30 bushels/acre x 115% = $30,661.88

Corn: 100 acres x 97 bushels/acre x $4.78/bushel = $46,366 Soybeans: 100 acres x 30 bushels/acre x $11.85/bushel = $35,550

Example SURE Calculation

• Assume low yields at harvest due to drought. 50 bu/ac corn, 10 bu/ac soybeans

• County declared as disaster county• Assume marketing year price is $5.00/bu for

corn and $12/bu for soybeans• Received $4000 DP for whole farm• No other program benefits

Example SURE Calculation

• 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.

• Actual Revenue = $37,000 Corn: 100 acres x 50 bushels/acre x $5/bushel marketing year price = $25,000 Soybeans: 100 acres x 10 bushels/acre x $12/bushel marketing year price = $12,000

Example SURE Calculation

• Crop Insurance Indemnities = $25,687– Have payments since actual yield below yield

guarantee

• 15% of DP = $600

Corn: (72.75 yield guarantee – 50 actual yield) x 100 acres x $4.78/bushel crop insurance base price = $10,874.50

Soybeans: (22.5 yield guarantee – 10 actual yield) x 100 acres x $11.85/bushel crop insurance base price = $14,812.50

Example SURE Calculation

• SURE Actual Revenue =

$37k + $25,687 + $600 = $63,287• SURE Guarantee = $70,652.55• SURE Payment =

60% x [$70,652 - $63,287] = $4,419.33

** See spreadsheet (Table 1)

Language Still to be Interpreted

• Definition of Disaster County: “(5) DISASTER COUNTY. –

(A) IN GENERAL. – The term ‘disaster county’ means a county included in the geographic area covered by a qualifying natural disaster declaration. (B) INCLUSION. – The term ‘disaster county’ includes—

(i) a county contiguous to a county described in subparagraph (A); and (ii) any farm in which, during the calendar year, the total loss of production of the farm relating to weather is greater than 50 percent of the normal production of the farm, as determined by the secretary.”

Language Still to be Interpreted

• For non-disaster declared county – must be continuous and 50% loss? Should it be continuous or 50% loss?

• What is 50% production loss?– At least one crop has 50% loss? All crops

have 50% loss? Average yield loss across all crops need to be 50%?

• Technical corrections – – Must have at least 10% loss on at least one crop

of economic significance– Only crops of economic significance counts– Eliminates crop insurance NAP requirements for

pasture and rangeland (covered under LFP)

Language Still to be Interpreted

• Base Price vs. Harvest Price for revenue insurance with harvest price option– For CRC/RA-HPO, will higher of harvest vs

base be used to set guarantee?– Erodes value if not

Language Still to be Interpreted

• How to calculate APH yields for GRP, GRIP? Use county yields?

• How to verify losses at field level for GRP/GRIP/AGR-Lite?

Language Still to be Interpreted

• What coverage levels for GRP/GRIP? Prevented Planting?

• What is equitable treatment?

• Net versus Gross Indemnity to count against SURE Guarantee?

Language Still to be Interpreted

Conclusions & Implications

• SURE – additional safety net related to crop insurance choices

• Need to sign-up for crop insurance and NAP coverage

• Note the “lag” in receiving SURE payments

Conclusions & Implications

• Insure at higher coverage levels (but not at or above 80% -- will hit 90% cap)

• Weigh expected returns from insurance and SURE against premium costs– CRC/RA-HPO insurance value eroded if SURE

guarantee not based on harvest price (plus costs more than APH RA-BP)

Conclusions & Implications

• If “large” farm, SURE may not be very important (since $100,000 payment limit)

• Over time, SURE provides incentives for less diversification (since whole-farm revenue guarantee)

Additional Resources

• USDA FSA webpage– Calculators and fact sheets

• Various university extension publications– NC State Crop Insurance Webpage

Thank You!

• Questions? Contact:Rod M. Rejesus

Dept. of Agricultural and Resource Economics

NC State University

Tel. No. (919)513-4605

Email: rod_rejesus@ncsu.edu