Q. Any update on how soon USDA will roll out the various new 2014 Farm Bill programs?
A. It does not appear that anything will be firmed up before late summer or later for Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC) sign up. These programs will be delivered by FSA and will apply to eligible 2014 crops. A grower will eventually pick either ARC or PLC and once they make that choice, they are hooked for the five year duration of the 2014 Farm Bill.
The crop insurance industry prefers that the grower choose PLC, because that opens the door for a Supplemental Coverage Option (SCO) policy, delivered by crop insurance agents and companies. If a grower opts for ARC, they cannot have SCO or PLC.
Q. How is cotton crop treatment different from other crops in the 2014 Farm Bill?
A. None of the programs listed in the first question (ARC, PLC, SCO) apply to cotton. Cotton growers will receive one (maybe two) more direct payments as part of the 2014 Farm Bill. This transition payment will allow time for USDA to develop the Stacked Income Protection Program (STAX) exclusively for cotton. STAX will be exclusively delivered by crop insurance agents and companies, and it will likely be similar to SCO as it develops.
Q. What do you make of the Obama Administration budget announcement last week regarding their crop insurance budget proposals?
A. It would appear that very little original thinking was included by whomever was responsible for this “effort”. They rolled out previously rejected numbers for Administrative and Operating (A&O) expenses which suggest a cut of $900 million annually from the currently inadequate $1.3+ billion for program delivery. In addition, they discuss a mysterious and unrealized 14% rate of return for underwriting gains and replace that with an equally arbitrary and vague 12% number.
They also completely ignore the just passed 2014 Farm Bill language as regards the future Standard Reinsurance Agreement (SRA) negotiation being budget neutral. In short, they made a very weak effort on crop insurance and perhaps this is indicative of the rest of the several thousand pages in this Obama Budget.
Q. Any update on ProAg’s 2013 underwriting results for MPCI?
A. As of this writing, we stand at +6.0% for our entire book of MPCI business. The California freeze losses are still very slow in closing due to the harvest season still being in full swing.
In addition, we have preliminary NASS numbers for area plan losses (ARPI) in Illinois, and these appear to be within our projected reserves.
All in all, we remain cautiously optimistic about our 2013 MPCI underwriting result, allowing for a profit share payment to those eligible agents on 2013 business.
As always, questions or comments are welcome!