The New Farm Bill Offers Many Options Requiring Careful Decisions

Adams points out that the transition payment is paid on 2013 base and is subject to a limit of $40,000 per legal entity. This payment is separate from the $125,000 limit for other programs impacting other crops, and eligibility is not affected by other program choices or planting decisions made this year.

In 2015, STAX will offer cotton growers several options for coverage. It can be purchased as the only insurance policy covering an acre, or it can be purchased in addition to existing insurance policies. It will be based on actual county income relative to an expected income and is designed to cover a range from 90 percent down to 70 percent of expected county income.

“Indemnities under STAX are triggered by the revenue experience at the county level or a combination of counties, if needed, to get an actuarially-sound product,” explained Adams. “It is not based on individual experience. It is the collection of individuals in a county and that revenue experience.

“There’s a 10 percent deductible if you purchase STAX at its maximum,” he continued. “If the county actual income comes in above 90 percent, there’s no STAX indemnity. If it comes in anywhere between 90 and 70 percent, an indemnity is triggered. And if county income falls below 70 percent, then the STAX indemnity is at its maximum level.”

STAX will carry a premium subsidy of 80 percent, with producers paying the remaining 20 percent. However, the lower band of STAX coverage cannot overlap the coverage level of an underlying insurance policy on that same acre, so growers will need to make decisions about balancing their insurance coverages.

“STAX will be offered for irrigated and non-irrigated acres to the greatest extent possible,” added Adams. “And there will be some new features and options that we’ll learn about as we go further into the year that will allow producers to scale their indemnity up or down depending on how much of the protection factor they purchase.”

Also coming in 2015 is the Supplemental Coverage Option (SCO), which will be available for Upland cotton and other commodities such as corn, wheat, soybeans, and rice. SCO requires underlying insurance coverage and helps provides coverage for a portion of that policy. However, it cannot be purchased on acres covered by STAX or for commodities covered under ARC.

While STAX coverage is based on revenue experience, SCO indemnities can be triggered by either county yield or revenue experience. “There are some similarities in the concepts,” said Adams. “There are some differences, though, in the details.”

 

Visit the Cotton Grower Guide to the 2014 Farm Bill webinar for more information from Dr. Joe Outlaw and Dr. Gary Adams.

 

Keep In Mind

With all of the new insurance products and programs coming for all crops, both Outlaw and Adams remind growers to keep a couple of things in mind as they begin sifting and sorting through all of the options.

First, the new Farm Bill now requires growers to have a conservation compliance program in place in order to be eligible for any insurance premium subsidy.

And second, don’t be shy about asking for help. Education for this Farm Bill is going to be a continuing process, since final rules and provisions are still being determined.

Investigate online decision tools like the one being developed by Texas A&M, AFPC and the University of Missouri. Seek out your FSA officials for answers as soon as they have the information in hand. And ask your insurance agent about all of the options and the right type of coverage for your operation.

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