Impact of Crop Insurance Provisions on Cotton Planting Decisions in the Texas

Coastal Bend

Lawrence Falconerand

Luis Ribera

Texas Cooperative Extension

Impact of Crop Insurance Provisions on Cotton Planting Decisions in the Texas Coastal Bend

Cotton Planted Acres – Selected Counties and Coastal Bend Total

Weather Conditions in Spring 2006 Crop Insurance Planting Alternative Analysis

Spreadsheet Results and Conclusion

Cotton Planted Acres – Selected Counties and Coastal Bend Total

Selected Counties 2001 2002 2003 2004 2005 2006

Bee 13,100 12,300 17,300 23,900 23,700 33,609

Calhoun 27,500 32,300 27,600 25,200 23,600 22,774

Jackson 35,500 30,200 35,800 39,000 39,000 31,931

Matagorda 35,000 29,300 30,600 30,000 32,400 34,038

Nueces 144,600 131,000 132,300 143,900 145,100 178,230

Refugio 41,200 44,000 42,000 43,200 45,400 47,888

San Patricio 132,000 124,000 129,500 140,100 140,000 191,290

Victoria 19,300 14,000 16,800 21,000 18,000 21,851

Wharton 79,000 67,600 68,900 77,500 79,800 73,557

Total-Region 541,000 493,900 509,800 558,100 560,900 653,435

Average cotton planted for 2001-2005 period was 532,740. Trend for 2006 would be expected to be 563,940. Source: Texas Agricultural Statistics for 2001-2005, with FSA certified acreage for 2006.

Crop Insurance Planting Alternative Analysis Spreadsheet

This decision support aid was created to help producers analyze the choice between opting for prevented planting payments for crop insurance or planting the crop in question. The spreadsheet calculates the projected maximum indemnity payments from both the prevented planting and planting with a subsequent failed crop scenario.

These calculations should be based on each individual producer’s data for the specific crop. The data required for the calculations include information from the producer’s crop insurance policy as well as direct cost information at both the pre-plant and planting stage of production. The spreadsheet has the capability to calculate payments in the case of crop share land tenure arrangements, including the flexibility to specify different percentages for all revenue and relevant input cost items.

Crop Insurance Planting Alternative Analysis

Insured Crop Cotton Grain Sorghum

Insured Price $ 0.53 $ 1.95

Yield Coverage 65% 65%

APH Yield 700 72

Prevented Planting Coverage 50% 60%

Final Planting Date 4/15/2006 4/15/2006

Length of Late Planting Period (days) 15 25

Expected Planting Date 4/12/2006 4/15/2006

Guaranteed Yield - Adjusted For Planting Date 455.0 46.8

Maximum Possible Crop Insurance Payments ($/acre) ($/acre)

Prevented Planting $ 120.58 $ 54.76

Failed Acres $ 241.15 $ 91.26

Landlord's % Revenue Share for Crop (Share rent only) 25% 33%

Crop Insurance Planting Alternative Analysis Spreadsheet (continued)

Crop Insurance Planting Alternative Analysis Spreadsheet (continued)

Cotton Grain Sorghum

100% Landlord's 100% Landlord's

Direct Pre-Plant Costs Per Acre Cost Share % Cost Share %

Cash Rent $ - 0.00% $ - 0.00%

Tillage & Other Machinery Operations $ 25.18 0.00% $ 21.45 0.00%

Custom Application $ 3.50 0.00% $ 3.50 0.00%

Fertilizer $ 35.55 25.00% $ 33.75 33.00%

Herbicide $ 12.92 0.00% $ 10.75 0.00%

Crop Insurance $ 13.22 25.00% $ 4.36 33.00%

Other $ - 0.00% $ - 0.00%

Other $ - 0.00% $ - 0.00%

Total Direct Pre-Plant Costs Per Acre $ 90.37 $ 12.19 $ 73.81 $ 12.58

Prevented Planting Payment Less

Direct Pre-Plant Costs Per Acre to Tenant $ 12.26 $ (24.54)

Crop Insurance Planting Alternative Analysis Spreadsheet (continued)

Cotton Grain Sorghum

100% Landlord's 100% Landlord's

Direct Planting Costs Per Acre   Cost Share % Cost Share %

Planting $ 7.87 0.00% $ 7.87 0.00%

Seed $ 22.18 0.00% $ 14.64 0.00%

Tech Fee $ 27.00 0.00% $ - 0.00%

Insecticide $ 8.24 0.00% $ - 0.00%

Boll Weevil Eradication $ 23.14 25.00% $ - 0.00%

Other $ - 0.00% $ - 0.00%

Other $ - 0.00% $ - 0.00%

Other $ - 0.00% $ - 0.00%

Total Direct Planting Costs Per Acre $ 88.43 $ 5.79 $ 22.51 $ -

Crop Insurance Planting Alternative Analysis Spreadsheet (continued)

Cotton Grain Sorghum

100% Landlord's 100% Landlord's

Credits for Planting Costs for Failed Crop Per Acre Credit Share % Credit Share %

Seed $ 11.09 0.00% $ - 0.00%

Tech Fee $ 27.00 0.00% $ - 0.00%

Boll Weevil Eradication $ 11.57 25.00% $ - 0.00%

Other $ - 0.00% $ - 0.00%

Other $ - 0.00% $ - 0.00%

Total Credits for Planting Costs for Failed Crop $ 49.66 $ 2.89 $ - $ -

Net Direct Planting Costs Per Acre $ 38.77 $ 22.51

Total Direct Costs for Failed Crop $ 129.14 $ 96.32

Tenant's Failed Crop Insurance Payment

Less Tenant's Total Direct Costs per Acre $ 66.81 $ (22.60)

Results for 65% Yield Guarantee

($40.00)($20.00)

$0.00$20.00$40.00$60.00$80.00

$100.00

Dol

lars

Per

Acr

e

500 550 600 650 700 750 800Cotton APH Yield/Pounds per Acre

Cotton -PP Cotton Planting GS-PP GS-Planting

Conclusions

Cotton plantings in the Texas Coastal Bend were 22.6% above the 2001-2005 average, and 15.9% above the 2001-2005 trend.

Given extremely poor pre-plant weather conditions, analysis indicates that over a relevant range of APH yields, the choice to plant cotton dominates the choices of selecting prevented planting of cotton, from a low of $28 per acre to a high of $67 per acre or feed grain planting by $37 to $114 per acre in the Texas Coastal Bend.

Conclusions (continued)

Please note that these calculations are only comparisons between expected prevented planting and crop failure results.

A situation where a crop was planted and taken to harvest with a reduced yield can be analyzed using budget spreadsheets for the specific producer’ values for that crop that are available from TCE.