Crop Insurance Update for Baltimore County Wesley N. Musser Department of Agricultural and Resource Economics University of Maryland

Crop Insurance Today Crop Insurance is a Crucial Part of US Farm Policy Today Crop Insurance is a Crucial Part of US Farm Policy Today Protect Farmers from Disasters Protect Farmers from Disasters Drought in ’02, ’07, etc. Drought in ’02, ’07, etc. Large Premium Subsides Large Premium Subsides Overall Favorable Payout Levels Overall Favorable Payout Levels

Purpose Today Examine Participation in Crop Insurance for Baltimore County Examine Participation in Crop Insurance for Baltimore County Examine Indemnities Paid Examine Indemnities Paid Evaluate Payouts in this Decade Evaluate Payouts in this Decade How Do Indemnities Compare with Premiums How Do Indemnities Compare with Premiums

Some Terminology Indemnities---Amount Farmer Receives from Insurance Indemnities---Amount Farmer Receives from Insurance Loss Ratio = Indemnities / Premiums Loss Ratio = Indemnities / Premiums Loss Ratio = Amount Earned per $ of Premium Loss Ratio = Amount Earned per $ of Premium

Policies in Baltimore County YEAR NUMBER OF POLICIES ACRES INSURED , , , ,870

CROPS INSURED Adjusted Gross Revenue Adjusted Gross Revenue Adjusted Gross Revenue-Lite Adjusted Gross Revenue-Lite Barley Barley Corn Corn Forage Production Forage Production Forage Seeding Forage Seeding Fresh Market Sweet Corn Grain Sorghum Green Peas Nursery Oats Processing Beans Soybeans Wheat

Two Major Policies for Field Crops Actual Production History (APH): Insures a Farmers Historical Yield Actual Production History (APH): Insures a Farmers Historical Yield Crop Revenue Coverage (CRC): Insures Both Yield and Price Crop Revenue Coverage (CRC): Insures Both Yield and Price

Number of Field Crop Policies in Baltimore County, 2007 CROPAPHCRC Barley5 Not Available Corn1627 Oats3 Soybeans1317 Wheat81

No Forage Policies No Forage Policies Policy Underutilized Throughout State Policy Underutilized Throughout State

Premium Subsidies—Baltimore County, 2007 Total Premiums---$672,592 Total Premiums---$672,592 Subsidies---$411,826 Subsidies---$411,826 Farmer Premiums---$260,766 Farmer Premiums---$260,766 Percent Subsidies---61% Percent Subsidies---61%

2002 Baltimore County Payouts From USDA-RMA 82 Policies 20 Policies Earned Indemnities % of Total Policies Total Indemnities = $421,686 Total Premium = $277,226 Farmer Premium = $91,295 Farmer Loss Ratio = 3.04

2003 Baltimore County Payouts From USDA-RMA 78 Policies 18 Policies Earned Indemnities % of Total Policies Total Indemnities = $269,431 Farmer Premium = $98,721 Farmer Loss Ratio = 2.81 Similar to 2002

Very Preliminary 2007 Baltimore County Payouts From USDA-RMA as of 12/3/07 99 Policies 31 Policies Earned Indemnities---31% of Total Policies Total Indemnities = $157,917 Farmer Premium = $ 260,766 Farmer Loss Ratio = 0.61

Complete 2007 Information Remember These 2007 Numbers Are Very Preliminary Remember These 2007 Numbers Are Very Preliminary Final Numbers Available Somewhere Around 2/08 Final Numbers Available Somewhere Around 2/08 Would Expect Indemnities and Loss Ratio to Be Much, Much Higher Would Expect Indemnities and Loss Ratio to Be Much, Much Higher Was Drought This Year Worse than ’02? Was Drought This Year Worse than ’02?

Performance Over Time in Baltimore County Examine Total Indemnities and Farmer Premiums Over Years for Different Periods Indemnities in Drought Years More than Pay All the Premiums for the Period

Performance Over Time in Baltimore County YEARS TOTAL LOSSES PAID TOTAL FARMER PREMIUMS FARMER LOSS RATIO $678,299$602, $1,506,993$835, $1,767,587$1,149,

Some Perspective on Historical Outcomes Farmer Loss Ratio of 1.54 Means that Farmer Receives $1.54 in Indemnities for Every $1.00 Premiums Over Time Farmer Loss Ratio of 1.54 Means that Farmer Receives $1.54 in Indemnities for Every $1.00 Premiums Over Time The Indemnities Are Collected in Years With Low Yields When Extra Dollars Are Important The Indemnities Are Collected in Years With Low Yields When Extra Dollars Are Important How Often Can Someone Collect $0.54 for Ever $1.00 Invested (A Return of 54%)? How Often Can Someone Collect $0.54 for Ever $1.00 Invested (A Return of 54%)?

Some Closing Thoughts Crop Insurance Has Paid Off for the Farm Sector Over Time in Baltimore County Crop Insurance Has Paid Off for the Farm Sector Over Time in Baltimore County Payoffs Have Occurred in Low Yield Years to Make-up for Yield Losses Payoffs Have Occurred in Low Yield Years to Make-up for Yield Losses We Expect That A High Payoff Will Be Made for 2007 We Expect That A High Payoff Will Be Made for 2007