Crop Insurance Alternatives for Hay Crop Insurance Conference Fargo, North Dakota January 20, 2003 Matthew A. Diersen, Ph.D. Economics Department South Dakota State University
Crop Insurance Alternatives for Hay
Crop Insurance ConferenceFargo, North Dakota
January 20, 2003
Matthew A. Diersen, Ph.D.Economics Department
South Dakota State University
Outline
• Why look at hay insurance?
• National perspective
• Tri-state perspective
• Why isn’t it working?
• Looking ahead
Motivation
• Structural changes
• Drought bringing awareness
• Historic disaster aid ties
• Refinements in product(s)
Literature
“The U.S. Hay Market: Higher Prices in 1996/97”
- Shields and Baker, Agricultural Outlook (1996)
“U.S. Hay Production”
- Dismukes and Zepp, Economic Research Service Staff Paper No. 9607 (1996)
“Should This Crop Be Insured?”
- Harvey, Hay & Forage Grower (1998)
Literature (cont.)
“Crop Insurance for Hay and Forage”
- Dismukes, Zepp and Smith, ERS report on the RMA website (1996)
“Crop Insurance Alternatives for Hay in South Dakota”
- Diersen, SDSU ExEx 5044 (2002)
“Noninsured Crop Disaster Assistance Program”
- Johnson, AMPC Briefing No. 14 (2002)
U.S. Hay Insurance Policies
0
10,000
20,000
30,000
40,000
1995 1996 1997 1998 1999 2000 2001 2002
U.S. Insured Hay Acres
0
500
1,000
1,500
2,000
2,500
3,000
1995 1996 1997 1998 1999 2000 2001 2002
1,00
0 A
cres
U.S. Hay Insurance Loss Ratio
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1995 1996 1997 1998 1999 2000 2001 2002
Percent of Land in Hay
0%
2%
4%
6%
8%
10%
SD ND MN
Potential Demand Factors
• Yield variability
• Presence of subsidy
• Hay is valued input
• Some revenue dependence
Percent of Operators Producing and Selling Hay
0%
20%
40%
60%
80%
100%
SD ND MN
Producing Selling
Dollars Related to Hay
0
100
200
300
400
500
600
SD ND MN
$ m
illio
ns
Value of Production Cash Receipts
2002 Hay Acreage
0
1,000
2,000
3,000
4,000
SD ND MN
1,00
0 A
cres
Alfalfa All Other
NAP Coverage
• Noninsured Crop Disaster Assistance Program
• Administered by Farm Service Agency
• Similar to CAT coverage
• Deadline is December 1
• Coverage for pasture and grass hay
Insured Acres in 2002
0%
5%
10%
15%
20%
SD ND MN
Alfalfa Total
Common Tendencies in 2002
• ¼ S.D. acres under CAT
• ½ S. D. acres at 50% level
• ¾ N.D. acres under CAT
• ¼ M.N. acres under CAT
• ¼ M.N. acres under GRP
Shortcomings
• Ignorance about availability
• Record-keeping demands
• Lack of quality provisions
• Only yield products offered
North Dakota Hay Production
0
1000
2000
3000
4000
5000
<25 25-49 50-99 100-249 250-499 500+
Acres of Hay Produced
Nu
mb
er o
f F
arm
s
0
500000
1000000
1500000
2000000
2500000
3000000
Cu
mu
lati
ve A
cres
H
arve
sted
farms cumulative acres
Product Refinements
• Can the DOT weigh bales?
• Is there a place for GRP?
• Is a revenue product feasible?– Quality seems distributed like wheat’s– Current yield and price are correlated
• Do WE just need to get the word out?
Summary
• Customer base is slowly changing
• Current products may not match needs
• NAP may be viable alternative
• YOUR input will likely bring change
For More Information
• Phone: (605) 688-4864
• http://sdces.sdstate.edu/– Click on the “Markets” tab– Scroll to ExEx 5044
• AMPC website