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Crop Insurance Safety Net Tool

Ryan Loy

Summary

Crop insurance is a crucial risk management tool for producers, with Revenue Protection (RP) policies gaining popularity as an effective financial risk management strategy. These policies ensure that producers receive a predetermined percentage of their expected revenue, ranging from 50% to 85% in 5% increments. In the face of a catastrophic yield loss, producers are still burdened with the financial risk of meeting operating loan obligations that funded pre-harvest activities. The potential rise in interest rates on these loans further exacerbates agricultural financial challenges. RP policies act as a safety net, providing a level of assurance for producers facing such circumstances. The critical question arises: What is the optimal RP coverage for a producer to adequately cover operating loan obligations in the event of a total yield loss? To address this, the “Safety Net Tool” was developed. This web-based R-shiny application is accessible on any device with internet capabilities, allowing producers to input county, crop, irrigation practices, and acres planted. The tool utilizes yield assumptions based on RMA county yield, RMA projected prices, and pre-harvest expenses derived from University of Arkansas enterprise budgets. The tool’s interface offers a comprehensive analysis, presenting producers with returns above their operating debt obligations at different RP coverage levels (50%-80%) and varying operating loan interest rates (5%-10%). This empowers producers and generates discussions with meeting participants to make informed decisions on the most suitable RP policy to safeguard against catastrophic losses and to meet their operating loan obligations effectively.

Details

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