I’ll start off with a generalization that it is back like it used to be. So it should be easy to decide – right. Well, sort of but there are still one or two things to look at.
The Main change is that we got our Title one protection back into the Farm Bill. That means that we are back to having some Price protection just by signing up for cotton PLC (ARC did not have a good safety net for cotton) for farms that have cotton base. That is an FSA program. At current prices, we are already qualifying for payments (safety net) so that is some good news.
The comfort is that theoretically, for farms with base, the bottom is in, even if it goes lower, the safety net is in place. In fact, if it moves much lower, we will get the POP payment protection also kick in. That is huge.
So how does that impact decisions at the Crop Insurance Office. First off, we had STAX basically as a fill in program when we did not have Cotton base and the PLC option. So here are several scenarios to consider:
- Your cotton base and your planted acreage are close to 1:1. Then you just sign up for crop insurance like you used to do. Match your insurance coverage up with your risk.
- Your cotton acreage is significantly higher than your base. This might be a situation to have a higher level of coverage sense you have less of a safety net.
- You have no cotton base. Then sign up for STAX.It is still available for farms with no cotton Base and that are not enrolled in Cotton PLC (or ARC which was not the good option)
- How about SCO? While SCO is not new, we have never used it because it was not as good as STAX. However, on farms that do have a Base, which means you do not have a STAX option, you can still sign up for SCO. Basically it is a way to increase your level of insurance.It is similar to STAX except only gets you up to 86% and it is not subsidized as much as STAX was. It still triggers at the county level. It also is for farms with BASE which has already offered the extra safety net we needed, so it is not as important as STAX was when we did not have another safety net. All that being said, it’s just like any insurance, if you it pays, then you are glad you had it. Crop Insurance is like other insurance, basically it is not a money maker, it is just there for protection against the unexpected and each person has a different tolerance for risk. An operation with a lot of debt, only few assets, or perhaps a person closer to retirement might be less tolerant of Risk. These are the operations that might also consider SCO.
- How does marketing tie in to this discussion? Basically with the prices of revenue insurance and the PLC program protecting us in the mid-70’s, it gives you a comfortable feeling that we can wait for some better opportunities without taking on risk by not booking these lower prices. Of course if harvest prices drop down a lot and we end up adding a POP payment, of course we will wish we had locked in 73 cent cotton, but there will be a good number of other checks coming in if you did not book it. I would be comfortable waiting at least a few more months to get into that planting window. Hopefully it will be higher, and if it is lower, then it will eventually be higher. So let it go down, now is a fine time to drop, it will all be good, eventually.