STAX Stacked Income Protection Plan

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1 STAX Stacked Income Protection Plan Don Shurley Professor Emeritus of Cotton Economics Department of Agricultural and Applied Economics University of Georgia Making Decisions and Understanding the 2014 Farm Bill December 15, 2014 Bainbridge, GA

2 Percent of Acres Planted 60 Crop Insurance Policy Type and Coverage Level Georgia Cotton 2014 (as of 9/1/2014) 55.57% % % 11.95% CAT None 0 0.3% None CAT Yield Revenue RevHPE

3 STAX Stacked Income Protection Plan County/area revenue policy available on all upland cotton acres planted Coverage is for a maximum band of 20%-- starting at a high of 90% (a 10% county/area loss) to 70% (a 30% county/area loss); not below 70% May be purchased as a stand-alone policy or may be purchased in additional to the farm s Companion Policy Indemnity paid when county/area revenue falls below 90% (or maximum selected) of the county/area guarantee

4 Cotton Decisions STAX is optional If enrolled in STAX, must select level/range of coverage If enrolled in STAX, type and level of Companion Policy SCO may be selected rather than STAX Comparison of net returns on Generic Base

5 STAX Choices and Decisions As with other revenue products, producers have choice to include (HPO) or exclude (HPE) the Harvest Price. The highest and widest coverage is 90% to 70% of county/area revenue. The available coverage options are 90-70, 90-75, 90-80, 90-85, 85-70, 85-75, 85-80, 80-70, 80-75, and Must choose a Protection Factor (PF) between 80 and 120%. The PF will adjust up or down any indemnity that would be received.

6 Illustration of STAX Example STAX Example: 65% Companion Policy 10% Deductible Gap b/t STAX and Companion Policy

7 Percent Illustration of STAX and Companion Policy Coverage Cannot Overlap Deductible 80 STAX Uninsured Companion Policy

8 On-Line STAX County/Area Yields and Premium Rate Information InformationBrowser2015/CropCriteria.aspx

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10 Estimated Producer Premiums, Calhoun County HPO, Price Volatility Factor =.20 Non-Irrigated Irrigated Expected County/Area Revenue $386 Expected County/Area Revenue $716 Protection Factor (PF) 1.2 Protection Factor (PF) 1.2 Coverage Band Liability* Premium Coverage Band Liability* Premium $92.66 $ $ $ $69.50 $ $ $ $46.33 $ $85.88 $ $23.17 $ $42.94 $ $69.50 $ $ $ $46.33 $ $85.88 $ $23.17 $ $42.94 $ $46.33 $ $85.88 $ $23.17 $ $42.94 $ $23.17 $ $42.94 $2.02 *Expected Revenue x % Band x PF *Expected Revenue x % Band x PF

11 Example: Calhoun County, 90 to 70% (20% Coverage Band) Example of STAX Coverage and Payment- Calhoun County, GA Non-Irrigated Irrigated Expected County/Area Yield Per Planted Acre 594 1,101 Projected Price (Assumed as of 12/15/2014) $0.65 $0.65 Expected County/Area Revenue $386 $716 Harvest Price (only if HPO is selected) $0.70 $0.70 Revised County/Area Revenue (Yield x higher of HP or PP) $416 $771 Revenue Guarantee (Revenue x 90%) $374 $694

12 Example: Calhoun County, 90 to 70% (20% Coverage Band) Example of STAX Coverage and Payment- Calhoun County, GA Non-Irrigated Irrigated Expected County/Area Yield Per Planted Acre 594 1,101 Projected Price (Assumed as of 12/15/2014) $0.65 $0.65 Expected County/Area Revenue $386 $716 Harvest Price (only if HPO is selected) $0.70 $0.70 Revised County/Area Revenue (Yield x higher of HP or PP) $416 $771 Revenue Guarantee (Revenue x 90%) $374 $694 EXAMPLE OF STAX PAYMENT: Actual County/Area Yield Per Planted Acre 520 1,000 Harvest Price $0.70 $0.70 Actual County/Area Revenue $364 $700 A. Revenue Guarantee minus Actual Revenue* $10.22 $0.00 B. Maximum Payment (Expected Revenue x 20% coverage band) $77 $143 C. Lesser of A or B $10.22 $0.00 Protection Factor (PF) Indemnity Paid (C x PF) $12.26 $0.00 *Equals zero if Actual Revenue is greater than Revenue Guarantee

13 Comparison of STAX and SCO 10% Deductible Maximum 20% Band 14% Deductible Coverage to Companion Policy Example 65% Companion Policy Example 65% Companion Policy STAX SCO

14 Comparison of STAX and SCO STAX SCO No Companion Policy required Companion Policy required Based on county/area revenue Based on county yield or revenue; same as Companion Policy Maximum/widest coverage of 90% to 70% of revenue; 20% maximum Coverage from 86% down to the level of the Companion Policy May elect to receive indemnity above amount of actual loss (PF) N/A 80% premium subsidy 65% subsidy premium

15 Thank You