What is in this article?:
- Combo rule, cottonseed endorsement new insurance choices
- Streamlined delivery
- Cottonseed endorsement
- New risk management options available
- Options are simplified in new plan
- Cottonseed option added for 2011
In a further effort to streamline the delivery and effectiveness of the different plans, RMA also developed a single rating and pricing component to ensure that all of the insurance coverage provided under the Combo plan remains consistent in terms of insurance protection and cost to producers.
Under the new Combo rule, growers will purchase insurance policies under two main categories. Yield protection (YP) will essentially replicate what was previously referred to as the APH (Actual Production History) plan.
Revenue protection (RP), with options to re-create the various plans of insurance it replaces, will be used to replicate insurance previously offered under the revenue-type plans mentioned previously.
The most visible difference for cotton growers, aside from the change in acronyms, is the establishment of the insurance price for the various options. Instead of a mixture of price discovery methods, the Combo plan will now use a single price discovery model to establish both Base and Harvest prices for the various insurance plans.
An example of the effect these changes will have is that the Base price for both Yield and Revenue insurance plans will always be the same because they will both use the price discovery mechanisms outlined in the Commodity Exchange Price Provisions (CEPP).
For cotton producers on the High Plains of Texas who share the March 15 federal crop insurance sales closing date for initiating or cancelling insurance coverage, the Base price for Yield and Revenue protection policies will be established during the month of February by averaging each trading day's closing value of the new crop (i.e., 2011) December Cotton futures contract traded on the New York-based InterContinental Exchange (ICE).
That average will constitute the 2011 Base price and be used to establish coverage under the Yield protection plan for the insurance period, as well as establishing the minimum level of protection provided through the Revenue protection plan of insurance.
On the back-end of the season, beginning this year, High Plains growers who select a Revenue plan utilizing a Harvest price will have that price established during the month of October using the same cotton futures contract (i.e., December 2011) used to establish the Base price.
Upland cotton growers in other regions can download the Commodity Exchange Price Provisions (CEPP) for 2011 and succeeding years to see what the Base and Harvest price discovery periods are for their areas. To download the Cotton CEPP file go to: http://www.rma.usda.gov/policies/2011/11-cepp-cotton.pdf