Understanding the new product and how it works should come quickly by both AIPs and producers since the program will require virtually no extra effort to purchase or service.

 In a nutshell, the Cottonseed Pilot Endorsement (CPE) utilizes a proxy approach to crop insurance, converting cotton lint production to cottonseed equivalent by a state-based seed-to-lint conversion factor to form the basis of insurance and to calculate indemnities.   Premium rates will mirror the premium rates applicable for the underlying cotton lint insurance policy based on the direct correlation that exists between cotton lint and cottonseed yield.  

Extensive agronomic and statistical data support the CPE's use of a cottonseed factor as an actuarially sound method of providing an effective guarantee for producers without imposing an additional reporting or underwriting burden on producers and the program.   Also, use of the state-based factor does not affect the probability of an individual loss because the same conversion factor is used to set the guarantee and to determine production to count.   

In simple terms a producer buying a qualifying buy-up policy of insurance product (MPCI, CRC, RA or their equivalent under the new Combo Policy Provisions – Yield Coverage and Revenue Coverage) who purchases the cottonseed endorsement will have a companion policy of insurance covering a percentage (equal to the coverage level selected for their cotton lint policy) of their cottonseed equivalent yield.   The cottonseed equivalent yield will be calculated using the applicable state cottonseed factor multiplied by their current Actual Production History (APH) yield.

The cottonseed equivalent yield will then be used to create the cottonseed guarantee—calculated by multiplying the cottonseed equivalent yield times coverage level. Total dollars of coverage will then be figured using the cottonseed guarantee yield times the applicable cottonseed price established by the USDA Risk Management Agency.

The CPE premium will be calculated using the applicable premium rate associated with the producers APH lint yield that is used to calculate premiums under the Combo policy of insurance. The CPE will also utilize the current federal crop insurance premium subsidy structure tables to calculate the amount of the actual producer paid premium.   For additional information about the Cottonseed Pilot Endorsement, contact Plains Cotton Growers at 806 -792-4904.

 

From the Plains Cotton Growers, Inc., newsletter