A two-year effort by Plains Cotton Growers, Inc. (PCG) to develop an all-new cottonseed insurance endorsement under the umbrella of the federal crop insurance program has cleared its final hurdle and is now ready to be offered to cotton producers throughout the Cotton Belt during the 2011 growing season.
Officially known as the Cottonseed (Pilot) Endorsement, the product will be available for purchase as an optional insurance endorsement to cotton producers (Upland or Extra Long Staple) who purchase a qualifying buy-up insurance policy of insurance on their cotton lint through the federal crop insurance program for the 2011 growing season.
The Cottonseed Endorsement is best described as a companion endorsement that extends yield-only coverage to growers who purchase a qualifying APH-based buy-up plan of insurance (Yield or Revenue) under the new Combo Policy provisions for cotton. The endorsement will not be available to growers who purchase CAT, GRIP or GRP cotton policies.
“From the start of this process in late 2008 PCG’s goal has been to do everything we could to facilitate the development of an insurance product that cotton producers can use to insure some portion of the value of the cottonseed they produce,” says PCG Executive Vice President Steve Verett.
“The best thing about this program is its simplicity,” says Weldon Melton, Edcot Gin, Edmonson, Texas. “”We have no more numbers to send in from the gin. There are no more reports.”
He says the actuarial people working on the program ‘were amazed at how close the numbers were as they marked it up.”
The program is good for cotton farmers. “It covers an income stream from cotton that has not been covered before. We’re glad it will be available in 2011,” Melton says.
"In today's economic climate, it is great to have another tool in the toolbox for growers to use in protecting the significant economic investment they make when producing a cotton crop," says New Home, Texas crop insurance agent Gid Moore.
"Being able to insure more of the actual value of the crop you produce without necessarily having to look at moving to a higher level of coverage will be a great advantage for producers at every yield level."
A prominent feature of the Cottonseed Endorsement was its establishment as a nationwide pilot program, which means the product will be available for purchase by growers in every cotton-producing county in the United States during its evaluation period.
Premiums for the Cottonseed Endorsement will be calculated using a national cottonseed price (which has been set by USDA RMA at $0.09 per pound, or $180 per ton, for the 2011 growing season) and the premium rate applicable to the growers approved lint yield for Yield coverage under USDA RMA’s Combo Policy provisions. Growers purchasing Revenue coverage on their cotton lint will also have their Cottonseed Endorsement premium calculated based on the rate applicable to Yield only coverage at their approved yield level.
Premiums applicable to the Cottonseed Endorsement will qualify for the same level of federal premium subsidy as the producer’s underlying cotton lint policy.
From an implementation standpoint, the Cottonseed Endorsement is designed to be easy to understand and administer and requires no additional record keeping by participating producers or insurance providers.
To avoid producers having to provide additional cottonseed production records, cottonseed yields used to establish coverage under the endorsement will be calculated using a state-based cottonseed conversion factor multiplied by the producer’s approved cotton lint yield.
The cottonseed production guarantee will then be determined by multiplying the resulting approved cottonseed yield by the coverage level selected by the grower for the cotton lint policy (Yield or Revenue). Multiplying the cottonseed production guarantee by the national cottonseed price established by the USDA RMA will determine the total value of coverage provided under the endorsement.
In the event of a loss, growers incurring losses to their cotton lint sufficient to trigger an indemnity would be paid for the corresponding level of loss on cottonseed. Cottonseed losses will be determined by subtracting the cottonseed production to count (determined by multiplying the total production to count of cotton lint before quality adjustment by the cottonseed conversion factor) from the cottonseed production guarantee.
For additional information about the Cottonseed (Pilot) Endorsement producers are encouraged to contact their insurance agent or crop insurance provider to learn how the endorsement can work for their operation.