Comparing Price Risk Assistance from ACRE and Insurance
ACRE is not a substitute for crop insurance. ACRE provides assistance against yield risk at the state level, not at the individual farm or county level. However, ACRE and insurance both provide assistance against low prices. Thus, it is important to ask if ACRE's price risk assistance supplements (is higher than) the crop insurance's price risk assistance. The crop insurance prices used for this comparison are for a large producing state: North Dakota for barley, Illinois for corn and soybeans, Texas for upland cotton, Georgia for peanuts, Arkansas for long-grain rice, California for medium-grain rice and Kansas for sorghum and wheat. The peanut insurance price used in this article is the established price.
Figure 6 presents the ratio of the implied ACRE price to the crop insurance price for 2013 as of February 21, 2013. The Kansas (hard red winter) wheat insurance price is $8.78. In comparison, the Illinois (soft red winter) and North Dakota (hard red spring) wheat insurance prices for 2013 are $8.57 and $8.55, respectively. Thus, the wheat insurance prices are close to one another.
The median level of insurance coverage bought by U.S. farms varies by crop and state, but usually is between 70% and 80% coverage. Thus, Figure 6 implies that, as of Feb. 21 and except for wheat, ACRE at present is likely providing more coverage against price risk decline than the most commonly purchased individual revenue insurance products. The breadth of this finding across crops is different than in previous years, and implies that farms will need to think carefully about the ACRE Election option for the 2013 crop.
It is important to understand that ACRE and crop insurance have different windows of risk protection for price. Crop insurance provides price risk protection from the month the expected insurance price is determined through the month the harvest price is determined. In contrast, ACRE provides price risk protection for the marketing year. To illustrate these different price windows, the harvest insurance month is October for corn and soybeans. In contrast, the crop year for corn and soybeans is from September through the following August. These different windows have become more important with the growing importance of production in South American and other parts of the world.