Interactions of Shallow Loss Support and Traditional Federal Crop Insurance: Building a Framework for Assessing Commodity Support Issues for the Next Farm Act

The 2014 Farm Act ends some long-standing and some more recent commodity support programs and introduces new programs that offer producers an array of choices which will determine the support they will receive over the 5-year life of the Act. Programs covering soybeans that are included in these new programs are the so-called “shallow loss” programs, including Agriculture Risk Coverage (ARC) and the Supplemental Coverage Option (SCO). The traditional “deep loss” Federal crop insurance program (e.g., Revenue Protection, or RP) – the largest commodity outlay over the last few years – continues. While current program parameters are set for the life of the 2014 Farm Act, in future farm legislation, the USDA’s expected budgetary allocations for shallow versus deep loss support could be adjusted by the “shallow loss” coverage rates in ARC and SCO, as well as by other policy parameters. Using regression analysis, we examine the ratio of expected net SCO and county-ARC payments to total net support benefits (shallow plus deep loss) as a function of variables that influence the size and distribution of these benefits, including key program policy parameters. For corn, winter wheat, and soybeans, we find the ratio to be approximately twice as sensitive to the deep loss coverage rate than to the shallow loss coverage rate.

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 Record created 2017-04-01, last modified 2018-01-23

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