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Abstract
The 2014 U.S. Farm Act has new programs for providing producers with commodity support payments covering “shallow losses” in revenue. We develop an approach to examine the sensitivity of the farmer’s downside risk protection to marginal changes in the deductible in shallow loss program scenarios. The copula approach we use simultaneously considers price and yield correlation across all U.S.
counties producing several major field crops. We find that average payments under
the shallow loss program scenarios are elastic with respect to the program’s payment
coverage rate. To empirically assess where shallow loss is likely to most benefit
producers, we map at the county level the ratios of expected shallow loss payments
to crop insurance premiums for corn, soybeans, cotton, and winter wheat. As tail
dependencies among individual crop yield densities may vary spatially, we propose
a method for grouping counties in a t-copula that allows for heterogeneity in tail
dependencies.