This paper examines the impact of extreme heat and water deficit on federal crop insurance indemnities for corn and soybeans, differentiating by irrigation status. Using county-level administrative
data from the USDA Risk Management Agency for 2011–2023, we normalize indemnities into
yield-equivalent shortfalls (bushels per acre) and estimate how Extreme Degree Days and water
deficit relate to insured losses for irrigated versus non-irrigated production under Revenue Protection and Yield Protection policies. Compared with rainfed operations, irrigated operations are
significantly less heat sensitive, with the residual effect of extreme heat on irrigated operations
statistically indistinguishable from zero for corn. Water deficit exhibits a U-shaped relationship
with insured losses: non-irrigated operations realize more losses under high levels of water deficit,
while irrigated operations have more indemnities associated with very negative water deficit values (excess moisture). These results are robust to alternative temperature thresholds, compound
heat-drought interactions, and alternative fixed effects specifications. Our findings suggest that
irrigated operations are associated with substantially lower weather sensitivity of insured losses in
the contract-defined loss region, pointing to a potential adaptation dividend for the Federal Crop
Insurance Program.
