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Texas Agriculture Archive

March 7, 2003

Ag Committee releases
assistance explanation

Editor's Note—The following charts, posted on the U.S. House Agriculture Committee website (http://agriculture.house.gov), are examples of how disaster benefits under the recently passed Agricultural Assistance Act of 2003 are to be made. The disaster benefit available for a producer will DIFFER from the benefit shown on these charts depending on the producer's historical yields, crop losses, and benefit year chosen.

Background. While these charts are for four major field crops, disaster benefits will be available for the many crops—including Specialty Crops—that received disaster assistance in previous years. These charts represent a benefit for 2002-crop losses under specific assumptions. Producers will be able to choose whether to receive a benefit for 2001-crop losses or 2002-crop losses. Producers cannot receive benefits for losses in both years. The rest of this article explains disaster provisions as they relate to the charts. Also note the benefit cap.

Chart Overview. Using the Corn chart as an example, the vertical axis shows the disaster benefits in dollars per acre. The horizontal axis shows the percent of yield loss (relative to the APH yield)—ranging from 0 percent (no loss) to 100 percent (total loss). The red and blue diagonal lines show the expected disaster benefit for a given level of loss under the assumptions of this analysis (see below). The blue line (with hollow diamond markers) is for producers who could have purchased crop insurance for their crop but chose not to. The red line (with solid round markers) is for all other producers. The numbers show the dollar benefit at the selected points for the red line. Numbers for dollar benefits for the blue line are not shown but are always 90 percent of those for the red line.

Qualifying Loss. A producer must have a loss greater than 35 percent of the producer's historical yield to receive benefits. (In other words, the actual yield must be less than 65 percent of the historical yield.) Once the 35 percent loss threshold is met, the higher the loss, the higher the benefit. So both the red and blue benefit lines show a zero benefit until the 35 percent loss level—at which point benefits start and then increase as losses increase. The corn chart assumes the historical yield is equal to the 2002 national average, APH crop insurance yield for corn of 123 bushels to the acre. For this corn example, the threshold loss is 35 percent of 123 bushels or 43 bushels. This means that benefits are available for losses greater than 43 bushels. The maximum qualifying loss when the crop is a total loss is 65 percent of 123 bushels or 80 bushels. (65 percent is 100 percent less 35 percent.)

Payment Rate. For determining the benefit, the qualifying loss is valued using one of two payment rates. For producers who purchased catastrophic (CAT) or "buy-up" crop insurance coverage or for whom crop insurance was not available, the rate is 50 percent of the crop insurance price election for the year. In this corn example, that works out to be 50 percent of $2 or $1 per bushel of qualifying loss. For producers who could have purchased CAT or buy-up crop insurance coverage and chose not to, the rate is 45 percent of the crop insurance price election or in this corn example, 45 percent of $2 or $0.90 per bushel of qualifying loss. For a crop that is not insurable, the rate will be 50 percent of the 5-year national average price based on USDA price data.

Benefit Calculation. The benefit is calculated by multiplying the qualifying loss times the payment rate. For example, the benefit for producer who purchased crop insurance but had a total loss is calculated as 80 bushels times $1 or $80 (red line and numbers). The benefit for a producer who chose not to purchase crop insurance but had a total loss is 80 bushels times $0.90 or $72 (blue line).

Benefit Cap. While not shown on the chart, the disaster benefit to a producer will be limited, as needed, to ensure that the sum of disaster payments, FCIC crop insurance indemnities, and the value of harvested production does not exceed 95 percent of the value of the crop if no loss had occurred. USDA will determine the details of the cap.

Other Crop Assumptions. Here are the assumptions for the other charts.

The 2002 national-average APH yields per acre are: 37.9 bushels for soybeans, 36.4 bushels for wheat, and 548.5 pounds for cotton. The 2002 price elections are $5 for soybeans, $3.15 for wheat, and $0.52 per pound for cotton.