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Crop Insurance Alternatives for Hay
Crop Insurance ConferenceFargo, North Dakota
January 20, 2003
Matthew A. Diersen, Ph.D.Economics Department
South Dakota State University
Outline
• Why look at hay insurance?
• National perspective
• Tri-state perspective
• Why isn’t it working?
• Looking ahead
Motivation
• Structural changes
• Drought bringing awareness
• Historic disaster aid ties
• Refinements in product(s)
Literature
“The U.S. Hay Market: Higher Prices in 1996/97”
- Shields and Baker, Agricultural Outlook (1996)
“U.S. Hay Production”
- Dismukes and Zepp, Economic Research Service Staff Paper No. 9607 (1996)
“Should This Crop Be Insured?”
- Harvey, Hay & Forage Grower (1998)
Literature (cont.)
“Crop Insurance for Hay and Forage”
- Dismukes, Zepp and Smith, ERS report on the RMA website (1996)
“Crop Insurance Alternatives for Hay in South Dakota”
- Diersen, SDSU ExEx 5044 (2002)
“Noninsured Crop Disaster Assistance Program”
- Johnson, AMPC Briefing No. 14 (2002)
U.S. Hay Insurance Policies
0
10,000
20,000
30,000
40,000
1995 1996 1997 1998 1999 2000 2001 2002
U.S. Insured Hay Acres
0
500
1,000
1,500
2,000
2,500
3,000
1995 1996 1997 1998 1999 2000 2001 2002
1,00
0 A
cres
U.S. Hay Insurance Loss Ratio
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1995 1996 1997 1998 1999 2000 2001 2002
Percent of Land in Hay
0%
2%
4%
6%
8%
10%
SD ND MN
Potential Demand Factors
• Yield variability
• Presence of subsidy
• Hay is valued input
• Some revenue dependence
Percent of Operators Producing and Selling Hay
0%
20%
40%
60%
80%
100%
SD ND MN
Producing Selling
Dollars Related to Hay
0
100
200
300
400
500
600
SD ND MN
$ m
illio
ns
Value of Production Cash Receipts
2002 Hay Acreage
0
1,000
2,000
3,000
4,000
SD ND MN
1,00
0 A
cres
Alfalfa All Other
NAP Coverage
• Noninsured Crop Disaster Assistance Program
• Administered by Farm Service Agency
• Similar to CAT coverage
• Deadline is December 1
• Coverage for pasture and grass hay
Insured Acres in 2002
0%
5%
10%
15%
20%
SD ND MN
Alfalfa Total
Common Tendencies in 2002
• ¼ S.D. acres under CAT
• ½ S. D. acres at 50% level
• ¾ N.D. acres under CAT
• ¼ M.N. acres under CAT
• ¼ M.N. acres under GRP
Shortcomings
• Ignorance about availability
• Record-keeping demands
• Lack of quality provisions
• Only yield products offered
North Dakota Hay Production
0
1000
2000
3000
4000
5000
<25 25-49 50-99 100-249 250-499 500+
Acres of Hay Produced
Nu
mb
er o
f F
arm
s
0
500000
1000000
1500000
2000000
2500000
3000000
Cu
mu
lati
ve A
cres
H
arve
sted
farms cumulative acres
Product Refinements
• Can the DOT weigh bales?
• Is there a place for GRP?
• Is a revenue product feasible?– Quality seems distributed like wheat’s– Current yield and price are correlated
• Do WE just need to get the word out?
Summary
• Customer base is slowly changing
• Current products may not match needs
• NAP may be viable alternative
• YOUR input will likely bring change
For More Information
• Phone: (605) 688-4864
• http://sdces.sdstate.edu/– Click on the “Markets” tab– Scroll to ExEx 5044
• AMPC website
