2022 Eastern Nebraska Soil Health Conference Presentations - Cory Walters

Deloris Pittman & Mike Kamm Author

02/08/2022 Added

15 Plays

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Cover Crops and Crop Insurance Cory Walters, Associate Professor in the Department of Agricultural Economics, University of Nebraska-Lincoln

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[00:00:08.440]Just a little bit about me.
[00:00:10.450]I'm a professor or associate professor in the department of agriculture
[00:00:13.390]economics. I'm very much interested in,
[00:00:16.840]the strategic nature of crop insurance and what it can do to the individual,
[00:00:20.950]because it cropped herds is much more than just a premium it's,
[00:00:23.800]it really has a lot to do about your revenue distribution and how you
[00:00:27.100]strategically interact with that.
[00:00:28.810]I'm also interested at the market level of what crop insurance does or does not
[00:00:33.700]do, to, to the industry.
[00:00:36.760]So in an intended and unintended consequences. And so with that,
[00:00:41.170]let's get into, and, and I'm not, I'm not,
[00:00:43.900]I'm not into the weeds of every little if then in insurance,
[00:00:47.500]I leave that up to your agent.
[00:00:48.970]I'm going to give you a big picture to get you kind of down to where,
[00:00:52.480]to where this thing exists today. and where I see it going in the future,
[00:00:56.740]because most, all the problems I've seen in, in insurance is actually,
[00:01:01.000]it's just a knowledge level by the, by the decision-maker that producer you,
[00:01:04.660]you have to, you have to have some knowledge where this thing is going.
[00:01:08.530]because it's, it's financially, very important.
[00:01:12.520]We just don't know when it will hit, but it's going to hit at some point. Okay.
[00:01:16.030]so crop insurance is made up of large menu of contracts.
[00:01:18.880]You can each differentiate yourself. Okay.
[00:01:20.680]You can use to select different things in that you have premium.
[00:01:23.450]Some of those are producer pays. Some of those are government paid,
[00:01:26.140]and then out of that, you get indemnities. Okay. And those,
[00:01:29.040]those are those payments that come back over time, randomly,
[00:01:32.170]the government though determines the rates and therefore they determined the
[00:01:35.650]premiums. Okay.
[00:01:36.850]So what they do then is they go through and they look over time at a county
[00:01:40.810]level. That's, that's the database, that's the Nass level database.
[00:01:44.230]I think we're going to get down into soil types as we get more information,
[00:01:48.940]that determines rates. That's why you see an irrigated rate,
[00:01:52.210]a non-irrigated rate corn for grain, corn, for silos, all these sorts of things.
[00:01:56.440]Okay. But they also face in complete information, right?
[00:02:00.370]When this thing first came out, I mean, think,
[00:02:02.210]think of your yields that were back in the seventies, a 60,
[00:02:04.550]this stuff didn't exist. We're getting better today.
[00:02:06.730]They're updating their behavior on this. they're trying,
[00:02:13.630]They're trying to,
[00:02:15.640]stay as relevant as possible with the new emerging technologies.
[00:02:18.880]And when I say technology, I mean, cover crops. Okay.
[00:02:21.820]So they're integrating themselves a cover crops,
[00:02:23.980]which is very important for them to do, because, because that's a,
[00:02:26.680]that's an environmentally benefit, environmental benefit for them. Okay.
[00:02:32.860]Okay. So when you're sending your first appearance,
[00:02:35.110]you do state your type and practice. Okay. And so you say I got corn,
[00:02:39.700]I got irrigated. Okay. Then there's a rate for that. Right? That's very,
[00:02:43.660]well-defined insurance doesn't have that for cover crops right now.
[00:02:48.370]Okay. You have to integrate in a different way. And so the idea behind that,
[00:02:52.570]what they're telling you here is, is that you,
[00:02:55.660]you should not influence the existing rate.
[00:02:57.820]So whether you have cover crops or not,
[00:03:00.580]you're not influencing that yield distribution of that irrigated or non
[00:03:04.720]irrigated corn. And they're trying to keep you from influencing that thing.
[00:03:09.520]Right.
[00:03:09.670]They're trying to keep out the moral hazard and adverse selection out of that
[00:03:12.370]thing where you, where you create indemnities, right.
[00:03:16.000]That's never good for a system when you create your own indemnities. It's like,
[00:03:19.150]it's like wrecking your own car. It's just, unfortunately,
[00:03:22.180]good news is in the car. Usually you're involved with it.
[00:03:24.160]So it puts your life in danger, right? So we try not to do that. Okay.
[00:03:28.690]So that's incentive compatible, but,
[00:03:32.620]they don't have enough data right now to disprove this. They need more data. We,
[00:03:35.670]we have to advance this, we need more acres of cover crops. We need more,
[00:03:39.610]more information to enter the system. And so they're adjusting with this.
[00:03:44.590]and I'll get to that next slide, but, but one way you do,
[00:03:46.960]you as an individual influence that is through your yields,
[00:03:52.630]you report those each year and that influences your guarantee every year.
[00:03:58.420]Okay.
[00:03:58.870]So that's your direct way to show what those those cover crops are doing is
[00:04:03.220]influencing those, those yields. And then you get a higher guarantee.
[00:04:06.940]A higher guarantee means you get more protection. Okay. So what does, what,
[00:04:11.680]how does, what does the RMA went about doing this? Well, they went in, and,
[00:04:16.390]and, they got a lot of information.
[00:04:18.760]I would recommend you get, get involved, start reading this stuff.
[00:04:23.710]Okay. And get an agent that's informed on this,
[00:04:27.760]that that's understanding the changes taking place.
[00:04:30.040]Cause that's one thing that's going to keep happening here is going,
[00:04:32.010]gonna be changes, changes, changes.
[00:04:33.580]There's there's new information entering all the time, every single year. Okay.
[00:04:39.280]So essentially it starts off with good farming practices. Okay. There's a whole,
[00:04:44.260]whole manual on good farming practice that often has a lot of times as extension
[00:04:48.220]educator working there about when you can plant winter last days, this,
[00:04:52.600]that all kinds of stuff. Okay. You can't, you can't,
[00:04:55.960]you have to follow good Mo good farming practices.
[00:05:01.090]I already talked about the rules. So you get into these termination zones.
[00:05:05.740]So what they're trying to do is trying to keep you away from influencing the
[00:05:08.620]yields. Okay. Like I said, it's, it's rated separately,
[00:05:12.160]so we're trying to stay away from influencing yields.
[00:05:14.200]So these termination zones, we got to in Nebraska and I'm, I'm,
[00:05:17.820]I'm not going to put the definitions up of these. I want you to go read them.
[00:05:21.850]It's in your best interest. Okay. To go read these things,
[00:05:24.550]it's best to learn up front of what's going on,
[00:05:26.920]then ask for forgiveness in the end on this. cause you're,
[00:05:29.680]you're talking to the federal government here on paying indemnities. Okay.
[00:05:33.910]And I got a few experiences with that. If you will know that,
[00:05:37.660]that didn't work out so well for the producer. All right.
[00:05:41.380]so go check these things out. they typically follow county borders.
[00:05:45.730]they keep changing over time. This map is the most current one.
[00:05:49.630]it looks nothing like the map from five, six years ago. Okay.
[00:05:52.960]Maybe the same in Nebraska, but these things were moving around.
[00:05:56.320]now you can into exceptions. There's a bunch of little, if then things in there,
[00:06:01.280]if you're doing this and that you can, you can have written agreements.
[00:06:03.980]You can have different things inside that.
[00:06:05.420]So if you want to achieve something and you don't see where it's really working
[00:06:09.320]in insurance,
[00:06:09.980]you need to reach out to your agent and find out what those rules are.
[00:06:14.870]Okay. Cause they're, they do exist. They're there.
[00:06:17.750]They're showing you they're flexible to work with them.
[00:06:20.180]They want to work with you. Okay.
[00:06:24.320]overseeding interceding, then when you start getting into definitions, okay.
[00:06:28.670]definitions, right? That, this,
[00:06:33.380]this gets fun. So, so you're implanting it.
[00:06:36.740]You're planting in an existing established crop. So this thing here,
[00:06:40.670]you can do it, it will, will not affect your shirt.
[00:06:44.820]This is at the general level,
[00:06:45.840]not affect the shirt will not affect your indemnity. the,
[00:06:49.250]the crop planting timer method did not impact yield or harvest.
[00:06:52.400]So there's has to meet these certain things. Okay.
[00:06:55.460]You can't just do one and forget about the other. You have to follow through on,
[00:06:59.090]on everything they have listed in there. Because again,
[00:07:01.970]if they get any sniff that your influencing yields,
[00:07:06.110]that's going to cause them to make a payment to you guess what?
[00:07:11.540]Right there, they're going to be asking questions. Okay.
[00:07:15.860]and then if interceding, after a bad event,
[00:07:17.990]be sure to visit with your agent because this is where you're getting into,
[00:07:21.350]you know, there's already a loss. Is you, are you going to make the loss worse?
[00:07:24.380]Or what are you going to do? Right. They're there, their incentive is to,
[00:07:28.980]to pay a loss, but no more than the loss from that, that,
[00:07:33.740]that event. Okay. additional details do exist here.
[00:07:38.180]So please, you got to get into it, right. That's that's the point here?
[00:07:42.410]there is randomness in this thing. Okay.
[00:07:45.320]did anyone partake in this guy last year? Got a few hands up.
[00:07:50.060]Yeah. So, so what this means is,
[00:07:52.000]is keep your lookout for just things just pop up. Right. All of a sudden,
[00:07:56.000]one day, did you get a phone call from your agent?
[00:07:59.330]They just released this thing. You know,
[00:08:00.770]I think it was like in the middle of June or July or something. Right. Okay.
[00:08:05.030]Is it here this year? No, I don't. I haven't heard anything yet. Okay.
[00:08:08.210]But it's showing you, they're willing to work with you. Okay. And then, then,
[00:08:12.170]it's this guy rule revisions. It's th they're just going to keep adjusting.
[00:08:16.610]They're gonna,
[00:08:17.270]they're going to observe what you're doing and then you're also going to be
[00:08:20.180]giving input back. Okay. There's definitely a good mechanism to work through.
[00:08:24.680]the university of Nebraska.
[00:08:26.510]I'm happy to send things up the line and visit with the RMA about this,
[00:08:31.070]there's agents. I'm sure that have, have worked directly with the RMA.
[00:08:34.460]I'm happy to jump in at any time they want to make this thing more appealing,
[00:08:40.250]but they, it's a,
[00:08:41.210]it's a slow and cumbersome process because you're talking about federal dollars
[00:08:44.750]here. Yup.
[00:08:50.630]Yeah. I, that is a, that is a wonderful question.
[00:08:55.590]I did notice that, that there. Yeah. So then,
[00:08:58.020]then we get into the rules by states.
[00:09:00.960]I do not have any idea why that thing is over there in Iowa and it didn't make
[00:09:05.520]it across the state line, like one in the back
[00:09:20.740]So I, I would, I would say you need to consult with, with the university,
[00:09:25.240]with, stakeholder groups to, to contact the army about, we,
[00:09:29.780]we want this think a lot of times it literally is just asking for it.
[00:09:34.120]And when you see it,
[00:09:35.030]another state it's much more likely you could see it than in your state.
[00:09:40.450]So, so there's there's mechanisms for that to work. but I,
[00:09:44.190]I don't know how it fell out this way,
[00:09:48.880]to that. Okay. Just a couple of comments. crop insurance exists,
[00:09:52.780]for you to protect from financially devastating events.
[00:09:55.060]I don't know when those things are gonna occur.
[00:09:57.400]rock croppers does recognize cover crops. and this understanding is,
[00:10:01.770]is growing rapidly. There's a lot of rule changes going on in this thing.
[00:10:05.830]keep it, it's going to keep happening.
[00:10:08.290]and it's important for the RMA to do this, right? They,
[00:10:11.150]they want to get involved in conservation things,
[00:10:14.800]and things that help producers very much, and use the,
[00:10:20.260]be informed, right? You can't, you can't walk into the thing,
[00:10:23.890]this thing uninformed, you gotta,
[00:10:24.940]you gotta have some knowledge of what's going on.
[00:10:27.970]in the insurance world in relation to this,
[00:10:31.300]did you don't want a surprise on the backend?
[00:10:35.950]That's all I have.
[00:10:38.110]Okay. And before you have you state your question, I'll give you the microphone.
[00:10:41.350]So people online in the recording, we can hear you. Yeah.
[00:10:44.170]so the first question was that,
[00:10:48.130]that we had it last year, but not this year. Yep. And then,
[00:10:51.460]and then Iowa has it this year and not, and we don't,
[00:10:56.140]yeah.
[00:10:58.570]Yeah. Iowa had it in place before they were before the pandemic. Yep.
[00:11:03.940]Any questions for Corey? Okay,
[00:11:09.040]cool.
[00:11:11.080]Cory, do you ever think there's a chance that in the future with federal crop
[00:11:14.950]insurance,
[00:11:16.330]that farmers in this room right now that most of them have outstanding soil
[00:11:20.860]health in their fields, you're kind of preaching to the choir here today.
[00:11:25.810]have a lower insurance premium rate.
[00:11:30.490]Yeah. Yeah. I do. I think that's going to come someday.
[00:11:33.490]And that's why I started off with this, this type and practice.
[00:11:37.600]If they're going to do it, it's going to come through as a new practice.
[00:11:42.370]You're going to, you're going to sign up and you're going to,
[00:11:43.960]you're going to say you have cover crops and that's going to automatically put
[00:11:46.840]you to lower rate.
[00:11:47.800]They needed to determine what that yield risk looks like in the presence of
[00:11:52.180]cover crops and need data to do that. and that's what they're,
[00:11:56.590]that's what I, it appears to me they're short on right now.
[00:11:59.770]So that's why you have this kind of this other mechanism to get cover crops into
[00:12:03.340]insurance. And we need to keep pushing on them to,
[00:12:06.940]to get that data and analyze that for a lower rate for cover
[00:12:11.920]crops. Absolutely. But, but even regardless of that,
[00:12:15.640]your farm yield risk just changed in that then impacts your farm
[00:12:20.320]yields in that then impacts your, your guarantees. And when,
[00:12:23.950]when droughts and different things start happening,
[00:12:25.780]your guarantees will go in a different way than someone who's. Who's not as, as,
[00:12:29.820]as much more open to the possibility of lower in yield.

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2022 Eastern Nebraska Soil Health Conference Presentations - Cory Walters

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