Episode 98 - The Crop Insurance Premium Implications of the USDA EARP Rule Reversal

In the third and final episode of our series on USDA's Expanding Access to Risk Protection (EARP) rule, Ryan Loy and Hunter Biram dig into what the rule means for rice producers' premium costs, with a timely twist, since USDA moved to reinstate the prevented planting "plus-five" buy-up just before recording. Hunter breaks down why a seemingly small change could carry meaningful consequences for producers, why those effects vary so much from county to county, and what the reinstatement means for rice farmers going forward. 

Transcript

Dr. Ryan Loy 0:00

Eliminating prevented planting buy-up increases producer paid premiums across all rice-insured counties in the southern United States. Nearly half of rice counties are projected to experience premium increases exceeding 25%, creating meaningful out-of-pocket cost pressures for producers. And premium increases are driven primarily by higher coverage levels and county level based premium rates, not adjustment capacity or unit structure choices. That and much more on this episode of Morning Coffee and Act Markets. My name is Ryan, and with me in the studio today is Dr. Hunter Byram. Hunter, how are you doing?

Dr. Hunter Biram 0:45

I'm doing great, and I'm glad that you are literally in the studio today.

Dr. Ryan Loy 0:48

I know. I'm excited myself. Good to have you back. I know. It was nice. It's really nice to be here and the nice studio we have set up for this, and it's great. So I appreciate you having me and letting me host it today and ask you a few questions. So as we get started, and before we kind of get into the meat of this story, can you start and give us some background and maybe some context on what's going on currently with the ERP?

Dr. Hunter Biram 1:10

Yeah. So uh with EARP, the expanding access to risk protection is actually an interim final rule came out of USDA. And uh I think it's interim in the sense that it's not really final. I think interim final is kind of a funny way to put it, but they have not finalized it and changes are being made. And Ryan, I sent you a text last night. Uh, about 7 30, 8 o'clock, I saw on Facebook, you know, the place of all great wisdom and information that actually USDA has reinstated this buy-up, the plus five. And so I know when you and I were talking about preparing for this, it seemed like it just was pointless. But I do think it's worth it to have this discussion today because then we can talk about, well, why is it important that it was reinstated? Because we've already done two episodes on the EARP, and this will be the third and final one that we do. I think that we've covered it quite well. And really the point of the series on EARP is just to show that, you know, it's I'm not sure if it really expands access to risk protection for rice farmers necessarily, and just highlighting that with the various episodes. And today's is primarily on premium expense because we've talked about adjustment capacity, where what that pretty much means is can a producer buy up with their underlying coverage level to offset that missed opportunity, so to speak, to get the prevent plant buy-up, which is the plus five percent. We've talked about the rice coverage level, I believe it's 55% without the buy-up. So they could buy up into 60% if you want to, which is 60% of expected revenue times of coverage level, which is liability. And so they reinstated the rule, uh, which I think is welcome news for rice farmers. But I'm gonna just walk through now really the background of the rule, and then we'll get into some questions about okay, but let's talk about the premium expense. Is it significant? And is this the rule change based on the old rule? Is it actually a good thing? Absolutely. If that makes sense. I feel like I'm talking in circles, have had enough coffee yet. But I'll just say that the uh USDA's expanding access to risk protection funnel eliminates the five percentage point prevent plant buyup option. That's in the original language, which removed a target targeted premium surcharge and historically allowed producers to manage early season risk without expanding overall liability. Now, to be clear, this is for prevent plant coverage only. This is separate than buy up. Okay, because you can buy up one level with prevent plant as a separate coverage, but you still gotta have something. You have to have some underlying coverage already. You already get, yep, that's right. You gotta have some YP or RP. And you know, we talked about previously that under EARP, rice producers seeking comparable protection must instead increase their underlying coverage levels, which expands insurrection, so more guarantee, but it raises gross premiums. So whether producers ultimately face higher out-of-pocket costs depends on subsidy structure, base premium rates, and county level actual conditions, which we're gonna get into more today. But to be clear, the rule has been reinstated as in we now have plus five again. We have plus five coverage, which is welcome news for rice farmers. But now we're gonna go into how significant is that? Like when we start putting dollars to it, how how significant of a change is that?

Dr. Ryan Loy 3:59

So let's take a step back for a minute. You know, we've talked about, you know, you put this together and then last night it kind of came through and said, oh, wait, the 5% buyup is back. Let's take a step back and just think about if that wasn't to happen last night. One question I have is why does eliminating a relatively small prevented planting surcharge translate into large increases in producer paid premiums?

Dr. Hunter Biram 4:22

You know, it does it does seem counterintuitive at first because if you're removing that coverage, then the producer necessarily doesn't have to spend that money. Right. I guess that is one way to think about it. But producers are only eliminating prevent plant buy-up surcharge that add probably about two to six percent to the premium cost. However, if you know, under the old rule, maintain comparable PP protection requires producers to increase their underlying coverage rather than purchasing the separate buy-up, which was going back to that adjustment capacity that they would actually have to buy up from say 70% to 75 or 80% to be able to get the same amount of prevent plant because you can still get prevent plant. It's still out there. Prevent plant is still out there. It's just the amount of prevent plant. So the important distinction is that the surcharge was only applied to the prevent plant endorsement itself. So increasing the underlying coverage level, by contrast, increases the insured liability for every covered peril. Because prevent plant is for one peril. That's for early season moisture and you can't plant the crop. Whereas everything else is covered by like drought, it could be from pest pressure, price changes, um, and even with in-season moisture. And so gross premiums are calculated on this larger liability base, not necessarily on just the prevent plant base. So even after accounting for higher subsidy rates at some coverage levels, producers still pay a portion of those much larger gross premiums. And so I think the intuition really at first was okay, under the 1B Beautiful bill, yes, there are increases to the premium subsidy rate for all levels of underlying coverage from 50 to 85%. So there's increases to the subsidy, so less premium being paid by the farmer there. And so it's like if we take away the buyup on Prevent Plant, a farmer can just use the savings to buy into a higher coverage level and still maintain the same amount of Prevent Plant, but they're still going to face overall higher coverage, which we're gonna talk about some reasons why, but like just higher overall and underlying premium as well as having the ability to actually get into that higher coverage level might not be the case for every farmer.

Dr. Ryan Loy 6:11

That's really interesting. Is it correct to say that really the big issue? Well, first, it sounds like the way that it's being described to me here is that EARP is kind of a misnomer. It doesn't seem like it's really expanding any access to risk protection. In fact, it seemed to make it more expensive with less coverage. And if you wanted more coverage, it was gonna be more expensive because you had to have more of that underlying amount, correct?

Dr. Hunter Biram 6:32

I think that's a fair way to put it. I will say yes, there were changes to say the underlying premium subsidy. So, like, yes, that's gonna expand access to risk protection. But this is one part that to me did not make any sense as to why this is being fit into expanding access.

Dr. Ryan Loy 6:48

Okay. It's a lot more clear now. That makes a lot more sense. Thank you for explaining that. One of the other questions I have as we kind of go through this is you know, what explains the lack of a clear relationship between base coverage levels and premium increases under EARP?

Dr. Hunter Biram 7:01

Well, to answer this, I'm gonna start off by referencing figure one in the newsletter and just note that, you know, average producer paid premiums are gonna increase about 23% across southern rice counties. Nearly half the counties experience increases above 25%, and additional out-of-pocket costs range from roughly $2.97 to $5.5 per acre. So then three to almost six dollars per acre increase because of this. And so coverage level certainly matters in this case, but it's only one piece of a more complicated premium calculation. So the premium um reflects interaction among the initial coverage level, county actual royal rates or those base rates that that people have probably heard me talk about before. Those are those actually fair rates. Uh, premium subsidy schedules, you know, some coverage levels get more print subsidy than others. Unit structure, some units get more subsidy or less subsidy than others. And uh producer choices needed to preserve comparable PP protection. Again, going back to that piece on adjustment capacity. For example, moving from 65 to 70% coverage does not generate the same premium increase in every single county just because the base rates differ across all the counties. Counties with higher actual world risk already have larger base premium rates. So increasing liability there produces much larger producer premium increases than in lower risk counties. So likewise, subsidy rates change at different coverage levels, partially offsetting premium increases for some producers while providing much less relief for others. In other words, coverage level explains part of the story, but the premium effect depends on how that coverage interacts with the underlying actuarial parameters.

Dr. Ryan Loy 8:25

Let me uh ask you this quick question, clarifying question for myself here. When we think about this and looking at it from at the county level, that underlying coverage that is related to some county level premium amount, you know, the actuarial rates. So it's safe to say that in some cases, some farmers actually will benefit from this rule of the EARP and others would not. Is that correct to say?

Dr. Hunter Biram 8:49

Yeah, it really depends on, yes. In some rare instances, I would say that I mean there could be benefit, it just depends on underlying base rate. Right. It also depends on their yield ratio. Okay. So really it depends on the farmer's APH yield history relative to what the county reference yield history is. Okay. So whatever the farmer's yield history is relative to the county yield history, you know, in some instances, that can provide a significant discount.

Dr. Ryan Loy 9:12

Right.

Dr. Hunter Biram 9:13

And so what that does is it allows the farmer to then afford higher coverage levels. And so if they can afford the higher coverage levels, there may be some instances where this actually could be a good thing. But I would say this probably is not the vast majority. I would say those are probably more rare instances.

Dr. Ryan Loy 9:28

Oh, that makes sense. Thank you for clarifying that. Another question I have for you is, you know, as we go through this, why doesn't adjustment capacity predict premium impacts even though it constrains coverage responses?

Dr. Hunter Biram 9:40

Yeah, so adjustment capacity determines how much a producer can increase coverage to replace the lost PP protection. And I know this is really hard to explain and for the listener to really visualize, but it's really all about, okay, if we had, we have the liability, which is going to be the amount of insurance, that's gonna be expected price times expected yield times some coverage level. So let's just give it an easy liability. Let's just say we've got $1,000 liability. The PP coverage level, base coverage level for rice is 55%. So what does that mean? That the PP payment is essentially $550 an acre. The buy-up would then go to $600 an acre because that's at 60%. So the farmer has to figure out with adjustment capacity what coverage level can I change to that my 55% base coverage can still get me $600 an acre for a prevent plant payment. So then it's like, okay, can I go up that high? What if I'm already at 85%?

Dr. Ryan Loy 10:38

Right.

Dr. Hunter Biram 10:39

You can't go any higher. Even at 80%. And you know I had a Southern Act today that came out a few weeks ago. I think I showed that even at 80%, you might not be able to go up to 85 and still capture that. Really at the 75% and lower, you might be able to adjust higher, you leveraging the premium savings to be able to still capture the same amount. Okay. Of prevent plant. You know, most folks that are at 80 to 85% are gonna be are gonna be in trouble there.

Dr. Ryan Loy 11:02

Capped out on it. That makes sense. That's very interesting stuff. And especially, you know, is this this world of crop insurance is one that is very, very difficult to kind of wrap your head around sometimes. It is complicated, man, and very interesting. And as we go through this, one other question I have for you is you know, how do county-level base premium rates shape the distributional effects of EARP across rice-producing regions?

Dr. Hunter Biram 11:24

Yeah, I think it's safe to say that county-based rates are probably the largest source of spatial or geographic variation when it comes to these premium changes. I mean, the base rate's gonna drive participation. I've shown that in papers. I know that my uh co-author on this report, looking up the EARP, Francis Tebow up at the North Dakota State University Ag and Risk Policy Center. You know, he's shown that as well. I mean, you know, working with Keith Kobe, Mississippi State. I mean, like almost day one, whenever I decide that I was gonna work with Keith Koble for on my thesis, he presents to me a map of base premium rates. And that is the question of every crop insurance researcher, extension specialist across the world is why are those rates so different? I mean, we have general answers for it. But the point being, there's a lot of heterogeneity. And man, as economists and researchers, we love heterogeneity. Right. Like, oh, I love variation. That's right. And so I've just I'm really trying to, I'm not I'm I think I'm beating the dead horse here, but there is a lot of geographic variation in those base rates. And so because the premium rates reflect localized production risk at the county level, increasing underlying coverage amplifies those differences. So it's like if you're already starting at a place where there's already differences and then you make changes, you're still gonna be looking at those differences ultimately. So if like all the foundations are different and then you make a change with the change, you're still gonna see differences. Higher risk counties experience larger increases in gross premiums, producer paid premiums, and ultimately out-of-pocket cost. So lower risk counties still see premium increases, but the magnitude is considerably smaller. This helps explain why the impacts vary geographically rather than producing a uniform premium increase across all rice-producing counties. And so Arkansas provides a good example. While every county experiences higher producer paid premiums, over half of Arkansas's rice counties are projected to exceed a 25% increase, reflecting both producer election patterns and local actual conditions.

Dr. Ryan Loy 13:06

Do you know which county in Arkansas has the highest premium rates off the top of your head? It's okay if you don't.

Dr. Hunter Biram 13:11

Yeah, there are some counties up in northeast Arkansas that I would say um have higher rates relative to those in the state and even those in the country. For the farmers listening that know the answer to this question, you know I'm talking about that county or two or three. You know, I've I've got maps on my website, arcroppers.com. So I encourage listeners to go check that out and see those rates. But uh yeah, there are there are a few counties that really kind of make me turn my head a little bit as to wonder like what's what's going on there? I mean, these these are going to be premium rates that are gonna be four or five, six times higher than like what would be insured in the Midwest. And so it's like, man, there's I mean, I get it. We're in the Mid South. We're in like hurricane tornado alleys out. I mean, like Tornado Alley has changed, and we're seeing a lot of hurricanes through here. I've done some work in that area. So I would say it's relatively high risk. I mean, our ground probably not as productive as that in the Midwest. Our weather patterns, I mean, it's just hot, muggy, steamy, rainy all the time. I mean, it's the production systems are different. Right. They they really are. And so different production systems, different soil types, weather patterns, extreme weather events, things like that. So I think it is safe to say that it is riskier to produce here in the Mid South.

Dr. Ryan Loy 14:19

Absolutely.

Dr. Hunter Biram 14:19

I'll just say that. I do think that is true. Now, is it five to six, seven times riskier to grow in the Mid South? That's the question. I'm like, I'm not sure if it's that much more risky. Now, and I don't know if it's two or three times, but I just when I see that difference, it just to me is we're talking about ensuring the same commodity, commodity grade corn, for instance, it could be fifty, sixty dollars an acre for a county in Arkansas versus like eight to ten dollars an acre. Yeah. Maybe even less. That's huge difference, huge difference. And at a time when, I mean, we're in this economic downturn. I mean, farmers need all kinds of risk management, everything that they can get.

Dr. Ryan Loy 14:56

So in the cheapest way they can get it, right? You know, that really is staggering when you think about that, because I definitely agree with you. We we all recognize that we have different production systems here. We have more variable weather just because of our placement in the country compared to the Midwest. But is it five to six times more than that? That that really is interesting. And maybe it is.

Dr. Hunter Biram 15:14

Maybe it is, but I'm not fully convinced yet.

Dr. Ryan Loy 15:17

So absolutely. Well, Hunter, as we kind of you know wrap this up here, one last question for you, and really I think you've kind of touched on this, you know, especially with the changes uh going on last night. But what are the longer-term impacts of higher out-of-pocket premium cost for rice producer participation in risk management decisions?

Dr. Hunter Biram 15:35

So I just want to reiterate that the plus five is back. The plus five is back, and I want to close with that. And so I want to say that note before I answer this because I just want to reiterate how I think how important it is that it is back. The immediate implication is higher insurance costs for a farmer. I mean, with this, with this removal of plus five. So now we don't have to worry about that anymore. So I think that's really important in reinstating the plus five. You know, if if we were looking long term, you know, some of these responses here. I mean, I would I would say maybe, you know, some producers may accept lower preventive planting protection rather than paying higher premiums. Maybe they just forego that. Maybe they forgo, maybe they don't buy up into higher coverage levels on their buy-ups or their YP or RP, and they're like, you know, I just can't afford it. Like I said, we're in an economic downturn. I mean, it's so I just can't afford it. Some may reduce overall coverage levels just to reflect those increased costs. Some farmers may reconsider unit structure elections. You know, there's basic units, optional units, enterprise units, which that's a whole book. And uh literally have a chapter on that in the phone mills of federal crop insurance, shameless plug. So just check that out. Uh, higher premiums could disproportionately affect smaller or financially constrained operations, potentially reducing participation at higher coverage levels. And so, you know, Ryan, you and I talked about does the EARP actually expand risk protection? In some areas, yes. In this specific area, no. And I think the administration has recognized that. Yeah. Just simply for the fact that they have reinstated the the plus five. So at least they've walked it back, which I do find to be in encouraging. So that's the last note I got for you.

Dr. Ryan Loy 17:01

Well, this is great, Hunter. And I really appreciate you kind of giving us a crash course on this, you know, even though it's changed. It's a welcome change from yesterday. And so if any listeners have any questions or, you know, anything at all, you can reach out to us anytime. And please be sure to check the newsletter out for some of the figures that Hunter was referencing during our discussion today. But other than that, please stay tuned for the market report. Thank you so much for tuning in. Bye-bye now.

Evan Ware 17:25

Back with your market report as of July 30th, 2026. Corn September futures are $4.46 per bushel. That's up seven percent from a month ago and up fourteen percent from a year ago. Corn December futures are four dollars and sixty-nine cents per bushel. That's up seven percent from a month ago and up fourteen percent from a year ago. Rice September futures are thirteen dollars and seventy-seven cents per hundredweight. That's up four percent from a month ago and up eleven percent from a year ago. Rice November futures are fourteen dollars and twenty cents per hundred weight. That's up four percent from a month ago and up thirteen percent from a year ago. Soybeans November futures are eleven dollars and eighty-nine cents per bushel. That's up four percent from a month ago and up nineteen percent from a year ago. Soybeans March 27 futures are twelve dollars and four cents per bushel. That's up four percent from a month ago and up nineteen percent from a year ago. Cotton December futures are eighty point six seven cents per pound. That's up five percent from a month ago and up twenty percent from a year ago. Cotton March 27 futures are 82.25 cents per pound. That's up 5% from a month ago and up 19% from a year ago. Wheat July 27 futures are $7.01 per bushel. That's up 21% from a month ago and up 20% from a year ago. The US weekly average for peanuts is currently $416 per ton. That's down 13% from a month ago and down 21% from a year ago. Moving on to our fertilizer prices, urea is currently about $580 per ton. A month ago was $590 per ton. Three months ago was $835 per ton. And a year ago was $560 per ton. Ammonium nitrate is currently $390 per ton. A month ago was $515 per ton. Three months ago was $594 per ton. And a year ago is $435 per ton. Ammonium sulfate is currently about $545 per ton. A month ago is $522 per ton. Three months ago is $553 per ton. And a year ago is $540 per ton. DAP is currently $929 per ton. A month ago was $899 per ton. Three months ago is $905 per ton. And a year ago was $845 per ton. Triple superphosphate is currently about $835 per ton. A month ago was $807 per ton. Three months ago was $820 per ton. And a year ago was $755 per ton. Potash is currently $479 per ton. A month ago is $465 per ton. Three months ago was four hundred and seventy-five dollars per ton. And a year ago was four hundred and sixty dollars per ton. Now for our fuel prices, Arkansas Highway Diesel is currently four dollars and ninety-six cents per gallon. A month ago was four dollars and thirty-nine cents per gallon. A year ago was three dollars and forty-one cents per gallon. Arkansas Farm Diesel is currently four dollars and fifty-seven cents per gallon. A month ago was three dollars and forty-three cents per gallon, and a year ago was two dollars and sixty-two cents per gallon. The Mississippi River at Memphis current reading is four point five nine feet. A year ago is nine point three four feet. Thanks for tuning in to another episode of Morning Coffee and Ag Markets. We hope that you have a great week.

Dr. Hunter Biram 20:47

If you would like to learn more about the Fryer Price Risk Management Center Vexless, we encourage you to go to Fryer F-R-Y-A-R-Risk, R-I-S-K-Center dot u a da dot edu. If you want to check out the newsletter that is associated with this podcast, we encourage you to visit the website and check out podcast newsletters. When you go to podcast newsletters, you should be able to see the most recent newsletters that we published. And within each one of those newsletters, you should be able to click on a link to subscribe if you haven't subscribed already. Thank you for tuning in, and we'll catch you next time. Bye bye, man.