Correspondence of Rice Planted Acres to Safety Net Prices

Over the past five years, the federal crop insurance program has become a more important part of the farm safety net – relative to ARC/PLC and the marketing loan.  There are several reasons for this, but the two most important are 1) higher commodity prices have made ARC/PLC and the marketing loan less likely to provide any benefits and 2) the crop insurance program uses the futures market to establish initial and harvest-time prices used in insurance calculations that are based on a monthly average of futures closing prices for a specified contract month.  When commodity prices are trending upward, like they have been over the past few years, crop insurance protection increases along with higher futures market prices.

The correspondence, or lack thereof, of rice planted acres for four Southern rice growing states with the marketing year average price reported by USDA around October 1st of the year prior to planting and the projected insurance prices was evaluated over the 2016 to 2022 period.  The previous year’s marketing year average price was used to evaluate whether it was signaling for more or less acres for the next year.  The projected (initial) insurance price is determined just prior to planting.  The three states (Arkansas, Mississippi and Texas) that use the same futures contract to establish projected and harvest time prices are grouped together in the graphs followed by the graph for Louisiana.

The graphs indicate both marketing year average prices and insurance projected prices are generally trending upward since 2017.  Planted acres for Arkansas and Mississippi and Louisiana do not exhibit an upward trend.  Producers in these states generally have multiple crop alternatives to rice that may be drawing acres away from rice based on the relative profitability of the alternatives to rice.  Texas producers generally have fewer viable alternatives to rice production, which appears to be revealed in the upward trend in planted acres.  Another consideration to keep in mind is that even though rice prices have increased over the past few years, generally speaking, prices still remain below the full cost of production for producers in Southern rice growing states, particularly when accounting for the deductible associated with insurance policies. 

Author: Joe Outlaw

Professor and Extension Economist, Co-Director Agricultural & Food Policy Center at Texas A&M University

joutlaw@tamu.edu

Author: Bart Fischer

Research Assistant Professor, Co-Director Agricultural & Food Policy Center at Texas A&M University

Bart.Fischer@ag.tamu.edu

Outlaw, Joe, and Bart Fischer. “Correspondence of Rice Planted Acres to Safety Net Prices“. Southern Ag Today 2(46.4). November 10, 2022. Permalink