Monthly average Rough Rice futures prices broke $16/cwt in March 2022 and have remained well above this price (Barchart.com, 2023). In fact, the monthly average has not been at this level since July 2013, when the monthly average closing price was $16.04/cwt. This spike in prices is most likely driven by the lowest global ending stocks reported in five marketing years due to below trend production in 2022/2023 with a steady increase in consumption since the 2015/2016 marketing year (USDA-FAS, 2023). These historically high rice prices provide an opportunity to lock in higher revenue guarantees for Revenue Protection (RP) crop insurance to help manage downside price risk, which is likely if global production bounces back to trend in the upcoming marketing year.
RP is a risk management tool administered by USDA’s Risk Management Agency (RMA) and provides an indemnity when farm-level revenue for a crop falls below a revenue guarantee. The revenue guarantee is found by taking the product of the farm-level yield expectation given by the actual production history (APH), the projected price determined by USDA-RMA, and the coverage level chosen. The projected price is a 30-day average (prior to planting)[1] of the harvest-month futures contract for a given commodity, which in this case is November Rough Rice (ZRX). USDA-RMA completed the projected price discovery period on February 14th for long-grain rice producing states in the South with a February 28th sales closing date and has determined the 2023 projected price for long grain rice to be $16.90/cwt (i.e. $7.61/bu[2]). This price is $2.40/cwt (i.e. $1.08/bu) higher than last year’s projected price of $14.50/cwt ($6.53/bu).
As noted above, revenue guarantees depend on the farm-level APH, projected price, and the chosen coverage level. I illustrate the increase in the RP revenue guarantee for long-grain rice producing states using states in the Mississippi Delta, but the impact is generally applicable across southern states with a February 28th sales closing date. Figure 1 shows the year-over-year changes in the revenue guarantees for the 75% coverage level in 2023 relative to 2022 and assumes the APH yield is equal to the Reference Yield which USDA-RMA provides at the county-level. RP revenue guarantees in the Mississippi Delta are expected to increase by more than $100/ac in most counties and by more than $150/ac in a few others.
It is not too late for farmers to contact their crop insurance agent to discuss enrolling their rice in RP insurance. The amount of coverage chosen largely depends on each farm’s financial condition and each farmer’s risk tolerance, but 75% tends to be the most popular coverage level chosen. The deadline to enroll is tomorrow, February 28th.
References
Barchart.com. November Rice Historical Monthly Average Closing Prices. Accessed via API.
USDA – Foreign Agricultural Service (FAS). Production, Supply, and Distribution Online. https://apps.fas.usda.gov/psdonline/app/index.html#/app/home
USDA – Risk Management Agency (RMA). Actuarial Data Master. https://pubfs-rma.fpac.usda.gov/pub/References/actuarial_data_master/
USDA – Risk Management Agency (RMA). Commodity Exchange Price Provisions (CEPP). https://www.rma.usda.gov/Policy-and-Procedure/Insurance-Plans/Commodity-Exchange-Price-Provisions-CEPP
USDA – Risk Management Agency (RMA). Price Discovery. https://prodwebnlb.rma.usda.gov/apps/PriceDiscovery
[1] The projected price discovery period depends on the sales closing date. For states with a February 28th sales closing date, the projected price discovery period is January 15 – February 14 (USDA-RMA CEPP, 2023). Therefore, the projected price will be the average of the daily closing prices for ZRX over January 15 – February 14.
[2] One can find the dollars per bushel price of the Rough Rice futures contract, priced in dollars per hundredweight, by dividing the futures price by 2.22.
Biram, Hunter. “One Last Thought on Revenue Insurance for Rice.” Southern Ag Today 3(9.1). February 27, 2023. Permalink
