Farm Sizes Impacted by a Crop Insurance Premium Support Limit

2/27/2018

Proposals have been made to limit the amount of Federally-paid crop insurance premiums on a per farm basis. A $40,000 limit was proposed in the last farm bill and the 2016 Trump budget included this limit as well.

The sizes of corn and soybean farms that reach a $40,000 limit are examined for two counties in Illinois: a low risk county (McLean County) and a higher risk county (Saline County). For the low risk county, the farm size impacted by the limit is near 1,000 acres, a farm size that is relatively small by commercial grain farm standards. The 3,000 and 1,000 acre benchmarks assume 100% of share in crop production on farmland. use of share rent agreement increases proportionally the acres necessary to reach the limit.

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Observations from the analysis:

A $40,000 limit has the potential to impact many commercially-sized farms.
The impacts will be larger in higher risk areas. Central Illinois is one of the lower risk areas of the United States. Hence, the acreage limits to reach the $40,000 limit will be higher in central Illinois than in many other areas of the country.
The exact nature of the $40,000 per farm limit is unknown. The limit could apply to an individual as it does in the case of commodity programs. Or there could be some entity definition. In either case, farms nearing limits could evaluate ways of restructuring the operation so as to avoid limits.
A $40,000 limit would set into play a complex set of insurance decisions for those farms reaching the limit. Those farms reaching the limit likely would lower coverage levels and move to different plans of insurance. These changes would reduce the risk protection offered to those farms. Movements to share rent are possible as well.

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Schnitkey, G., J. Coppess, N. Paulson, and C. Zulauf. “Farm Sizes Impacted by a $40,000 Crop Insurance Premium Support Limit.” farmdoc daily (8):19, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, February 6, 2018.

http://farmdocdaily.illinois.edu/2018/02/farm-sizes-impacted-by-crop-insurance-premium.html