Full text of Agricultural Highlights : November 1982

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DALLAS
Federal Reserve Bank of Dallas

November 1982

Disaster Relief and Insurance Reduce Farming Risks
Some farmers whose crops suffered
damage in the storms that swept
through the Panhandle last June may
not be any worse off than if they had a
normal production year. Disaster relief
and crop insurance in some cases can
provide as much or more revenue than
actual marketing would have. Dif­
ferences in projected and actual crop
prices help make this outcome
possible.
Disaster Payments

On July 15th the USDA declared 83
counties in Texas, Oklahoma, and New
Mexico eligible to receive direct
disaster relief. Initial estimates by the
Agricultural Stabilization and Conser­
vation Service show that roughly 5.3
million acres of cotton in Texas had an
average loss of 58 percent. In addition,
an estimated 3.8 million acres of wheat
suffered an average loss of 60 percent,
and 1.3 million acres of sorghum incur­
red a 23 percent average loss. Based
on these figures, an estimated $186
million in direct disaster payments will
be made in Texas. Of this, $177 million
will be for cotton alone.
To qualify for direct disaster
payments, farmers must be par­
ticipating in the 1982 acreage reduc­
tion program. If a farmer is eligible,
then the payment he receives is equal
to the amount of the crop lost in ex­
cess of a minimum loss level times a
predetermined price. The prices paid
per unit lost in this case are: 20.5$ per
pound for cotton, $1.75 per bushel for
wheat, $1.17 per bushel for corn, and

$1.13 per bushel for grain sorghum and
barley. The amount of crop loss eligi­
ble for disaster payments is calculated
as the difference between established
and actual yield minus the minimum
loss level times the number of acres
planted. The minimum loss levels for
West Texas this year are 25 percent for
cotton and 40 percent for wheat and
feed grains.
Crop Insurance

In addition to disaster payments,
farm ers may receive indem nity
payments from the Federal Crop In­
surance Corporation (FCIC). Total in­
demnity payments by the FCIC for the
83-county area could reach as high as
$11-12 million. By October 14, 1,168
claims had been paid for a total of $7.9
m illion. This represents roughly
135,000 acres, or $58 per acre.

Under the Federal Crop Insurance
Act of 1980, farmers may purchase all­
risk crop insurance, which guarantees
up to 75 percent of normal production
at up to 90 percent of the crop’s pro­
jected market price. A 30-percent sub­
sidy is offered on the first 65 percent of
coverage to encourage use of this pro­
gram. (Farmers could purchase in­
surance at the 75-percent guarantee
level, but premiums for the last 10 per­
cent would not be subsidized.) Sub­
sidized crop insurance is intended to
supplant disaster assistance, but for
now both are available to farmers in
the disaster area.
The indemnity payment an individual
farmer receives depends on decisions
he makes at the time he insures and on
FCIC guidelines. The farmer selects
one of three coverage levels (50, 65 or
(Continued on back page)

Texas Farm Employment On A Downtrend
Texas agricultural employment has
been declining for the last several
years. Since 1975, July agricultural
employment has fallen from a year
earlier in five cases. In July 1982,
agricultural employment was 111,000
workers fewer than July 1975’s
304,500.
In recent years, the movement in
employment has corresponded roughly
to that in farm income. Such cor­
respondence has not always occurred,
however. In 1979, for example,
agricultural income was well above

that of 1978, but between July 1978 and
July 1979 farm employment fell by
about 4 percent.
While the short term movements of
farm employment sometimes appear
to be related to farm income, the long
term pattern of declining farm employ­
ment is tied to an increase in the
number of harvesting and cultivating
machines on Texas farms. Farmers
clearly are substituting machinery for
workers as rising labor costs increase
the attractiveness of capital goods.
—
William C. Gruben

AGRICULTURAL CREDIT CONDITIONS
OCTOBER 1, 1982

Item

Demand for loans.........................
Availability of fun ds.....................
Renewals or extensions...............
Rate of loan repaym ent...............
Amount of collateral required. ..
Number of referrals to:
Correspondent banks...............
Nonbank credit agencies........

Percent of respondents
1982
Jan. 1I
Apr. 1
July 1

Compared
with one
year ago

1981
Oct. 1

Greater
Less
Greater
Less
Greater
Less
Greater
Less
Greater
Less

19
51
34
11
40
5
4
38
43
1

26
31
31
10
58
4
3
53
47
1

18
44
36
10
62
3
3
62
54
2

26
38
36
13
70
2
3
69
63
1

35
16
67
3
2
65
64
1

Greater
Less
Greater
Less

6
16
18
10

10
15
21
10

11
11
26
7

13
23
28
11

12
12
19
12

Oct. 1

27
41

Source: Federal Reserve Bank of Dallas.

RURAL REAL ESTATE VALUES
OCTOBER 1, 1982
_________ Average Dollars Per Acre
_________ Cropland________
Dryland
Irrigated
Ranchland

Eleventh District Average . . .

725

Texas Average .......................

708

1,028
938

544
555

Percent change in District average’

From July 1,1982 ...................

0.4

-5.0

2.1

From October 1,1981 .............

1.3

-4.6

8.1

1. Percent changes calculated from data adjusted for sam ple variation.
Source: Federal Reserve Bank of Dallas.

COMMERCIAL SLAUGHTER:
TEXAS (LIVEWEIGHT)
TEXAS MID-MONTH PRICES: LIVESTOCK

SOURCES: U.S. Department of Agriculture.
Federal Reserve Bank of Dallas.

SOURCE: U.S. Department of Agriculture.

AGRICULTURAL BRIEFS
Interest rates drop, but so do livestock prices and cotton production.
• Interest rates on agricultural loans dropped
sharply during the third quarter. The average
rate on farm operating loans fell to 15.57 per­
cent on October 1 from a July 1 average of 17.56
percent. Long-term rates also fell.
• Cotton production in Texas is expected to
reach its lowest level since 1975. Reductions in
planted acres, percent of planted acres
harvested, and yield have all helped to push
production down to an estimated 2.4 million
bales. This is 57 percent less than the 5.6
million bales harvested in 1981.
• As a result of the low cotton production
estimates, Texas cotton prices are edging up­
wards. Two consecutive monthly increases
have all but erased the sudden drop in prices
which ocurred in the July to August period.
Although the October 15th price of 53.1 cents

per pound was the second highest this year, it
was still well below the average price for 1981
due to large carryover stocks from the 1981
crop.
• Bumper crops, large stocks and weak export
demand have kept other crop prices down. Oc­
tober wheat prices were 12 percent below the
year ago figure, and corn prices were 20 per­
cent less than their October 1981 level.
• Livestock prices have declined since mid­
summer. Weak consumer demand forced hog
prices down in September after five con­
secutive monthly increases, despite lower in­
ventories and less slaughter. October hog
prices at $54.00 per cwt. were off 11 percent
from the August peak of $60.40 cwt. Cattle and
calf prices declined as a result of higher
marketings.

INDEX OF PRICES RECEIVED: TEXAS

TEXAS MID-MONTH PRICES: CROPS

SOURCES: U.S. Department of Agriculture.
Federal Reserve Bank of Dallas.

1. Corn and All Wheat quoted in dollars per bushel; Grain Sorghum quoted in
dollars per hundredweight.
SOURCE: U.S. Department of Agriculture.

CASH RECEIPTS FROM
AGRICULTURE: TEXAS
r 120 MILLION DO LLARS--------------------

INTEREST RATES ON
AGRICULTURAL LOANS
1-20 PERCENT

L-12
SOURCE: U.S. Department of Agriculture.

1980

SOURCE: Federal Reserve Bank of Dallas.

1981

T

1982

Farming Risks (cont.)
75 percent of normal production), and
one of three available price levels. The
FCIC uses data on the type of land, soil
quality, planting method and yield
history, as well as the price and
coverage selection of the farmer to
determine normal production, premium
levels, and indemnity payments. Also,
the guaranteed production level is ad­
justed to take into account variations
in farmers’ costs due to such factors
as time of destruction and whether the
crop is harvested or not.
An Example

Suppose a farmer plants 100 acres
of wheat on irrigated farmland in
Swisher County, and hail destroys the
entire crop. Further, suppose his
established yield is 29.3 bushels per
acre, and the farmer is insured with 75
percent coverage at the 90 percent
price level ($4.50 per bushel). Under the
disaster relief program, the farmer
would receive payment on 17.58

bushels per acre [29.3 - 0 - (,4)(29.3)],
at $1.75 per bushel for a total payment
of $3,076.50. Indemnity payments from
his insurance would be equal to 22
bushels per acre (75 percent of 29.3),
minus 3 bushels per acre (because he
didn’t harvest), times 100 acres, times
$4.50 per bushel, minus $895 (premium
costs) for a net payment of $7,655.
Thus, the farmer’s total revenue from
the two programs would be $10,731.50.
Had he grown his crop, achieved nor­
mal production, and sold the wheat at
a prevailing October 15th price of $3.46
per bushel, he would have gotten
$10,137.80.
This example is only hypothetical
and is unlikely to be a normal occur­
rence. One of the principle reasons for
the decision to provide disaster
assistance was the low participation
rate in the crop insurance program. On­
ly an estimated 10-15 percent of the
cotton planted in the Southern Plains
is insured. More importantly, actual
wheat prices have fallen far below the
price projected by the FCIC. Also, most

farmers who had an entire crop de­
stroyed would have replanted. This
would reduce payments from the
programs.
The exam ple, however, does
underline two noteworthy points. First,
these two programs can be very effec­
tive at achieving their intended
result—to maintain farm revenue in
the event of a natural disaster. In fact,
all-risk crop insurance alone can do
this to a substantial degree. Second, it
demonstrates a major difficulty in pro­
viding this insurance as mandated by
the Federal Crop Insurance Act of
1980. The Act requires the FCIC to of­
fer a price level of 90 percent of the pro­
jected crop price. This projection must
be made almost a full year in advance.
The result this year was a guaranteed
price 30 percent higher than the market
price when claims were filed. Thus,
farmers who selected the highest
guaranteed price will receive more per
unit from the FCIC than they would
have in the market.
— Brian L. Galuardi

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