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Risk Management Education Release

GEORGIA PRODUCERS GAIN APH FLOOR AND LOWER PREMIUMS FOR 2001

"I couldn't farm without crop insurance," says producer James Roy Malone, Jr., of Laurens County, Georgia.

Aug 21, 2000 - It wasn't a surprise to James Roy Malone when USDA declared Laurens County, Georgia, a drought disaster area on June 23. "This is the third year of extremely dry weather for this part of Georgia," said the director and vice president of the GFA (Georgia-Florida-Alabama) Peanut Association.

"Producers in Laurens saw thousands of acres of cotton mowed down last year due to the drought," Malone added. But the Georgia producer isn't going to let the dry spell end his farming. "I grew up on this farm, and I'm staying. After I got an agronomy degree from the University of Georgia in 1974, I came home and have always made a living here." He's getting a little help from the crop insurance coverage that he's bought for the past 13 years.

Malone believes that crop insurance is a necessity for producers in regions like Georgia where drought has been an unwelcome visitor. "We buy catastrophic coverage (CAT) for our irrigated corn and 65/100 (yield/price) buy-up for our other crops," Malone says.

Malone and his brother-in-law Tommy Mullis plant about 2500 acres each year since Malone's father, Roy Malone*, retired from the row crop farming operation in 1991. Besides the crop insurance, they practice other risk management strategies to protect their bottom line. Malone sees the cost of buying futures options as another business expense. "Paying the premiums on options is like buying crop insurance. It may seem a waste in a good year, but when prices go down, it protects your investment."

The two also adjust their crop mix as weather and prices change. They discontinued raising hogs in 1990 and cows in 1995. This year, cotton leads production with 1,650 acres. Drought has taken a toll on peanut acreage (150 this year). The low price of soybeans and the drought have led to a lower soybean acreage of 100 acres. Wheat makes up another 100 acres.

The biggest innovation for the farm has been the introduction of a pivot circular irrigation system in 1995. Irrigated corn now makes up 400 acres of their crop total. "If I could irrigate all my crops, I wouldn't have to worry about reduced yields," adds the farmer.

Malone and other producers in drought-stricken counties have had a real concern about the effect of drought years on their actual production history (APH). The amount of crop insurance a producer can secure is determined by the historical yield, or APH. Low production years lower the overall average.

The Agricultural Risk Protection Act of 2000 (ARPA) mitigates this effect somewhat by allowing producers to substitute 60 percent of the applicable county transitional yield (T-yield) when actual yields are lower than the 60 percent. Malone was active in gaining this provision for producers, though it wasn't as much as he hoped for.

As president of the Laurens County Farm Bureau, Malone sees another use for crop insurance coverage. "When I started buying crop insurance 13 years ago, my only purpose was to make up for crop losses. Today, if a farmer wants to get an operating or equipment loan, he usually has to show crop insurance coverage to qualify for a loan."

But Malone and other Laurens County farmers will get the benefit of the reduced premiums that ARPA provides for the 2001 crop insurance year. The following chart shows how much a Laurens County producer with non-irrigated average yields might expect to save per acre on next year's premiums for 65/100 and 75/100 levels. Producer premiums at the 65/100 level have generally dropped 30 percent and the 75/100 coverage decreased about 41 percent. Producers wanting more protection may find previously unaffordable premiums for 75/100 coverage within their budgets for the 2001 crop year.

Laurens County Crop Insurance Premiums Drop for CY 2001

  Commodity/ Average Yield Per Acre

 Prem. for CY 2000 at 65 %

Prem. for CY 2001 at 65%

% Savings

Prem. for CY 2000 at 75%

Prem. for CY 2001 at 75%

% Savings

Cotton/
600 lbs

$21.45

$15.09

30%

49.73

29.25

41%

Corn/70 bu

$6.53

$4.59

30%

$15.38

$9.05

41%

Peanuts/
2300 lbs

$26.82

$18.86

30%

$61.97

$36.45

41%

Soybeans/
25 bu

$5.31

$3.73

30%

$12.32

$7.25

41%

Wheat/
44 bu

$3.79

$2.67

30%

$8.72

$5.13

41%

*The senior Malone was recently awarded Georgia Tree Farmer of the Year by the Georgia Forestry Commission and has been nationally recognized for his conservation, wildlife preservation, and forestry management techniques.


Last Modified: 09/08/2010
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