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Risk Management Education Release

LEVEE HOLDS BACK WATERS AND...MORE

Ten years after Donald Laprairie and his neighbors built a levee to keep floodwaters at bay in Avoyelles Parish, Louisiana, the structure is playing an important role in reducing their crop insurance costs.

Apr 27, 2000 - The generational ties between family and friends run as deep and long as the rivers in Northeast Avoyelles Parish, Louisiana, where Donald and Charlotte Laprairie farm on a floodplain that has the Red, Black, Atchafalaya, and Mississippi Rivers for boundaries.

The confluence of rivers posed a threat to local farms in the Floods of 1973, 1975, and 1983. In the spring of 1991 when floodwaters began to rise once again, Laprairie and his neighbors decided it was time to fend off the surging rivers. In two non-stop weeks, barely keeping ahead of the waters, they improvised a levee that still surrounds their homes and farms. The height of the 12-mile levee (between 6 and 12 feet, and about 57 feet above mean sea level) was calculated from their home-grown prognostications that proved to be within a half foot of the actual flood level that year. According to Laprairie, the U.S. Army Corps of Engineers missed the flood level by 4 feet in 1991.

They saved their bumper crops in 1991 and the levee, with improvements, continues to be a barrier to menacing floods. This year, it's producing even bigger dividends. Because of the flood-protection provided by the levee and other new rate reductions, local premiums for crop insurance have become much more affordable for Laprairie and his neighbors.

Laprairie, who plants a three-crop rotation, will cultivate 800 acres each of cotton and grain sorghum and 350 acres of soybeans for the 2000 crop year on his own land and leased acreage. He decided to buy the 65 percent buy-up crop insurance option, an amount that he figures will cover his cost of planting. He has seen a dramatic fall in premiums due to several factors. "USDA took another look at cotton premiums this past year and cut them 50 percent in surrounding parishes. On top of that we are getting the benefit of the 25 percent premium subsidy."

This past year Laprairie and his neighbors got their third deserved rate break after a neighbor who became a licensed crop insurance agent passed along their request for elimination of their high-risk rate category set by their proximity to the rivers.

That request was received by Mike Davis, Risk Management Specialist from the Jackson, Mississippi, Risk Management Agency office. After visiting the community, Davis was pleased to confirm the effectiveness of the levee, "Mr. Laprairie hasn't had a loss due to flooding since 1983, but because of the farm location, his crop land was considered high-risk. I checked official Corps of Engineers flood gauge levels for years back. There is no doubt that the levee is doing its job."

Making Do With Low Prices

With flood waters in abeyance, Laprairie has turned his attention to coping with the low commodity prices and ever-increasing cost of inputs. "My great grandfather settled on this farm just after the Civil War. He cut the trees by hand with an ax and my family has been farming here since then," Laprairie said. "My grandfather always said not to farm land if you can't show a 20 percent return, because you can count on one year out of five being bad."

So how is the Laprairie family making ends meet in these times of low commodity prices and high input costs? Marketing, vertical integration, and diversification have become standard practices. "I've already sold 50-60 percent of this year's cotton crop. By mid-summer, 80 percent of my cotton will be contracted, and I'll have 30,000 bushels of milo sold."

Working with a landlord, the two are setting up an experimental hunting area. "We are preparing a wildlife habitat for part of the farm," Laprairie continues, "and I'm going to plant sunflowers on my land for dove hunters. We have a 'trophy buck' program that brings in additional income. And I own an interest in a cooperative community gin, with my portion based on the proportion of bales I bring in. Also, I share a warehouse and seed houses with others."

The landlord also has 600 acres in the Conservation Reserve Program (CRP) that can bring in $37-$66 an acre a year in a 10- to 15-year program. "That may not seem like much, but it can beat the return on a soybean acre." Future plans include setting up irrigation facilities for 2000 acres.

But there's still the continuing challenge of cutting corners in a tight market. The farm's gross income has fallen 40 to 50 percent since 1998. "While my gross income has fallen, the cost of inputs and capitol equipment keeps increasing. When I started farming out of high school in the late 60s, my first tractor cost $13,000. I maintained it well and 20 years later sold it for $7,000. Today, a comparable tractor costs $100,000. So we put in time and money to make repairs to the old one," Laprairie said.

But he is rightfully proud of his ability to keep production costs down. "I have managed to keep my cotton in-ground input costs per acre at $225, compared to a parish-wide $325 average, which helps to keep my income up." But even with these efficiencies in place, Laprairie finds the going tough enough to encourage his son to pursue an engineering career rather than staying on the farm.

Farmers Protect Equity

"With the 65 percent crop insurance level I bought, I will be able to cover my in-ground costs this year." Laprairie would be paying $7.80 for 65 percent Multiple Peril Crop Insurance (MPCI), compared to a $68 premium the year before. MPCI is the basic crop insurance policy that insures yield losses. His elected coverage with Crop Revenue Coverage (CRC) costs $12 for the same $239 coverage, but the CRC provides revenue protection based on price and yield expectations. "To totally cover all input costs, I would need the 75 percent coverage, but the premium for that coverage is considerably higher."

Ted Couvillion, loan officer, for the Marksville, Louisiana, Production Credit Association, has seen more farmers picking up crop insurance this year with the reduced rates. "In today's agricultural environment, profit margins are so narrow that if a farmer has a loss, he might not ever recover without crop insurance," Couvillion said. "Coverage provides an extra measure of protection that can keep a farmer from going under."

While Couvillion believes that, for the money, 65 percent coverage is probably the optimal coverage for cotton farmers this year, he would like to see some provision changes. "In this section of Louisiana, farmers who lease land usually pay landlords on a 'share-rent' basis. They give landlords a percentage of the gross profit for use of the land. When the farmers have such a lease agreement, their insurance only allows coverage on the percentage of the crop that belongs to the farmer, in effect lowering the actual coverage for the farmer."

Because of their increased crop insurance coverage, Laprairie believes that nearby farmers will find it easier to get operating loans. "You need crop insurance for operating loan collateral like you need comprehensive insurance when you buy a new car. I've been getting loans from the local Production Credit Association for years. They understand my needs because they are farmers too. But I still have to document my yield and financial situation. The crop insurance will make them happy and help me sleep a little better at night."

Even with his insurance protection, Laprairie still feels like he is balancing on a very narrow ledge. "I just can't make a mistake right now. The margins are too tight. There's no room for error." He also can't think of replacing worn equipment with current prices.

But while wresting a living from the farm may cause Laprairie to wonder if he=s making the right decision to remain a farmer, the angst hasn't intruded on his joy of life. When he catfish are biting in the Red and after Mr. Laprairie and son Andrew bring in their catch, all the neighbors will share in the bounty when they get a mess of fish to fry up for supper.

Avoyelles Parish: CY 2000 Standard Premiums Drop 66 Percent from 1998

 MPCI Standard % Coverage

 $ Coverage/Acre

CY 1998 $ Cost/Acre

CY 1999 $ Cost/Acre

CY 2000 $ Cost/Acre

50

233

14.33

9.02

4.71

55

256

20.40

12.92

6.62

60

279

28.98

18.22

9.37

65

302

33.48

21.01

10.70

70

326

50.98

32.09

16.29

75

349

77.90

48.82

24.81

80

372

N/A

N/A

36.23

85

395

N/A

N/A

49.00

Avoyelles Parish: CY 2000 High-Risk Premiums Drop 54 Percent from 1998

 MPCI High-Risk % Coverage

 $ Coverage/Acre

CY 1998 $ Cost/Acre

CY 1999 $ Cost/Acre

CY 2000 $ Cost/Acre

50

233

34.11

18.83

16.32

55

256

48.52

26.98

22.85

60

279

68.89

38.00

32.41

65

302

79.65

43.88

37.00

70

326

121.25

67.00

56.36

75

349

185.42

102.05

85.84

80

372

N/A

N/A

125.29

85

395

N/A

N/A

176.66

Premiums Tank; Coverage Climbs

This table shows how Multiple Peril Crop Insurance (MPCI) premiums have dipped in Mr. Laprairie's part of Avoyelles Parish following the 2000 crop year rate cut, 25 percent premium discount, and also the rating classification change from high risk to standard.

For instance, Mr. Laprairie would have paid $79.65 for 65 percent coverage for his cotton in 1998*. The 30 percent premium discount in 1999 would have cut his cost to $43.88. This year's 50 percent rate cut plus the 25 percent premium discount would have dropped his cost to $37 per acre. However, getting the category changed from "High-Risk" to "Standard" saved him another $26.30, with the premium cut to $10.70, almost one-eighth of the 1998 premium.

The significant drop in cotton crop insurance rates in Avoyelles Parish has also been made available to many other cotton producers throughout the Southeast.

*The charts based calculations on a 750-pound non-irrigated yield with a given $0.62 per pound constant price on MPCI in Avoyelles Parish. While the actual Laprairie yield and price will vary from this example, the dramatic savings are similar.


Last Modified: 09/08/2010
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