On June 18, 2020, the Risk Management Agency (RMA) issued Product Management Bulletin: PM-20-038 regarding changes made to the Sugarcane Actual Production History policy and the Sugarcane Crop Replacement Endorsement. https://www.rma.usda.gov/Policy-and-Procedure/Bulletins-and-Memos/2020/PM-20-038. RMA states that on March 5, 2020, the Federal Crop Insurance Corporation Board of Directors (Board) approved changes to the Sugarcane Actual Production History policy and the Sugarcane Crop Replacement Endorsement for the 2021 and succeeding crop years. RMA states that, with respect to the Sugarcane Actual Production History policy, the Board added provisions indicating how the actual production history will be determined for acreage that is cut for seed when 100 percent of the unit is cut for seed and clarified the date by which acreage cut for seed must be reported.
RMA states the Board also approved changes to the Sugarcane Crop Replacement Endorsement that added an option B to provide crop replacement coverage without depreciation and specified the default coverage option when an election is not made.
ANALYSIS – PM-20-038 did not specify the actual changes made. According to the 2021 Sugarcane Crop Provisions, if all the acreage in a unit is cut for seed, the approved yield for the unit will be used for the production report. https://www.rma.usda.gov/-/media/RMAweb/Policies/Sugar-Cane/2021/Sugarcane-Crop-Provisions-21-0038.ashx. The 2021 policy also states in section 9 that the producer must report the number of acres cut for seed by the subsequent crop year’s acreage reporting date and the producer must include the unit number and the number of acres harvested for seed. The current policy provides provisions for when a portion of the acreage is harvested for seed. This change appears to be addressing an omission in policy regarding when all the acreage is harvested for seed. The producer will receive the approved yield for the subsequent years actual production history. The question is whether producers are provided an incentive to report all acreage as harvested as seed when there is a loss year but it is not significant enough to trigger an indemnity in order to not adversely affect their actual production history. The producer would receive the full approved yield for the next crop year’s production report.
Further, section 2(c) of the 2021 Sugarcane Crop Provisions reads “Beginning with the 2020 crop year, your production report for 2018 and succeeding years will include the amount of production from acreage that is cut for seed determined as follows”. PM-20-038 states that the changes approved by the Board in March 2020 are effective for the 2021 and succeeding crop year but section 2(c) states the provision is applicable beginning in the 2020 crop year. Further, section 2(c) states that the production report for the 2018 and succeeding years will include the changes approved by the Board in March 2020. It is not clear whether the changes approved by the Board in March 2020 are intended to have retroactive application to the 2018 production report but based on the actual language it is ambiguous at best.
With respect to the Sugarcane Crop Replacement Endorsement, looking at the example in the Endorsement, it appears that selection of Option B can almost double the indemnity received by the producer. https://www.rma.usda.gov/-/media/RMAweb/Policies/Sugar-Cane/2021/Sugarcane-Crop-Provisions-21-0038/Sugarcane-Crop-Replacement-Endorsement-21-0038a.ashx. The difference is in the depreciation under Option A when the plant cane or first year stubble is replaced in the current year, subsequent year, or not replaced in either or destroyed. In Option B, RMA elected to remove the depreciation and allow what is presumably the full replacement value. The policy states that if the producer elects the Endorsement but fails to select Option A or Option B, Option A will be applicable. Other than the obvious potential for an increase in indemnity, RMA does not explain why the depreciation was included in Option A in the first place or why they are now allowing the producer to remove it in Option B.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.