Impacts of crop insurance on cash rents

Abstract

This study examines the degree to which net payments from federal crop insurance products impact cash rents paid for farmland. A spatial panel model is employed to control for spatial dependence and heterogeneity in cash rental rates. Results show that producers factor a statistically significant proportion of the value received from crop insurance into cash rents. However, the directly measurable rate is lower than found in previous studies. This result likely reflects the complexity in the relationship between losses and crop insurance rates, and the aggregation across producers in both measured rent and estimates of the net value of crop insurance to a producer. Further, the indirect effects of crop insurance and the ancillary impacts of a producer’s risk profile are difficult to identify independently due to the highly variable nature of crop insurance payments, and the smoothed nature of cash rental values. Nonetheless, even as the model removes much of the variation in the data, this analysis shows crop insurance is an important factor in a producer’s expected revenue, as cash rents are positively affected in counties that receive consistent and positive net value