E9-17616. Notice of FCIC's Proposed Pricing Methodology for Grain Sorghum

AGENCY:

Federal Crop Insurance Corporation, USDA.

ACTION:

Notice.

SUMMARY:

Section 12009 of the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) requires the Federal Crop Insurance Corporation (FCIC) to obtain the services of five expert reviewers to “develop and recommend a methodology for determining an expected market price for grain sorghum for both the production and revenue-based plans of insurance to more accurately reflect the actual market price at harvest” and for FCIC to publish the selected methodology for notice and comment on the methodology.

DATES:

Written comments on this notice will be accepted until September 22, 2009. A public meeting will be held on August 20, 2009, at 9 a.m., at 6501 Beacon Drive, Kansas City, MO 64133 to discuss the proposed methodology.

ADDRESSES:

Interested persons are invited to submit written comments to Quintrell Hollis, United States Department of Agriculture (USDA), Product Design Branch, Federal Crop Insurance Corporation, Risk Management Agency, 6501 Beacon Drive, Mail Stop 813, Kansas City, MO 64133. Written comments may also be submitted electronically to: [e-mail].

FOR FURTHER INFORMATION CONTACT:

Quintrell Hollis at the Kansas City, MO address listed above, telephone [phone].

SUPPLEMENTARY INFORMATION:

Background: The Risk Management Agency (RMA), on behalf of FCIC, uses the United States Department of Agriculture (USDA) estimates to establish grain sorghum price elections. The Actual Production History (APH) plan of insurance relies heavily on projections from USDA's World Agricultural Supply and Demand Estimates. The revenue-based plans of insurance use USDA grain sorghum-to-corn ratio multiplied by a futures price. The USDA's grain sorghum estimate reflects season average price, but the National Sorghum Producers did not feel that this process offers grain sorghum producers a price that adequately reflects harvest time price. As a result, section 12009 of the 2008 Farm Bill requires FCIC to contract for the services of five expert reviewers to “develop and recommend a methodology for determining an expected market price for grain sorghum for both the production and revenue-based plans of insurance to more accurately reflect the actual price at harvest.” The legislation further requires FCIC to review the recommendations, consider the recommendations when determining an appropriate methodology, publish its proposed methodology for public comment, and implement a methodology that is transparent and replicable for 2010 crop year. The expert reviewers, all agricultural economists with experience in the grain sorghum and corn markets, are from within USDA, the grain sorghum industry and institutions of higher learning. They are:

• Dr. Holly Wang, Purdue University.
• Dr. James Richardson, Texas A&M University.
• Chris Cogburn, National Sorghum Producers.
• Robert Dismukes, Economic Research Service.
• Greg Pompelli, Economic Research Service.

Summary of Expert Reviews

The Economic Research Service (ERS) reviews were similar and recommended no changes to current pricing methodology. ERS reviews revealed that grain sorghum and corn prices across all States and all years are highly correlated.

Purdue University provided a methodology that proposed regression equations by State using National Agricultural Statistics Service (NASS) cash price data at State level or if no State level NASS data were available, national level NASS price data. The model used data from 2004-2008.

The National Sorghum Producers proposed a regression model based on published monthly NASS prices, exports and total use of grain sorghum to calculate a grain sorghum-corn ratio. The grain sorghum-corn ratio was then multiplied by the USDA corn price estimate for APH policies and for revenue policies the ratio was multiplied by the corn futures price. The model used data from 1990-2008.

Texas A&M University proposed a regression model based on regional grain sorghum cash price data and corn futures price at the Chicago Board of Trade. Price elections were developed at the national level and the model uses data from 1979-2008.

Proposed Methododogy Selected

FCIC intends to implement the methodology submitted by Texas A&M University. This methodology met the requirements of the 2008 Farm Bill of being transparent and replicable. RMA determined that this methodology was the most accurate predictor of grain sorghum prices at harvest time.

Details about this methodology as well as the other methodologies proposed by the expert reviewers can be found at http://www.rma.usda.gov.

Signed in Washington, DC on July 20, 2009.

William J. Murphy,

Manager, Federal Crop Insurance Corporation.