Cotton Quality Adjustment Procedures for Multi-Peril Crop Insurance

Potential quality and quantity losses face growers in Mid-South and South Texas because of excessive rain. This paper outlines the quality loss provisions available through federal crop insurance.

Published: February 27, 2002
Updated: March 30, 2017

Mature white upland cotton damaged by insured causes may be adjusted for quality if the price quotation for the affected bale (price quotation "A") is less than 85 percent of the price quotation for a bale of base quality in the applicable growth area (price quotation "B").1 Price quotations "A" and "B" will be the price quotations published in the Daily Spot Cotton Quotations published by the USDA Agriculture Marketing Service on the date the last bale from the unit is classed. If the date the last bale is classed is not available, the price quotation will be determined when the last bale from the unit is delivered to the warehouse, as shown on the producer’s account summary obtained from the gin. For eligible bales, the amount of production to be counted will be determined by multiplying the number of pounds of such production by the factor derived from dividing price quotation "A" by eighty-five percent (85%) of price quotation "B." In order for a policyholder to be indemnified, a producer's total production to count for the insured unit must fall below the production guarantee.

Below is an example of this procedure for DeSoto County, Mississippi.

1. Base quality for upland cotton in this county is Strict Low Middling (41), Leaf 4, 1 3/32 staple length (35), and 4.5 Micronaire reading.

2. The insured unit is 100 acres with an APH of 850 lbs/acre. The coverage level is 65 percent and the price election is 63 cents/lb.

3. Production guarantee: 100 acres * 850 lbs/acre * 65% coverage = 55,250 pounds

4. Assume that the daily spot price for the base quality bale is 60 cents/lb. (price quotation "B") and the daily spot price for the bales with subpar quality is 40 cents/lb. (price quotation "A").

  • [(Price quotation "A") / (85% * Price quotation "B")] * Bale weight = adjusted production for affected bales
  • [40 / (0.85 * 60)] * 495 = 388 lbs. counted towards production on affected bales

5. Assume yield of 650 lbs/acre (production = 131 bales), 60 bales of subpar quality

  • Production to count: (71 bales * 495 pounds) + (60 bales * 388 pounds) = 58,425 pounds
  • Production to count (58,425) exceeds production guarantee (55,250)
  • Producer is not eligible to collect an insurance indemnity

6. Assume yield of 600 lbs/acre (production = 121 bales), 60 bales of subpar quality

  • Production to count: (61 bales * 495 pounds) + (60 bales * 388 pounds) = 53,475 pounds
  • Production to count (53,475) less than production guarantee (55,250)
  • Producer collects indemnity: (55,250 - 53,475) * .63 = $1,118.25

1 - Base qualities for individual counties can be located on the RMA web site at the following URL: http://www3.rma.usda.gov/apps/docbrowser/docbrowserB.cfm. Users should then select the option "Crop." From here choose "Cotton (0021)-APH-(90)", then a state, then a county, and finally "2001 - SPRV." The base quality for the county will be listed immediately above the Insurance Availability Statement.