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Risk Management - Questions & Answers

Q. What are the major kinds of risk faced by a farm business?

A. The risks faced by farm businesses can be summarized using five categories:

  • Production risk - The risk of lower quantity or quality of output;
  • Price or market risk - The risk of low output prices (or high input prices) or of limited market outlets;
  • Financial risk - The risk that debt cannot be repaid or that credit will not be available when needed;
  • Institutional risk - The risks that come from changing government policies; and
  • Human or personal risk - The risk that the business could be disrupted by illness, accident, death, or other personal problems.

Q. What are the major causes of crop losses in the United States?

A. No perfect measure of crop losses exists, but USDA's Risk Management Agency does have data on the sources of losses for claims filed under Federal crop insurance. From 2000 to 2024 about 41 percent of crop insurance indemnities have been due to drought or heat; about 27 percent to excessive moisture; and about 7 percent to low temperature. Note that uninsured crops might have somewhat different causes of loss. Also, causes of yield loss will vary by year, by crop, and by region. 

Q. What are the main Federal Government programs that address farm risk management?

A. The main Federal Government programs related to farm risk management are:

  • Crop yield insurance and crop revenue insurance is available through the Federal Crop Insurance Program (FCIP) and provides indemnities to producers who purchase annual policies to cover yield and revenue losses;
  • A number of area- and index-based supplemental insurance policies and endorsements provide coverage for a portion of the deductible of a producer's underlying crop insurance policy. These include the Supplemental Coverage Option (SCO), Enhanced Coverage Option (ECO), the Stacked Income Protection Plan (STAX), and the Hurricane Insurance Protection - Wind Index (HIP-WI);
  • The Price Loss Coverage (PLC) program provides income support tied to historical base acres of covered commodities when market prices drop below the commodity’s statutory reference price;
  • The Agriculture Risk Coverage (ARC) program provides income support tied to historical base acres when county or individual revenues for covered commodities fall below their benchmark revenues;
  • Marketing Assistance Loans provide producers with flexibility in marketing their harvested commodities by offering short-term, low-interest loans. The program also protects producers of major commodities against low prices by allowing producers to repay short-term, post-harvest commodity loans at below-loan rate market prices. Producers who choose not to take commodity loans are offered the equivalent benefit through loan deficiency payments (LDPs);
  • The Dairy Margin Coverage program offers protection to dairy producers when the difference between the all-milk price and the average feed price (the margin) falls below a certain dollar amount selected by the producer;
  • Disaster assistance programs, including
    • the Livestock Forage Disaster Program (LFP) to compensate eligible livestock producers who suffer grazing losses because of drought;
    • the Livestock Indemnity Program (LIP) to compensate producers for above normal livestock losses because of adverse weather or attacks by animals reintroduced into the wild by the Federal Government;
    • the Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish to provide assistance for losses because of disease, adverse weather, or other conditions not covered by LFP or LIP;
    • the Tree Assistance Program to provide benefits to producers who suffer tree, bush, and vine losses because of natural disasters;
    • Emergency loans to producers to help them recover from natural disaster losses to production and/or facilities;
    • Emergency haying and grazing assistance that allow haying and grazing on Conservation Reserve land as a result of natural disasters; and
    • the Emergency Conservation Program to help producers repair farmlands damaged by natural disasters.

Q. For which crops is federally backed insurance available?

A. For crop year 2024, USDA's Risk Management Agency (RMA) offered insurance coverage for more than 120 unique agricultural commodities, representing the great majority of the value of U.S. crop production. The Federal Government supports the crop insurance program by providing premium subsidies for insurance policies, offering reinsurance backing for these insurance policies, and providing support for program administrative and operating expenses. Some crops can be insured under a variety of existing plans, while others can be insured only under pilot programs of limited scope and duration. The RMA Crop Policies webpage offers information on crops for which insurance is available, as well as instructions on how to obtain crop insurance.