Dual use insurance for annual forage producers: comparing risk management alternatives

Purpose - The purpose of this paper is to evaluate the Dual Use (DU) Option – a crop insurance policy created by the 2018 Farm Bill – relative to other policies available to dual-purpose annual forage producers. The new policy combines existing rainfall-based policies for annual forage crops and multi-peril policies for grain, allowing coverage for multiple crop uses on the same acres during the same growing season. Design/methodology/approach - The paper uses a simulation model to examine crop insurance choices for a typical Texas dual-purpose wheat farm. The certainty equivalent (CE) of wealth is used to rank choices within and between three insurance plans and to analyze the effects of those choices over a range of producer risk aversion levels and for three cases of yield expectations. Findings - The DU Option is more preferred as risk aversion increases, but it is not universally preferred. Therefore, while the policy can be a viable risk management tool, certain restrictions may be limiting its effectiveness. Practical implications - The findings of this paper can help explain farm-level decision making related to dual-purpose annual forage crop insurance program choices. Originality/value - This paper contributes to the literature by documenting a new crop insurance program made available in the 2018 Farm Bill and provides insights into producers' possible choices by evaluating extensive scenarios.