Organic Crops: Final Development of Additional Price Elections 

 

Deliverable VIII 

Organic Crops: Final Development of 

Additional Price Elections 

Contract Number: AG-645S-C-09-0003

Submitted by: 

Watts and Associates, Inc. 

4331 Hillcrest Road 

Billings, Montana 59101 

twatts@wattsandassociates.com 

DUNS # 112960633

RMA has modified this report for Section 508 Compliance 

March 12, 2010 

Watts and Associates, Inc., as a Contractor, has developed this report under contract with the United States Department of 

Agriculture and has exclusive ownership rights in part or all of its format and content. No material presented in any format, 

including orally, in print, or electronically, or that has been viewed, disseminated, or heard, may be further disseminated to 

any unauthorized person or entity. “Unauthorized person or entity” may include, but is not necessarily restricted to, any 

person who or entity that has no official connection to this project under the Federal government, or has not been authorized 

by Watts and Associates, Inc. to review a portion or all of this material. This material is protected by law. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

i

Table of Contents 

Section I. Executive Summary ......................................................................................................... 2

Section II. Introduction and Overview ............................................................................................. 4

Section III. Organic Pricing for Corn .............................................................................................. 5

Section IV. Organic Pricing for Soybeans ..................................................................................... 20

Section V. Organic Pricing for Cotton ........................................................................................... 34

Section VI. Recommendations....................................................................................................... 49

List of Tables 

TABLE 1. Organic and Conventional Corn Price Relationship Summary Statistics ........................ 9

TABLE 2. Organic Corn Alternative Adjustment Performance Summary Statistics ...................... 16

TABLE 3. Corn Base Price Calculations for 2007, 2008, and 2009 ................................................ 18

TABLE 4. Organic Corn Price Election Performance ..................................................................... 19

TABLE 5. Organic and Conventional Soybean Price Relationship Summary Statistics ................. 24

TABLE 6. Organic Soybean Alternative Adjustment Performance Summary Statistics ................ 30

TABLE 7. Soybean Base Price Calculations for 2007, 2008, and 2009 .......................................... 32

TABLE 8. Organic Soybean Price Election Performance ............................................................... 33

TABLE 9. Conventional Cotton Price Election “Backcast” Determination 1998 through 2009 .... 38

TABLE 10. Organic and Conventional Cotton Price Relationships ................................................ 41

TABLE 11. Organic Cotton Model Performance Summary Statistics ............................................ 48

List of Figures 

FIGURE 1. AMS Organic Feed Corn Price Data ............................................................................... 6

FIGURE 2. Organic and Conventional Corn Prices ........................................................................... 8

FIGURE 3. Corn Price Difference Data Series ................................................................................ 11

FIGURE 4. Corn Price Ratio Data Series ......................................................................................... 13

FIGURE 5. Organic Corn Price Projection Performance ................................................................. 15

FIGURE 6. AMS Organic Soybean Price Data ................................................................................ 21

FIGURE 7. Organic and Conventional Soybean Prices ................................................................... 23

FIGURE 8. Soybean Price Difference Data Series .......................................................................... 26

FIGURE 9. Soybean Price Ratio Data Series ................................................................................... 27

FIGURE 10. Organic Soybean Price Projection Performance ......................................................... 29

FIGURE 11. Organic Cotton Producer Prices .................................................................................. 37

FIGURE 12. Organic and Conventional Cotton Prices 1998 through 2009..................................... 40

FIGURE 13. Cotton Median Price Difference Model ...................................................................... 42

FIGURE 14. Cotton Median Price Ratio Model .............................................................................. 43

FIGURE 15. Cotton Most Recent Observation Model ..................................................................... 44

FIGURE 16. Cotton Three Year Average Model ............................................................................. 45

FIGURE 17. Cotton Trend Adjusted Model..................................................................................... 46

FIGURE 18. Cotton Organic Price Projection Models .................................................................... 47

List of Appendices 

Appendix A. Organic Cotton Raw Pricing Data 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

2

SECTION I. EXECUTIVE SUMMARY 

Following completion of the pricing research phase of the Organic Crops project, the United 

States Department of Agriculture (USDA) Risk Management Agency (RMA) exercised an

option for the development of price election methods, and price elections, for selected organic 

crops. It must be noted that the organic price data for each of these crops are far sparser than data 

generally used for price determination and that only one of the crops (cotton) met all data 

standards listed in the original contract. The cotton data, however, is proprietary in nature and 

continued availability depends upon the good will of the supplier. 

The contract provided rigorous standards for appropriate data. These standards are a factor in 

maintaining program integrity. In particular, RMA requires data to be credible, reliable, and 

available to RMA on an annual basis. Evaluations of organic price data performed in previous 

deliverables determined that adequate data were available for a limited selection of organic crops 

if the standards were selectively relaxed: corn, cotton, and soybeans. This determination reflects 

a level of pragmatic flexibility in use of the data standards to assess the application of alternative 

pricing to organic crops. 

The data available for organic corn were provided by the USDA Agricultural Marketing 

Service (AMS), with monthly values derived from bi-weekly market reports from spot 

markets in the upper mid-west. The data for corn were more complete than data for other 

crops, but encompass a relatively brief historical period. Based on the sparse nature of the 

data, the Contractor considered four pricing models, all based on the relationships 

between organic and conventional feed-grade corn prices. Based on these assessments, 

the Contractor recommends the price election for organic corn be determined as the 

conventional corn base price multiplied by 1.52 (with the result rounded appropriately), 

which is the minimum ratio of organic corn price to conventional corn price over the data 

period. Further, the Contractor recommends these price elections be monitored carefully, 

with the objective of replacing this relationship-based price election with an approach 

based entirely on independent organic corn price data if feasible. 

The data for organic soybeans were provided by the USDA AMS with monthly values 

derived from bi-weekly market reports from spot markets in the upper mid-west. While 

less detailed and extensive than the data available for corn, the data for soybeans were 

nearly complete for the years for which they have been collected. Based on the sparse 

nature of the data, the Contractor considered four pricing models, all based on the 

relationships between organic and conventional soybean prices. Based on these 

assessments, the Contractor recommends the price election for organic soybeans be 

determined as the conventional soybean base price multiplied by 1.68 (with the result 

rounded appropriately), which is the minimum ratio of organic soybean price to 

conventional soybean price over the available data period. Further, the Contractor 

recommends these price elections be monitored carefully, with the objective of replacing 

this relationship-based price election with an approach based entirely on independent 

organic soybean price data as those data become available. 

The data available for organic cotton were provided by a large organic cotton marketing 

cooperative in Northern Texas. The data provided met all the standards included in the research 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

3

and development contract: sales prices, locations, dates, and volumes were all recorded and 

verifiable through a number of outside sources. These data are proprietary in nature and were 

provided voluntarily by the dominant organic cotton marketing entity, and included only upland 

cotton observations from the state of Texas. As these are not public data, the failure of this single 

entity to provide data would result in the inability of RMA to determine organic cotton prices 

under the recommended methodology. Although the data were provided by a single source, they 

represent sales of 55 and 75 percent of the cotton grown organically each year. The Contractor 

tested five alternative approaches to assessing price elections for organic cotton, including two 

based on relationships between organic and conventional cotton prices and three based on 

analysis of the available organic cotton data series. Based on these assessments, the Contractor 

recommends the organic cotton price election be determined as the simple average of the 

observed organic cotton prices in the most recent three crop years and applied only to upland 

cotton in the state of Texas.
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

4

SECTION II. INTRODUCTION AND OVERVIEW 

Following the completion of the pricing research phase of the Organic Crops project, the United 

States Department of Agriculture (USDA) Risk Management Agency (RMA) exercised an

option for the development of price election methods, and price elections, for selected organic 

crops. Under current RMA Crop Insurance Handbook guidelines, “Price elections or dollar 

amounts of insurance applicable to both certified organic and transitional crops will be the same 

price elections or dollar amounts of insurance for conventional crops published by RMA as 

shown on the actuarial documents.” Given the relatively small volume of organic production 

compared with the same commodity produced conventionally and the limited pricing data for 

organic crops, this approach was logical as a starting point. However, based on pricing research 

using data that have only recently become available, RMA directed the Contractor to develop 

separate price elections for organic corn, cotton, and soybeans. 

It must be noted that the price data for the organic markets for each of these crops do not meet 

the stipulated data standards as completely as do the data for conventional markets for these 

same crops. Although corn and soybeans offer sustained and publicly available data, only cotton 

met the full data standards listed in the original contract. The cotton data, however, is entirely 

proprietary in nature and subject to availability concerns. 

The contract for this research provided rigorous standards for appropriate data used for pricing. 

These standards are a factor in maintaining program integrity. In particular, RMA requires data 

to be credible, reliable, and available on an annual basis to RMA. To be acceptable, data 

collected at the farm level must include the quantity sold at a particular price, the method of sale 

(contract or open market), location documented with the price, and the contractual arrangement. 

Price data not available at the farm level must be verifiable by a disinterested third party, 

whenever possible; be aggregated to protect buyer identity, and provide the necessary 

information (including quantity sold) allowing prices to be adjusted to the farm level. Based on 

evaluations of organic price data performed in previous deliverables, it was determined that 

adequate data to support the development of independent organic price elections was available 

for a limited selection of organic crops if the standards were selectively relaxed: corn, cotton, 

and soybeans. This determination was made despite the severe limitations on the data for even 

the selected crops and reflects a level of pragmatic flexibility in use of these crops to assess the 

application of alternative pricing to organic crops in general. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

5

SECTION III. ORGANIC PRICING FOR CORN 

Most of the corn grown conventionally in the United States each year is used in livestock feed, 

production of ethanol, and for many food products such as starches, sweeteners, etc. While most 

crops grown organically are intended largely for human consumption (fruits and vegetables 

particularly), a majority of the organic corn produced each year is used in non-food channels, 

particularly as feed for animals being produced with organic practices. Organic corn commands a 

premium primarily based on the perception that grain grown without the use of synthetically 

modified genetics, chemical fertilizers, or synthetic crop protection products is more wholesome 

or potentially less subject to residues that may be deleterious to consumer health. Price premiums 

for organic production, while more pronounced in food-grade products, are persistently present 

in feed-grade corn (spatially and temporally) across available data sources, including those 

maintained by the Federal government.

Data available for development of price elections that meet the data standards outlined in the 

contract are very sparse (see Organic Crops Pricing Report). The Contractor obtained organic 

corn price data from a number of sources, including bi-weekly data collected by the USDA 

Agricultural Marketing Service (AMS), from a public-private partnership dataset collected by the 

Rodale Institute under a partnership contract with RMA, and a number of smaller datasets 

provided by organic advocacy organizations and producer groups. Based on extensive 

assessment of these, only the AMS dataset was found to meet almost all the data standards 

outlined in the contract (see Organic Crops Pricing Report). AMS gathers price data and reports 

market prices based on its survey methodology. Consequently, there is no reporting of volume 

sold at a price, although the reported price typically represents a price representative of a market 

for the period of time measured.1 However, the frequency of the AMS reporting provides a 

snapshot of relative price levels that can support inferences about annual tendencies. 

AMS reports prices for both food-grade and feed-grade organic corn. Due to numerous and 

substantial gaps in the food-grade corn dataset and the overall thinness of its market, this 

contractual effort focused on feed-grade corn. Only feed-grade corn data are used in this 

analysis. Although the data available for food-grade corn were very thin, both our discussions 

with AMS and our assessment of the data indicated that food-grade corn consistently sold at a 

substantial premium to feed-grade corn. As a result, the contractor recommends that the organic 

price calculated in this analysis is applicable to both feed-grade and food grade corn. This 

recommendation recognizes that separate actuarial structures incorporating individual types are 

not likely at this time. This still would represent a substantial improvement over the current 

pricing (applying conventional corn pricing to all organic production). Further, the contractor 

recommends that AMS pricing data for food-grade corn be monitored on an ongoing basis, with 

consideration of applying a similar analysis for the development of a separate organic food-grade 

price when data are sufficient to support identification of an appropriate type on the actuarial 

documents. 

For the price analysis, bi-weekly observations in the AMS dataset were aggregated to a monthly 

 

1

Interview: Ami Rayer, USDA AMS 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

6

basis by calculating the simple average of all observations from each calendar month.2Figure 1 

displays the aggregated AMS organic feed corn price data for the entire term of the series. 

FIGURE 1. AMS Organic Feed Corn Price Data

Source: Figure developed by the Contractor based on information provided by USDA AMS 

Figure 1 Data. 

Month

Organic 

Price Month

Organic 

Price

Jan-07 Aug-08 11.17

Feb-07 6.29 Sep-08 10.65

Mar-07 6.42 Oct-08 10.32

Apr-07 7.19 Nov-08 9.35

May-07 7.19 Dec-08 8.73

Jun-07 7.06 Jan-09 8.50

Jul-07 8.75 Feb-09 8.19

Aug-07 10.50 Mar-09 7.64

Sep-07 10.16 Apr-09 7.25

Oct-07 9.30 May-09 7.27

Nov-07 9.10 Jun-09 7.69

Dec-07 9.24 Jul-09 6.95

Jan-08 9.63 Aug-09 6.35

Feb-08 10.08 Sep-09 5.77

Mar-08 10.05 Oct-09 5.82

Apr-08 10.26 Nov-09 5.56

May-08 10.26 Dec-09 5.43

Jun-08 10.51 Jan-10 5.39

Jul-08 10.92 Feb-10 5.47

 

2

 All AMS data included in these analyses were provided by AMS Market News. The primary contact was Ami Rayer (ami.rayer@ams.usda.gov, 

515-284-4460). She provided a wealth of information, answering questions about the data collection, affirming its veracity, and offering insights 

into the events in the organic markets over the last three years. These data were updated for the final version of the report in early March, 2010. 

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Price ($/bu)
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

7

Price data for conventional corn are widely available. Given the many sources of data available, 

it is important to consider the most appropriate conventional price series for comparison to the 

AMS data. As the AMS data reported are based on actual producer sales, direct comparison of 

time series prices to the commodity futures prices for conventional corn would be less than 

optimal. For this comparison, the Contractor instead obtained National Agricultural Statistics 

Service (NASS) Prices Received by Producers data for each of the months for which AMS 

organic corn price data were available.3 NASS prices received by producers for corn represent 

the average price of corn sold for all uses, which is dominated by corn for export, ethanol 

production, and feed. Figure 2 displays the aggregated monthly AMS organic corn prices relative 

to the NASS Prices Received by Producers as reported for conventional corn. 

 

3

 NASS Data are easily available through their website. The most recent Agricultural Prices report at the time this research was being conducted 

was accessed at: http://usda.mannlib.cornell.edu/usda/current/AgriPric/AgriPric-09-29-2009.pdf. New Agricultural Prices reports are published 

late each month and can be downloaded from the NASS website. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

8

FIGURE 2. Organic and Conventional Corn Prices

Source: Figure developed by the Contractor based on data provided by AMS and NASS 

Figure 2 Data. 

Month

Organic 

Price

Conventional 

Price Month

Organic 

Price

Conventional 

Price

Jan-07 3.05 Aug-08 11.17 5.26

Feb-07 6.29 3.44 Sep-08 10.65 5.02

Mar-07 6.42 3.43 Oct-08 10.32 4.37

Apr-07 7.19 3.39 Nov-08 9.35 4.26

May-07 7.19 3.49 Dec-08 8.73 4.1

Jun-07 7.06 3.53 Jan-09 8.50 4.36

Jul-07 8.75 3.32 Feb-09 8.19 3.87

Aug-07 10.50 3.26 Mar-09 7.64 3.86

Sep-07 10.16 3.28 Apr-09 7.25 3.87

Oct-07 9.30 3.29 May-09 7.27 3.96

Nov-07 9.10 3.44 Jun-09 7.69 4.01

Dec-07 9.24 3.77 Jul-09 6.95 3.6

Jan-08 9.63 3.98 Aug-09 6.35 3.33

Feb-08 10.08 4.54 Sep-09 5.77 3.25

Mar-08 10.05 4.7 Oct-09 5.82 3.54

Apr-08 10.26 5.14 Nov-09 5.56 3.65

May-08 10.26 5.27 Dec-09 5.43 3.49

Jun-08 10.51 5.47 Jan-10 5.39 3.36

Jul-08 10.92 5.25 Feb-10 5.47 3.45

The Contractor recommends the price elections for organic corn be developed as a derivative of 

Commodity Exchange Price Provisions (CEPP) price elections for conventional corn. This 

recommendation is based on two primary concerns. First, there is a lack of long-term data for 

organic prices (the AMS series was initiated in February 2007) and the lack of data related to 

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Oct-08

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Jul-09

Oct-09

Jan-10

Month 

Price ($/bu)

Organic Feed Corn Conventional
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

9

stocks, planting intentions, supply, or demand for organic corn. Therefore, consideration of 

relationships between the available data for organic corn and the data available for conventional 

corn is likely to provide much more reliable conclusions. Second, organic corn and conventional 

corn are substitutes, ultimately competing for acreage and market share among alternative nonfood grain products. Although this substitute role is imperfect, if the price for organic corn were 

to get high enough, buyers would have to seriously consider the impact and benefits of 

substituting less expensive conventional corn. Alternatively, conventional producers would have 

to consider diverting acreage to organic practices (a process that, admittedly, has high barriers to 

entry and is not likely to be based on a single year‟s price). Thus the prices are linked, if 

imperfectly, by the degree to which one can be substituted for the other. 

The relationship between the price of conventional corn and organic corn is complex, with many 

factors at play. Whereas the conventional corn market is vast (conventional corn crops exceed 12 

billion bushels for recent crop years, with a farmer received value in excess of $30 billion) and 

serves a dizzying array of industries and end uses, the market for organic corn is still in its 

infancy with a relatively small number of producers and buyers. Organic production consistently 

receives a substantial premium over conventional prices, but a literature review revealed little 

published information assessing the relationships between conventional and organic pricing. 

Based on the data available (and their limited capacity to support more complex modeling), the 

Contractor considered two simple relationship measures between conventional and organic corn 

prices: (1) the difference of the aggregated monthly organic price and the reported conventional 

price and (2) the ratio of the aggregated monthly organic price to the conventional price. The 

Contractor calculated the differences and ratios of all observations (consisting of 37 monthly 

observations between February 2007 and February 2010). Summary statistics for the 

“difference” and “ratio” calculations are displayed in Table 1. 

TABLE 1. Organic and Conventional Corn Price Relationship Summary Statistics 

Price 

Difference

Price 

Ratio

Average 4.32 2.10

Median 4.32 2.00

Maximum 7.24 3.22

Minimum 1.91 1.52

Standard Deviation 1.45 0.39

Coefficient of Variation 0.33 0.19

Count 37 37

Source: Table developed by the Contractor based on data provided by AMS and NASS 

The median premium for organic production is $4.32/bu, or 2.00 times the conventional price. 

The average organic price appears to be unduly influenced by a few observations and the mode is 

meaningless (no two values are repeated in the observation set); thus, the median appears to be 

the most reasonable measure of the relationship‟s central tendency. 
Organic Crops: Final Development of Additional Price Elections 

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contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

10

The maximum and minimum measures provide a sense of the extremes in the dataset. Since the 

period of time encompassed by the dataset is short, a level of conservatism in warranted. This 

particular period of time encompasses prices for corn much higher than was the norm in prior 

years. As such, the minimum price difference and ratio over the term of the data provide a useful 

starting point in considering development of organic prices. The smallest difference and ratio 

between organic and conventional prices represent the best available measure of a “floor” 

premium for organic production. Using a minimum historical relationship minimizes the 

potential for over-insurance; an advisable approach in this data poor environment. In the 

development of organic price elections, it is important to acknowledge that historically organic 

producers have had to insure under conventional prices, which offered no recognition of the 

premium prices received for organic production. Price elections that increase conventional prices 

by the minimum observed differences or ratios will provide estimates that substantially more 

closely approximate actual realized organic prices.

The price difference data series is displayed in Figure 3. For the convenience of the reader, the 

median price difference and minimum price difference are displayed on the figure. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

11

FIGURE 3. Corn Price Difference Data Series 

Source: Figure developed by the Contractor based on data provided by AMS and NASS 

Figure 3 Data. 

Month

Difference 

Org less 

Conv. Median Minimum Month

Difference 

Org less 

Conv. Median Minimum

Jan-07 4.32 1.91 Aug-08 5.91 4.32 1.91

Feb-07 2.85 4.32 1.91 Sep-08 5.63 4.32 1.91

Mar-07 2.99 4.32 1.91 Oct-08 5.95 4.32 1.91

Apr-07 3.80 4.32 1.91 Nov-08 5.09 4.32 1.91

May-07 3.70 4.32 1.91 Dec-08 4.63 4.32 1.91

Jun-07 3.53 4.32 1.91 Jan-09 4.14 4.32 1.91

Jul-07 5.43 4.32 1.91 Feb-09 4.32 4.32 1.91

Aug-07 7.24 4.32 1.91 Mar-09 3.78 4.32 1.91

Sep-07 6.88 4.32 1.91 Apr-09 3.38 4.32 1.91

Oct-07 6.01 4.32 1.91 May-09 3.31 4.32 1.91

Nov-07 5.66 4.32 1.91 Jun-09 3.68 4.32 1.91

Dec-07 5.47 4.32 1.91 Jul-09 3.35 4.32 1.91

Jan-08 5.65 4.32 1.91 Aug-09 3.02 4.32 1.91

Feb-08 5.54 4.32 1.91 Sep-09 2.52 4.32 1.91

Mar-08 5.35 4.32 1.91 Oct-09 2.28 4.32 1.91

Apr-08 5.12 4.32 1.91 Nov-09 1.91 4.32 1.91

May-08 4.99 4.32 1.91 Dec-09 1.94 4.32 1.91

Jun-08 5.04 4.32 1.91 Jan-10 2.03 4.32 1.91

Jul-08 5.67 4.32 1.91 Feb-10 2.02 4.32 1.91

Monthly premiums for organic production increased sharply in the 2007 and 2008 crop years, 

and hovered around $5.00/bu before returning to approximately $3.00/bu shortly before harvest 

of the 2009 crop and falling to approximately $2.00/bu after harvest was complete. Based on 

discussion with organic corn producers, the high premiums were linked to small quantities of 

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Month 

Price ($/bu)

Difference: Organic less Conventional

Median: 4.32

Minimum:1.91
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

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12

organic production available. Consistent with many crops that are subject to thin markets, short 

supplies can have substantial impacts on prices in the short and intermediate term. The price ratio 

data series is displayed in Figure 4. For the convenience of the reader, the median price ratio and 

minimum price ratio are displayed on the figure. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

13

FIGURE 4. Corn Price Ratio Data Series 

Source: Figure developed by the Contractor based on data provided by AMS and NASS

Figure 4 Data. 

Month

Ratio: Org 

to Conv. Median Minimum Month

Ratio: Org 

to Conv. Median Minimum

Jan-07 2.00 1.52 Aug-08 2.12 2.00 1.52

Feb-07 1.83 2.00 1.52 Sep-08 2.12 2.00 1.52

Mar-07 1.87 2.00 1.52 Oct-08 2.36 2.00 1.52

Apr-07 2.12 2.00 1.52 Nov-08 2.20 2.00 1.52

May-07 2.06 2.00 1.52 Dec-08 2.13 2.00 1.52

Jun-07 2.00 2.00 1.52 Jan-09 1.95 2.00 1.52

Jul-07 2.64 2.00 1.52 Feb-09 2.12 2.00 1.52

Aug-07 3.22 2.00 1.52 Mar-09 1.98 2.00 1.52

Sep-07 3.10 2.00 1.52 Apr-09 1.87 2.00 1.52

Oct-07 2.83 2.00 1.52 May-09 1.84 2.00 1.52

Nov-07 2.65 2.00 1.52 Jun-09 1.92 2.00 1.52

Dec-07 2.45 2.00 1.52 Jul-09 1.93 2.00 1.52

Jan-08 2.42 2.00 1.52 Aug-09 1.91 2.00 1.52

Feb-08 2.22 2.00 1.52 Sep-09 1.78 2.00 1.52

Mar-08 2.14 2.00 1.52 Oct-09 1.64 2.00 1.52

Apr-08 2.00 2.00 1.52 Nov-09 1.52 2.00 1.52

May-08 1.95 2.00 1.52 Dec-09 1.56 2.00 1.52

Jun-08 1.92 2.00 1.52 Jan-10 1.60 2.00 1.52

Jul-08 2.08 2.00 1.52 Feb-10 1.59 2.00 1.52

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Oct-09

Month 

Price ($/bu)

Ratio: Organic to Conventional

Median: 2.00

Minimum: 1.52
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

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14

Based on these relational assessments, the Contractor believes conventional prices can be 

adjusted to project organic prices. The Contractor considered four approaches to adjusting 

conventional prices to project organic prices: adding the median difference to the conventional 

price, adding the minimum difference to the conventional price, multiplying the conventional 

price by the median ratio, and multiplying the conventional price by the minimum ratio. The 

outcomes of these adjusted estimated prices relative to the reported conventional and organic 

prices are displayed in Figure 5. 

Price elections obviously are an annual value not subject to the month-to-month variation of 

markets. However, since only two complete crop years of data are available, annual averages 

provide only one degree of freedom in the statistical sense. Thus, monthly data provide a more 

complete view of the behavior of price relationships than would a simple comparison of annual 

averages. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

15

FIGURE 5. Organic Corn Price Projection Performance

Source: Figure developed by the Contractor based on data provided by AMS and NASS

Figure 5 Data. 

Corn OrganicConventional

Conventional 

Adjusted by 

Median 

Difference

Conventional 

Adjusted by 

Median Ratio

Conventional 

Adjusted by Min 

Difference

Conventional 

Adjusted by Min 

Ratio Corn OrganicConventional

Conventional 

Adjusted by 

Median 

Difference

Conventional 

Adjusted by 

Median Ratio

Conventional 

Adjusted by Min 

Difference

Conventional 

Adjusted by Min 

Ratio

Jan-07 3.05 Aug-08 11.17 5.26 9.58 10.52 7.17 8.00

Feb-07 6.29 3.44 7.76 6.88 5.35 5.23 Sep-08 10.65 5.02 9.34 10.04 6.93 7.63

Mar-07 6.42 3.43 7.75 6.86 5.34 5.21 Oct-08 10.32 4.37 8.69 8.74 6.28 6.64

Apr-07 7.19 3.39 7.71 6.78 5.30 5.15 Nov-08 9.35 4.26 8.58 8.52 6.17 6.48

May-07 7.19 3.49 7.81 6.98 5.40 5.30 Dec-08 8.73 4.10 8.42 8.20 6.01 6.23

Jun-07 7.06 3.53 7.85 7.06 5.44 5.37 Jan-09 8.50 4.36 8.68 8.72 6.27 6.63

Jul-07 8.75 3.32 7.64 6.64 5.23 5.05 Feb-09 8.19 3.87 8.19 7.74 5.78 5.88

Aug-07 10.50 3.26 7.58 6.52 5.17 4.96 Mar-09 7.64 3.86 8.18 7.72 5.77 5.87

Sep-07 10.16 3.28 7.60 6.56 5.19 4.99 Apr-09 7.25 3.87 8.19 7.74 5.78 5.88

Oct-07 9.30 3.29 7.61 6.58 5.20 5.00 May-09 7.27 3.96 8.28 7.92 5.87 6.02

Nov-07 9.10 3.44 7.76 6.88 5.35 5.23 Jun-09 7.69 4.01 8.33 8.02 5.92 6.10

Dec-07 9.24 3.77 8.09 7.54 5.68 5.73 Jul-09 6.95 3.6 7.92 7.20 5.51 5.47

Jan-08 9.63 3.98 8.30 7.96 5.89 6.05 Aug-09 6.35 3.33 7.65 6.66 5.24 5.06

Feb-08 10.08 4.54 8.86 9.08 6.45 6.90 Sep-09 5.77 3.25 7.57 6.50 5.16 4.94

Mar-08 10.05 4.7 9.02 9.40 6.61 7.14 Oct-09 5.82 3.54 7.86 7.08 5.45 5.38

Apr-08 10.26 5.14 9.46 10.28 7.05 7.81 Nov-09 5.56 3.65 7.97 7.30 5.56 5.55

May-08 10.26 5.27 9.59 10.54 7.18 8.01 Dec-09 5.43 3.49 7.81 6.98 5.4 5.30

Jun-08 10.51 5.47 9.79 10.94 7.38 8.31 Jan-10 5.39 3.36 7.68 6.72 5.27 5.11

Jul-08 10.92 5.25 9.57 10.50 7.16 7.98 Feb-10 5.47 3.45 7.77 6.90 5.36 5.24

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Month 

Price ($/bu)

Organic Corn Conventional Corn Med Diff Adj Conv

Med Ratio Adj Conv Min Diff Adj Conv Min Ratio Adj Conv
Organic Crops: Final Development of Additional Price Elections 

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16

As the figure displays, the values based on the median values track the actual observed organic 

prices more closely than the values based on the minimum values. In this sense, the performance 

of median values, by definition, is superior to that of the minimum based adjustments. It is worth 

noting, however, that many of the values represented by the median estimates exceed the actual 

reported organic prices, in some cases substantially.4 While the data series is much too short to 

obtain any sense of differences on an annual basis, this outcome provides a cautionary note.5

Table 2 displays the summary performance statistics, as measured by the „error‟ or difference 

between the projected value and the actual reported value, of each of the adjustment procedures 

over the span of the available data displayed in the figure. A positive error value indicates that 

the actual reported value was higher than the projected value, and vice versa. 

TABLE 2. Organic Corn Alternative Adjustment Performance Summary Statistics 

Median 

Difference 

Adjusted 

Error

Median 

Ratio 

Adjusted 

Error

Minimum 

Difference 

Adjusted 

Error

Minimum 

Ratio 

Adjusted 

Error

Average 0.00 0.36 2.41 2.26

Median 0.00 0.00 2.41 2.20

Maximum 2.92 3.98 5.33 5.54

Minimum -2.41 -1.74 0.00 0.00

Sum of Squared Errors 77.36 70.55 291.90 255.79

Source: Figure developed by the Contractor based on data provided by AMS and NASS

A brief interpretation of these performance statistics is provided for each of the alternative 

adjustment procedures. 

Median Difference Adjustment Procedure 

This procedure adds the median difference between the prices to the conventional price for each 

observation. As the table displays, the median difference approach slightly overestimated the 

organic price on average, but (by definition) had a median error of zero. The approach has the 

smallest maximum error (underestimate) and the smallest sum of squared errors (an aggregate 

measure of projection performance), but had the largest minimum error (overestimate). 

Median Ratio Adjustment Procedure 

Under this procedure, each of the conventional prices is multiplied by the median ratio. This 

approach performed similarly to the median difference approach, with the lowest average error 

and (again by definition) a median error of zero, but displayed a large maximum error 

(underestimating the observed organic price by $3.98/bu in one instance) and an unacceptable 

overestimate as high as $1.74/bu. The sum of squared errors performance was similar to that of 

the median difference adjustment procedure. 

 

4

 The data series (only two complete and one partial marketing year) do not have sufficient length to measure any seasonality that may exist in the 

market for organic corn. 

5

 It is worth noting that the price election may exceed the monthly price on occasion but remain at or below the average market price on a crop 

year basis. 
Organic Crops: Final Development of Additional Price Elections 

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restrictions on the title page of this report.

17

Minimum Difference Adjustment Procedure 

This procedure added the single smallest difference between the prices to the conventional price 

for each observation. As the table displays, this approach consistently underestimated the organic 

price with a median underestimate of $2.41/bu. While the reported organic price was 

underestimated by as much as $5.33/bu, the method never (by definition) overestimated the 

organic price. The overall performance of the estimates, (as measured by the sum of squared 

errors) was substantially inferior to either median adjustment procedure. 

Minimum Ratio Adjustment Procedure 

This procedure multiplied the minimum ratio of the prices by the conventional price for each 

observation. As the table displays, the minimum ratio approach consistently underestimated the 

organic price with a median underestimate of $2.20/bu. While the minimum ratio approach 

underestimated the reported organic price by as much as $5.54/bu, the largest underestimate of 

the approaches tested, it also never (by definition) overestimated the organic price. The overall 

performance of the minimum ratio approach was far superior to that of the minimum difference 

approach with a much smaller sum of squared errors. 

As the reader will note, the analysis to this point have are based on comparisons of the AMS 

organic monthly cash price data to its closest conventional price analogue to facilitate numerous 

monthly comparisons. The ultimate objective of the organic price elections development, 

however, is to provide procedures for application to each subsequent crop year‟s price elections 

for conventional type corn. As each year is unique, a superior test of potential performance for 

each of the alternative price election determination approaches is to measure how they would 

have preformed in prior crop years. Starting in the 2010 crop year, and in subsequent crop years, 

RMA intends to use the base price for its revenue products as the price election for yield 

coverage for all crops for which revenue coverage is offered. As corn is among these crops, the 

corn revenue base price will also be the price election for corn yield coverage. 

RMA provided the Contractor with the proposed CEPP which are expected to serve as the basis 

of the determination of base price elections under the Combo plan. For corn, the base price is 

calculated as the simple average of reported daily settlement prices for the trading dates February 

1 through February 28 for the Chicago Board of Trade (CBOT) December Corn contract for 

most of the acreage, rounded to the nearest whole cent per bushel.6The Contractor calculated the 

base prices that would have been in effect for the crop years 2007, 2008, and 2009 for 

assessment of the procedures specified above. The base prices for these years and the data used 

to determine them are displayed in Table 3. Prices are reported to the quarter of a cent per 

bushel, consistent with CBOT procedures. 

 

6

 While all production areas use either the CBOT September or December corn contract as the basis of base price discovery, most of the southern 

United States use January 15 through February 14 as the price discovery period. Part of Texas (January 31 sales closing date) uses December 15 

through January 14, and other parts of Texas (February 28 sales closing date) use January 1 through January 30. To prevent confusion, the 

examples use the dates and contracts applicable to the majority of corn production in the Midwest. 
Organic Crops: Final Development of Additional Price Elections 

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18

TABLE 3. Corn Base Price Calculations for 2007, 2008, and 2009 

December 2007 Corn December 2008 Corn December 2009 Corn

Date Close Date Close Date Close

2/1/2007 3.9250 2/1/2008 5.1900 2/2/2009 4.1600

2/2/2007 3.9725 2/4/2008 5.3300 2/3/2009 4.0650

2/5/2007 3.9500 2/5/2008 5.3250 2/4/2009 4.0150

2/6/2007 3.9150 2/6/2008 5.2575 2/5/2009 4.1500

2/7/2007 3.9100 2/7/2008 5.2250 2/6/2009 4.2000

2/8/2007 3.9650 2/8/2008 5.3000 2/9/2009 4.2100

2/9/2007 3.9925 2/11/2008 5.2525 2/10/2009 4.2050

2/12/2007 3.9850 2/12/2008 5.2025 2/11/2009 4.1000

2/13/2007 4.0300 2/13/2008 5.1925 2/12/2009 4.0750

2/14/2007 4.0125 2/14/2008 5.3225 2/13/2009 4.0600

2/15/2007 4.0450 2/15/2008 5.3800 2/17/2009 3.9000

2/16/2007 4.1325 2/19/2008 5.4500 2/18/2009 3.8750

2/20/2007 4.1325 2/20/2008 5.4800 2/19/2009 3.9450

2/21/2007 4.2300 2/21/2008 5.5300 2/20/2009 3.9100

2/22/2007 4.2775 2/22/2008 5.5025 2/23/2009 3.9150

2/23/2007 4.2075 2/25/2008 5.5725 2/24/2009 3.9425

2/26/2007 4.1800 2/26/2008 5.5650 2/25/2009 4.0425

2/27/2007 4.0950 2/27/2008 5.5350 2/26/2009 4.0200

2/28/2007 4.2000 2/28/2008 5.6550 2/27/2009 3.9050

Implied 2007 Base Price Implied 2008 Base Price Implied 2009 Base Price

4.06 $/bu 5.38 $/bu 4.04 $/bu

Source: Table developed by the Contractor with data provided by the Chicago Board of Trade and procedures provided by RMA.

With these values, and the annual average reported prices for organic corn, performance was 

assessed for each of the alternative price calculation approaches.7Table 4 displays the base 

prices and annual average organic corn prices, as well as the organic corn prices estimated by 

each of the alternative approaches and the difference of each. For comparison, the conventional 

corn base price (which is the price that is currently used to value organic production) and its 

difference for each year is also reported. 

 

7

 As no market volume data are available for organic crops, the annual average organic price is calculated as the simple average of the monthly 

organic prices based on the AMS dataset. 
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19

TABLE 4. Organic Corn Price Election Performance 

2007 2008 2009

Sum of 

Absolute 

Errors

Conventional Base Price 4.06 5.38 4.04

Organic Annual Average Price 8.29 10.16 6.87

Median Difference 

Adjustment

Projected 8.38 9.70 8.36 2.04

Error -0.09 0.46 -1.49

Median Ratio 

Adjustment

Projected 8.12 10.76 8.08 1.98

Error 0.17 -0.60 -1.21

Minimum 

Difference 

Adjustment

Projected 5.97 7.29 5.95

6.11

Error 2.32 2.87 0.92

Minimum Ratio 

Adjustment

Projected 6.17 8.18 6.14 4.83

Error 2.12 1.98 0.73

Conventional Price 

(No Adjustment)

Projected 4.06 5.38 4.04 11.84

Error 4.23 4.78 2.83

Source: Table developed by the Contractor with data provided by AMS, the Chicago Board of Trade, and procedures provided by RMA. 

As displayed in the table, the median ratio adjustment offered the smallest sum of absolute errors 

over this three year period, but also had two instances when it overestimated the observed annual 

organic price. The minimum difference approach, which did not perform particularly well in 

projecting prices (largest sum of absolute errors), never overestimated actual observed organic 

prices, making it a conservative approach that would prevent potential for overestimation. It is 

important to note the current approach (simply using the conventional price) performed poorly, 

with the error observed in every year larger than the largest error observed in any year for any of 

the alternative approaches considered. In this context, even the conservative minimum difference 

approach represents an improvement over the status quo. 

The Contractor recommends a minimum ratio adjustment as the starting point for organic price 

elections for corn. As data accumulate, it may be possible to recognize an appropriate time limit 

on this approach (e.g., five years or seven years minimum ratio). Under current data constraints,

it is not possible to establish what such a time frame might be. Furthermore, as data accumulate,

it may be possible to expand the discovery process to evaluate quarterly prices, rolling quarterly 

prices, or even aggregate annual prices. However, it is not anticipated that such consideration can 

be made in the next three years. 

The results of this relationship can be applied to a base price election derived using any method. 

However, due to the need for uniform collection procedures and an on-going data stream, the 

ratio will best be derived from the AMS data series until and unless an alternative data source 

becomes available. Therefore, the recommended price election for organic corn is the base price 

for conventional corn multiplied by 1.52 (rounded appropriately). As this approach is based on a 

very brief temporal dataset, the Contractor strongly recommends the organic price election for 

corn be carefully monitored, with the ultimate objective of obtaining sufficient data to support 

the independent determination of organic corn price elections based on organic corn price data. 
Organic Crops: Final Development of Additional Price Elections 

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20

SECTION IV. ORGANIC PRICING FOR SOYBEANS 

The majority of soybeans grown in the United States are produced from Genetically Modified 

Organism (GMO) seed, which automatically disqualifies production from consideration under 

the National Organic Program (NOP) standards. Of the non-GMO soybeans produced 

domestically, most are food-grade specialty varieties grown primarily with conventional 

practices. The volume of feed-grade organic soybeans, which constitute a small share of the 

overall soybean market, is substantially larger than the food-grade organic soybean market, and 

is the focus of this pricing research. It is worth noting the food-grade organic soybeans can 

command very large price premiums, even relative to the already premium-priced feed grade 

organic soybeans. However, much of the food-grade organic soybean production is grown under 

contract and the relevant pricing data are largely proprietary. If these data were to become 

available at a future date, similar methods to those discussed in this document might be applied 

for price election development for food-grade organic soybeans8.

The Contractor obtained organic soybean price data from a number of sources, including biweekly data collected by the USDA AMS, a public-private partnership dataset collected by 

Rodale Institute under contract with RMA, and a number of smaller datasets provided by organic 

advocacy organizations and producer groups. As was discussed previously, few datasets meet the 

data standards outlined in the contract (see Organic Crops Pricing Report). 

Based on extensive assessment of these datasets (see the Organic Crops Pricing Report for 

additional information), only the AMS dataset was found to meet most data standards (see 

Organic Crops Pricing Report). AMS gathers price data and establishes market prices based on 

its survey methodology. Consequently, there is no reporting of volume sold at a price. However, 

the frequency of the AMS reporting provides a snapshot of relative price levels that can support 

inferences about annual tendencies. 

AMS reports prices for both food-grade and feed-grade soybeans. Based on numerous and 

substantial gaps in the food-grade soybean dataset and the overall thinness of the markets for a 

variety of food-grade soybeans, this analysis and price election research focused on feed-grade 

soybeans. Only feed-grade soybean data are used in this analysis. Although the data available for 

food-grade soybeans were very thin, both our discussions with AMS and our assessment of the 

data indicated that food-grade soybeans consistently sold at a substantial premium to feed-grade 

soybeans. As a result, the contractor recommends that the organic price calculated in this 

analysis be applied to both feed-grade and food grade soybeans. This recommendation 

recognizes that separate actuarial structures incorporating individual types are not likely at this 

time. This still would provide a substantial improvement over the current pricing (applying 

conventional corn pricing). Further, the contractor recommends that AMS pricing data for foodgrade soybeans be monitored on an ongoing basis, with consideration of applying a similar 

analysis for the development of a separate organic food-grade price when data are sufficient to 

identify separate actuarial structures for the specific types. 

 

8

 For the 2010 crop year, RMA introduced contract pricing for specialty types of soybeans, some of which are food grade. Under this

program, the production is valued based on the price in the grower‟s contract. This program could provide a useful test of the potential for 

applying contract priced for food-grade soybean types which ultimately could have some valuable applications to organic soybeans of both feedgrade and food-grade types. 
Organic Crops: Final Development of Additional Price Elections 

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21

For analysis purposes, bi-weekly price observations in the AMS dataset were aggregated to a 

monthly basis by calculating the simple average of all observations from each calendar month 

during a year. Several gaps were present in the 2008 market year due to periods in which no data 

were reported to AMS. The reader will note there have been no gaps in market data for the last 

20 consecutive reporting periods (out of a total of 33). This likely reflects increasing market 

volume. Figure 6 displays the AMS organic soybean price data for the entire term of the series to 

date. 

FIGURE 6. AMS Organic Soybean Price Data

Source: Figure developed by the Contractor based on information provided by USDA AMS 

Figure 6 Data. 

Month

Organic 

Price Month

Organic 

Price

Jan-07 Aug-08 29.87

Feb-07 Sep-08 29.16

Mar-07 12.91 Oct-08 24.92

Apr-07 14.27 Nov-08 22.48

May-07 14.41 Dec-08 19.09

Jun-07 13.36 Jan-09 18.98

Jul-07 14.27 Feb-09 18.24

Aug-07 14.91 Mar-09 17.67

Sep-07 Apr-09 17.83

Oct-07 16.02 May-09 18.44

Nov-07 15.82 Jun-09 20.47

Dec-07 17.62 Jul-09 18.92

Jan-08 21.17 Aug-09 19.45

Feb-08 22.75 Sep-09 19.1

Mar-08 24.96 Oct-09 17.94

Apr-08 Nov-09 17.19

May-08 23.37 Dec-09 17.03

Jun-08 Jan-10 15.77

Jul-08 27.02 Feb-10 16.66

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Jan-07Apr-07

Jul-07

Oct-07

Jan-08Apr-08

Jul-08

Oct-08

Jan-09Apr-09

Jul-09

Oct-09

Jan-10

Month 

Price ($/bu)
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22

There are many excellent sources of highly detailed and rigorous conventional soybean price 

data. Given the many options available, it is important to consider the most appropriate 

conventional price series for comparison to the AMS data. As the AMS data are based on actual 

producer sales, direct comparison of time series prices to commodity futures prices for 

conventional soybeans would not be fully appropriate. In addition, futures prices pertain to 

certain specified months each year. Basis considerations (the differences between prevailing 

local cash prices and futures contract settlement prices) suggest comparison to conventional 

soybean producer prices received would offer a better “apples to apples” assessment, consistent 

with the comparisons made in the analysis of organic corn prices. For this comparison, the 

Contractor obtained NASS Prices Received by Producers data for each of the months for which 

AMS organic soybean price data were available.9Figure 7 displays the AMS organic soybean 

prices relative to the NASS Prices Received by Producers conventional soybean prices. 

 

9

 NASS Agricultural prices report: http://usda.mannlib.cornell.edu/usda/current/AgriPric/AgriPric-09-29-2009.pdf. 
Organic Crops: Final Development of Additional Price Elections 

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23

FIGURE 7. Organic and Conventional Soybean Prices

Source: Figure developed by the Contractor based on data provided by AMS and NASS 

Figure 7 Data. 

Month

Organic 

Price

Conventional 

Price Month

Organic 

Price

Conventional 

Price

Jan-07 6.37 Aug-08 29.87 12.8

Feb-07 6.87 Sep-08 29.16 10.7

Mar-07 12.91 6.95 Oct-08 24.92 9.94

Apr-07 14.27 6.88 Nov-08 22.48 9.38

May-07 14.41 7.12 Dec-08 19.09 9.24

Jun-07 13.36 7.51 Jan-09 18.98 9.97

Jul-07 14.27 7.56 Feb-09 18.24 9.55

Aug-07 14.91 7.72 Mar-09 17.67 9.12

Sep-07 8.15 Apr-09 17.83 9.89

Oct-07 16.02 8.36 May-09 18.44 10.7

Nov-07 15.82 9.42 Jun-09 20.47 11.4

Dec-07 17.62 10.00 Jul-09 18.92 10.8

Jan-08 21.17 9.95 Aug-09 19.45 10.8

Feb-08 22.75 11.7 Sep-09 19.1 9.75

Mar-08 24.96 11.4 Oct-09 17.94 9.94

Apr-08 12 Nov-09 17.19 9.53

May-08 23.37 12.1 Dec-09 17.03 9.96

Jun-08 13.1 Jan-10 15.77 9.39

Jul-08 27.02 13.3 Feb-10 16.66 9.4

Consistent with the recommendation for organic corn, the Contractor recommends price 

elections for organic soybeans be developed in conjunction with price elections for conventional 

soybeans. This guidance is based on two primary concerns. First, based on the lack of long-term 

data for organic prices (the AMS series was initiated in February 2007) and the lack of available 

data related to stocks, planting intentions, supply, or demand for organic soybeans, consideration 

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Jan-07Apr-07

Jul-07

Oct-07

Jan-08Apr-08

Jul-08

Oct-08

Jan-09Apr-09

Jul-09

Oct-09

Jan-10

Month 

Price ($/bu)

Organic Feed Soybeans Conventional
Organic Crops: Final Development of Additional Price Elections 

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24

of relationships between the available data for organic soybeans and the data available for 

conventional soybeans is likely to provide much more reliable conclusions. Second, as discussed 

in the analysis of organic corn, organic soybeans and conventional soybeans are substitutes and 

thus their prices are linked, if imperfectly, by the degree to which one can be substituted for the 

other.

In the review of the relationship between organic and conventional soybeans, or indeed any of 

the evaluated organic crops, organic production consistently receives a premium (which is often 

substantial) over conventional prices. The literature review, however, revealed little published 

information assessing the relationships between conventional and organic pricing. Based on the 

limited data available (and their limited capacity to support more complex modeling), the 

Contractor considered two simple relationship measures between conventional and organic 

soybean prices; difference (the organic price less the reported conventional price) and the ratio 

(the organic price divided by the conventional price). 

The Contractor calculated the differences and ratios of all observations in the conventional and 

organic datasets (consisting of 33 monthly observations between February 2007 and February 

2010, with three reporting periods for which no data were available). Summary statistics for the 

“difference” and “ratio” datasets are displayed in Table 5. 

TABLE 5. Organic and Conventional Soybean Price Relationship Summary Statistics 

Difference Ratio

Average 9.39 1.96

Median 8.12 1.91

Maximum 18.46 2.73

Minimum 5.85 1.68

Standard Deviation 3.14 0.65

Coefficient of Variation 0.33 0.33

Count 33 33

Source: Table developed by the Contractor based on data provided by AMS and 

NASS 

As the summary statistics display, the median premium for organic production is $8.12/bu, or 

1.91 times the conventional price over the term of the available data. As average appears to be 

unduly influenced by a few high observations and mode is meaningless (no two values are 

repeated in the observation set), the median appears to be the most reasonable measure of 

relationship central tendency. 

The maximum and minimum measures demonstrate the volatility of the organic premium and the 

potential for volatility in thin markets. As this relationship will be used in development of 

organic price elections and data are thin, a level of conservatism is warranted. As such, the 

minimum price difference and ratio over the term of the data provide a useful baseline in 

considering development of organic prices. The smallest difference and ratio between organic 

and conventional prices can be considered a “floor” premium for organic production, at least 

over the term of this dataset. If conventional prices were adjusted upward based on the lowest 
Organic Crops: Final Development of Additional Price Elections 

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25

premium observed in the dataset, the potential for over-insurance is effectively curtailed; perhaps 

an advisable step in this data poor environment. In the development of organic price elections, it 

is important to acknowledge that historically, organic producers have had to insure under 

conventional prices, which offered no recognition of the premium prices received for organic 

production. Even price elections that scale conventional prices up by the minimum differences 

and ratios observed provide estimates that substantially more closely approximate actual realized 

organic price values. 

The price difference data series is displayed in Figure 8. For the convenience of the reader, the 

median price difference and minimum price difference are displayed on the figure. 
Organic Crops: Final Development of Additional Price Elections 

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26

FIGURE 8. Soybean Price Difference Data Series 

Source: Figure developed by the Contractor based on data provided by AMS and NASS 

Figure 8 Data. 

Month

Difference: 

Org less 

Conv. Median Minimum Month

Difference: 

Org less 

Conv. Median Minimum

Jan-07 8.12 5.85 Aug-08 17.07 8.12 5.85

Feb-07 8.12 5.85 Sep-08 18.46 8.12 5.85

Mar-07 5.96 8.12 5.85 Oct-08 14.98 8.12 5.85

Apr-07 7.39 8.12 5.85 Nov-08 13.10 8.12 5.85

May-07 7.29 8.12 5.85 Dec-08 9.85 8.12 5.85

Jun-07 5.85 8.12 5.85 Jan-09 9.01 8.12 5.85

Jul-07 6.71 8.12 5.85 Feb-09 8.69 8.12 5.85

Aug-07 7.19 8.12 5.85 Mar-09 8.55 8.12 5.85

Sep-07 8.12 5.85 Apr-09 7.94 8.12 5.85

Oct-07 7.66 8.12 5.85 May-09 7.74 8.12 5.85

Nov-07 6.40 8.12 5.85 Jun-09 9.07 8.12 5.85

Dec-07 7.62 8.12 5.85 Jul-09 8.12 8.12 5.85

Jan-08 11.22 8.12 5.85 Aug-09 8.65 8.12 5.85

Feb-08 11.05 8.12 5.85 Sep-09 19.10 8.12 5.85

Mar-08 13.56 8.12 5.85 Oct-09 17.94 8.12 5.85

Apr-08 8.12 5.85 Nov-09 17.19 8.12 5.85

May-08 11.27 8.12 5.85 Dec-09 17.03 8.12 5.85

Jun-08 8.12 5.85 Jan-10 15.77 8.12 5.85

Jul-08 13.72 8.12 5.85 Feb-10 16.66 8.12 5.85

Premiums for organic production increased substantially in the 2007 crop year in a low-volume 

market. Over most of the period, premiums ranged between $6.00/bu and $16.00/bu., and 

increased substantially during the marketing year for the 2007 crop. The price ratio data series is 

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Jan-07

Apr-07

Jul-07

Oct-07Jan-08

Apr-08

Jul-08

Oct-08Jan-09

Apr-09

Jul-09

Oct-09Jan-10

Month 

Price ($/bu)

Difference: Organic less Conventional

Median: 8.12

Minimum: 5.85
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

27

displayed in Figure 9. For the convenience of the reader, the median price ratio and minimum 

price ratio are displayed on the figure. 

FIGURE 9. Soybean Price Ratio Data Series 

Source: Figure developed by the Contractor based on data provided by AMS and NASS

Figure 9 Data. 

Month

Ratio: Org 

to Conv. Median Minimum Month

Ratio: Org 

to Conv. Median Minimum

Jan-07 1.91 1.68 Aug-08 2.33 1.91 1.68

Feb-07 1.91 1.68 Sep-08 2.73 1.91 1.68

Mar-07 1.86 1.91 1.68 Oct-08 2.51 1.91 1.68

Apr-07 2.07 1.91 1.68 Nov-08 2.40 1.91 1.68

May-07 2.02 1.91 1.68 Dec-08 2.07 1.91 1.68

Jun-07 1.78 1.91 1.68 Jan-09 1.90 1.91 1.68

Jul-07 1.89 1.91 1.68 Feb-09 1.91 1.91 1.68

Aug-07 1.93 1.91 1.68 Mar-09 1.94 1.91 1.68

Sep-07 1.91 1.68 Apr-09 1.80 1.91 1.68

Oct-07 1.92 1.91 1.68 May-09 1.72 1.91 1.68

Nov-07 1.68 1.91 1.68 Jun-09 1.80 1.91 1.68

Dec-07 1.76 1.91 1.68 Jul-09 1.75 1.91 1.68

Jan-08 2.13 1.91 1.68 Aug-09 1.80 1.91 1.68

Feb-08 1.94 1.91 1.68 Sep-09 19.1 1.91 1.68

Mar-08 2.19 1.91 1.68 Oct-09 17.94 1.91 1.68

Apr-08 1.91 1.68 Nov-09 17.19 1.91 1.68

May-08 1.93 1.91 1.68 Dec-09 17.03 1.91 1.68

Jun-08 1.91 1.68 Jan-10 15.77 1.91 1.68

Jul-08 2.03 1.91 1.68 Feb-10 16.66 1.91 1.68

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Jan-07Apr-07

Jul-07

Oct-07

Jan-08Apr-08

Jul-08

Oct-08

Jan-09Apr-09

Jul-09

Oct-09

Month 

Price ($/bu)

Ratio: Organic to Conventional

Median: 1.91

Minimum: 1.68
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

28

Based on these relational assessments, conventional prices can be adjusted to project organic 

prices. Consistent with the analyses applied in organic corn, the Contractor considered four 

approaches to adjusting conventional prices to project organic soybean prices: by adding the 

median difference, by adding the minimum difference, by multiplying the conventional price by 

the median ratio, and multiplying the conventional price by the minimum ratio. The outcomes of 

these adjusted “projected” prices relative to the reported conventional and organic prices are 

displayed in Figure 10. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

29

FIGURE 10. Organic Soybean Price Projection Performance

Source: Figure developed by the Contractor based on data provided by AMS and NASS

Figure 10 Data. 

Month OrganicConventional

Conventional 

Adjusted by 

Median 

Difference

Conventional 

Adjusted by 

Median Ratio

Conventional 

Adjusted by Min 

Difference

Conventional 

Adjusted by Min 

Ratio Month OrganicConventional

Conventional 

Adjusted by 

Median 

Difference

Conventional 

Adjusted by 

Median Ratio

Conventional 

Adjusted by Min 

Difference

Conventional 

Adjusted by Min 

Ratio

Jan-07 6.37 Aug-08 29.87 12.80 20.92 24.45 18.65 21.50

Feb-07 6.87 Sep-08 29.16 10.70 18.82 20.44 16.55 17.98

Mar-07 12.91 6.95 15.07 13.27 12.80 11.68 Oct-08 24.92 9.94 18.06 18.99 15.79 16.70

Apr-07 14.27 6.88 15.00 13.14 12.73 11.56 Nov-08 22.48 9.38 17.50 17.92 15.23 15.76

May-07 14.41 7.12 15.24 13.60 12.97 11.96 Dec-08 19.09 9.24 17.36 17.65 15.09 15.52

Jun-07 13.36 7.51 15.63 14.34 13.36 12.62 Jan-09 18.98 9.97 18.09 19.04 15.82 16.75

Jul-07 14.27 7.56 15.68 14.44 13.41 12.70 Feb-09 18.24 9.55 17.67 18.24 15.40 16.04

Aug-07 14.91 7.72 15.84 14.75 13.57 12.97 Mar-09 17.67 9.12 17.24 17.42 14.97 15.32

Sep-07 8.15 16.27 15.57 Apr-09 17.83 9.89 18.01 18.89 15.74 16.62

Oct-07 16.02 8.36 16.48 15.97 14.21 14.04 May-09 18.44 10.70 18.82 20.44 16.55 17.98

Nov-07 15.82 9.42 17.54 17.99 15.27 15.83 Jun-09 20.47 11.40 19.52 21.77 17.25 19.15

Dec-07 17.62 10.00 18.12 19.10 15.85 16.80 Jul-09 18.92 10.80 18.92 20.63 16.65 18.14

Jan-08 21.17 9.95 18.07 19.00 15.80 16.72 Aug-09 19.45 10.80 18.92 20.63 16.65 18.14

Feb-08 22.75 11.70 19.82 22.35 17.55 19.66 Sep-09 19.1 9.75 17.87 18.62 15.60 16.38

Mar-08 24.96 11.40 19.52 21.77 17.25 19.15 Oct-09 17.94 9.94 18.06 18.99 15.79 16.70

Apr-08 12.00 20.12 22.92 Nov-09 17.19 9.53 17.65 18.20 15.38 16.01

May-08 23.37 12.10 20.22 23.11 17.95 20.33 Dec-09 17.03 9.96 18.08 19.02 15.81 16.73

Jun-08 13.10 21.22 25.02 Jan-10 15.77 9.39 17.51 17.93 15.24 15.78

Jul-08 27.02 13.30 21.42 25.40 19.15 22.34 Feb-10 16.66 9.40 17.52 17.95 15.25 15.79

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Month 

Price ($/bu)

Organic Soybeans Conventional Soybeans Med Diff Adj Conv

Med Ratio Adj Conv Min Diff Adj Conv Min Ratio Adj Conv
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

30

The simulated organic prices based on the median values track the actual observed organic prices 

more closely than the simulated prices based on the minimum values. In this sense, the 

performance of median values, by definition, is superior to that of the minimum based 

adjustments. It is worth noting, however, that many of the values represented by the median 

estimates exceed the actual reported organic prices, in some cases substantially.10 While the data 

series is much too short to obtain any sense of differences on an annual basis, this outcome 

provides a cautionary note.11 Table 6 displays the summary performance statistics, as measured 

by the „error‟ or difference between the projected value and the actual reported value, of each of 

the adjustment procedures over the span of the available data displayed in the figure. 

TABLE 6. Organic Soybean Alternative Adjustment Performance Summary Statistics 

Median 

Difference 

Adjusted 

Error

Median 

Ratio 

Adjusted 

Error

Minimum 

Difference 

Adjusted 

Error

Minimum 

Ratio 

Adjusted 

Error

Average 1.27 0.50 3.54 2.75

Median 0.00 0.00 2.27 1.98

Maximum 10.34 8.72 12.61 11.18

Minimum -2.27 -2.17 0.00 0.00

Sum of Squared Errors 377.51 215.12 737.59 473.13

Source: Table developed by the Contractor based on data provided by AMS and NASS

A brief interpretation of these performance statistics is provided for each of the alternative 

adjustment procedures. 

Median Difference Adjustment Procedure 

This procedure added the median difference between the prices to the conventional price for each 

observation. As the table displays, the median difference approach, like all the approaches tested, 

underestimated the organic price on average, but (by definition) had a median error of zero. The 

median difference adjusted approach had a moderate maximum error (underestimate) and the 

moderate sum of squared errors (an aggregate measure of projection performance), but 

unacceptably had the largest minimum error (overestimate). 

Median Ratio Adjustment Procedure 

This procedure multiplied the median ratio to the conventional price for each observation. The 

median ratio adjusted approach displayed superior performance over most of the criteria 

considered, with the lowest average error, a median error of zero (again by definition), and the 

smallest maximum error. The median ratio approach had a minimum error (overestimate) as high 

as $2.17/bu. The sum of squared errors performance was the best tested by a considerable 

margin. 

 

10 The data series (only two complete and one partial marketing year) do not have sufficient length to measure any seasonality that may exist in 

the market for organic corn. 

11 It is worth noting that the price election may exceed the monthly price on occasion but remain at or below the average market price on a crop 

year basis. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

31

Minimum Difference Adjustment Procedure 

This procedure added the single smallest difference to the conventional price for each 

observation. As displayed in the table, the minimum difference approach consistently 

underestimated the organic price with a median underestimate of $2.27/bu. While this approach 

underestimated the reported organic price by as much as $12.61/bu., it never (by definition) 

overestimated the organic price. The overall performance of the minimum difference adjustment, 

(as measured by sum of squared errors) was the poorest of the approaches tested. 

Minimum Ratio Adjustment Procedure 

This procedure multiplied the minimum ratio of the reported prices by the conventional price for 

each observation. As displayed in the table, the minimum ratio approach consistently 

underestimated the organic price with a median underestimate of $1.98/bu. While the minimum 

ratio approach underestimated the reported organic price by as much as $11.18/bu (37 percent) in 

a single outlier observation, it also never (by definition) overestimated the organic price. The 

overall performance of the minimum ratio approach was far superior to that of the minimum 

difference approach with a much smaller sum of squared errors. 

As the reader will note, the analysis to this point have been made based on comparisons of the 

AMS organic monthly cash price data to its closest conventional price analogue to facilitate 

numerous monthly comparison observations, consistent with analysis performed for corn. The 

ultimate objective of the organic price elections development, however, is to provide procedures 

for application to each subsequent crop year‟s price election for conventional soybeans. As each 

year is unique, a superior test of potential performance for each of the alternative price election 

determination approaches is to measure how they would have preformed in past crop years. 

Starting in the 2010 crop year, and in subsequent crop years, RMA intends to use the base price 

for its revenue products as the price election for yield coverage for all crops for which revenue 

coverage is offered. As soybean is among these crops, the soybean revenue base price will also 

be the price election for soybean yield coverage. 

RMA provided the Contractor with the proposed CEPP, which are expected to serve as the basis 

for the determination of base prices (and thus price elections) under the Combo plan. These 

provisions dictate the calculation methods for determining base prices. For most of the soybean 

acreage, the base price is calculated as the average of reported daily settlement prices for the 

trading dates February 1 through February 28 for the CBOT November or January soybeans 

contract, rounded to the nearest whole cent per bushel.12 The Contractor calculated the base 

prices that would have been in effect for the crop years 2007, 2008, and 2009 for assessment of 

alternative calculation approaches using these procedures. The base prices for these years and the 

data used to determine them are displayed in Table 7. Prices are reported to the quarter of a cent 

per bushel, consistent with CBOT procedures. 

 

12 While all production areas use the CBOT November or January soybean contract as the basis of base price discovery, different states use 

different base price discovery periods based on sales closing dates. For the January 31 sales closing date (parts of Texas) December 15 through 

January 14 are used, for the February 28 sales closing date (much of the South) January 15 through February 14 are used. For the majority of the 

production region, (March 15 sales closing dates) February 1 through 28 are used. For simplicity in demonstration, the examples use the February 

1 through 28 dates with the January CBOT soybeans contracts. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

32

TABLE 7. Soybean Base Price Calculations for 2007, 2008, and 2009 

January 2008 Soybeans January 2009 Soybeans January 2010 Soybeans

Date Close Date Close Date Close

2/1/2007 7.7850 2/1/2008 12.5700 2/2/2009 9.3400

2/2/2007 7.9250 2/4/2008 13.0000 2/3/2009 9.0350

2/5/2007 7.9700 2/5/2008 12.9600 2/4/2009 8.9800

2/6/2007 7.9700 2/6/2008 12.8050 2/5/2009 9.2175

2/7/2007 7.9500 2/7/2008 12.8300 2/6/2009 9.5500

2/8/2007 8.0000 2/8/2008 12.9050 2/9/2009 9.5200

2/9/2007 8.0300 2/11/2008 12.9000 2/10/2009 9.4400

2/12/2007 8.0250 2/12/2008 12.7600 2/11/2009 9.2500

2/13/2007 8.1100 2/13/2008 12.7800 2/12/2009 9.0900

2/14/2007 8.0700 2/14/2008 13.0700 2/13/2009 9.0200

2/15/2007 8.1400 2/15/2008 13.2325 2/17/2009 8.6325

2/16/2007 8.2050 2/19/2008 13.6500 2/18/2009 8.4525

2/20/2007 8.2700 2/20/2008 13.7300 2/19/2009 8.5300

2/21/2007 8.3700 2/21/2008 13.8550 2/20/2009 8.3700

2/22/2007 8.4300 2/22/2008 13.9700 2/23/2009 8.5000

2/23/2007 8.3450 2/25/2008 14.2275 2/24/2009 8.4800

2/26/2007 8.3700 2/26/2008 14.3650 2/25/2009 8.4700

2/27/2007 8.2200 2/27/2008 14.1225 2/26/2009 8.4600

2/28/2007 8.2950 2/28/2008 14.3350 2/27/2009 8.4000

Implied 2007 Base Price Implied 2008 Base Price Implied 2009 Base Price

8.13 $/bu 13.37 $/bu 8.88 $/bu

Source: Table developed by the Contractor with data provided by the Chicago Board of Trade and procedures provided by RMA. 

With these values, and the annual average reported prices for organic soybean, performance was 

assessed for each of the alternative price calculation approaches.13 Table 8 displays the base 

prices and annual average organic soybean prices, as well as the organic soybean prices 

estimated by each of the alternative approaches and the error of each. For comparison, the 

conventional soybean base price (which is the price that is currently used to value organic 

production) and its „error‟ for each year is also reported.

 

13 As no market volume data are available for organic crops, the annual average organic price is calculated as the simple average of the monthly 

organic prices based on the AMS dataset. This approach was used in both the organic corn and organic soybean annual average price 

determinations. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

33

TABLE 8. Organic Soybean Price Election Performance 

2007 2008 2009

Sum of 

Absolute 

Errors

Conventional Base Price 8.13 13.37 8.88

Organic Annual Average Price 14.84 24.48 18.44

Median Difference 

Adjustment

Projected 16.25 21.49 17.00 5.84

Error -1.41 2.99 1.44

Median Ratio 

Adjustment

Projected 15.53 25.54 16.96 3.23

Error -0.69 -1.06 1.48

Minimum 

Difference 

Adjustment

Projected 13.98 19.22 14.73

9.83

Error 0.86 5.26 3.71

Minimum Ratio 

Adjustment

Projected 13.66 22.46 14.92 6.72

Error 1.18 2.02 3.52

Conventional Price 

(No Adjustment)

Projected 8.13 13.37 8.88 27.38

Error 6.71 11.11 9.56

Source: Table developed by the Contractor with data provided by AMS, the Chicago Board of Trade, and procedures 

provided by RMA.

As the table displays, the median ratio adjustment had the smallest errors over this three year 

period, but also had two instances when it overestimated the actual observed annual organic 

price. Neither the minimum difference approach nor the minimum ratio approach ever 

overestimated the actual observed organic price, but the minimum ratio adjustment had superior 

performance in terms of sum of absolute errors. Based on its performance, minimum ratio 

adjustment is a conservative approach that would prevent potential for overestimation. It is 

important to note the current approach (simply using the conventional price) performed poorly, 

with the error observed in every year larger than the largest error observed in any year for any of 

the approaches considered. In this context, even the conservative minimum difference approach 

represents an improvement over the status quo. 

The Contractor recommends a minimum ratio adjustment as the starting point for organic price 

elections for soybeans. The results of this relationship can be applied to a base price election 

derived using any method. However, due to the need for uniform collection procedures and ongoing data stream, the ratio will best be derived from the AMS data series until and unless an 

alternative data source becomes available. Therefore, the recommended price election for 

organic soybeans is the base price for conventional soybeans multiplied by 1.68 (rounded 

appropriately). As this approach is based on a very brief temporal dataset, the Contractor 

strongly recommends the organic price election for soybeans be carefully monitored, with the 

ultimate objective of obtaining sufficient data to support the independent determination of 

organic soybean price elections based on organic soybean price data. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

34

SECTION V. ORGANIC PRICING FOR COTTON 

The U.S. harvest of organic cotton represents a small fraction of total global organic cotton 

production, with Turkey, China, and India producing the majority of the crop.14 Nonetheless, the 

pricing data the Contractor obtained for organic cotton production in the United States are 

particularly detailed and complete, given the small overall scale of the domestic organic cotton 

market. The Contractor obtained the full production and marketing dataset of the Texas Organic 

Cotton Marketing Cooperative (TOCMC), the largest marketer of organic cotton in North 

America, typically handling between 50 and 75 percent of the total U.S. organic cotton 

production, and as much at 85 percent of the production in some years.15 Unlike the price data 

available for organic corn and soybeans, which are based on AMS bi-weekly surveys of spot 

market prices, the data available for organic cotton are derived from many years of actual sales 

records from this large marketing cooperative. These records represent actual sales and report the 

volume of organic cotton sold, the location of the sale, and in addition the date and price. 

In 2007, U.S. producers planted organic cotton on a total of 8,510 acres and harvested 14,025 

bales of cotton. Both represented substantial increases over 2006 production, but 2008 and 2009 

production values appear to show more moderate production expansion. Although the total 

number of bales of organic cotton harvested each year varies substantially, the production 

marketed by TOCMC represents the majority of U.S. organic cotton production. All the cotton 

reported in this series was sold into the open market at prices negotiated collectively by the 

cooperative with each of its clients (primarily high-end domestic clothing manufacturers). The 

Contractor‟s research found other organic cotton is primarily produced by a small pool of 

independent, vertically integrated, producer/processors. Some of these producers process the 

cotton into yarn, which is then used to produce textiles for production of T-shirts sold by the 

producer. No pricing data for cotton lint could be obtained from these sources. 

Matching conventional cotton price data by producer are not available from TOCMC producers, 

as most organic cotton member-producers have committed all their cotton acreage to organic 

practices. However, the pricing structure in the market for conventional cotton (including both 

the historical RMA price elections and back-casts of base prices that would have been in place 

under the methodology proposed of the forthcoming “Combo” product) can be used to develop 

such a series. Since the organic cotton series is longer and more complete than most others and 

structured to match prices to quantity sold, the data for cotton meet all requirements set under 

Section 5.4.2.1 of the contract. 

TOCMC, the cooperative providing the data, is highly interested in obtaining an appropriate 

price election for its members. TOCMC has been extraordinarily helpful in providing data, 

offering background on organic cotton markets, and providing independent contacts who have 

affirmed the veracity of the information provided. All data provided can be validated through 

purchase and sales agreements between the cooperative and producers and buyers, respectively. 

Proprietary Data Source and Related Issues:

All organic cotton pricing data used in this pricing evaluation were provided by TOCMC. Data 

for future years and maintenance of organic cotton pricing can be obtained by contacting 

 

14 Organic Trade Association, 2008, Organic Cotton Facts, http://www.ota.com/organic/mt/organic_cotton.html, accessed April, 2009.

15 Interview: Kelly Pepper, Manager, Texas Organic Cotton Marketing Cooperative, Lubbock Texas. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

35

TOCMC (Kelly Pepper is the manager and primary contact) at the office phone number (806-

748-8336) or by email at: info@texasorganic.com. The data includes a summary of the 

settlement of each of the individual marketing pools, based on temporal sales volume throughout 

the marketing year, and a summary of total “progress payments” made throughout the year. The 

value of the cotton received by producers is the sum of the value of the Commodity Credit 

Corporation (CCC) payment and each of the (generally three) progress payments. TOCMC also 

provided breakdowns of dividends paid on annual production volume under two categories: 

„Cash Dividends‟ and „Stock Dividends.‟ As each of these dividends are based on the 

performance of the marketing cooperative and could be regarded as post-harvest value added, 

these are specifically excluded from the determination of producer annual value received. These 

data represent only organic upland cotton production in the state of Texas, and cannot be 

interpolated to larger geographic areas or other types. As a result, the organic cotton prices 

established under these recommendations can only be applied to organic upland cotton in the 

state of Texas. 

USDA does not report organic cotton prices. TOCMC is the only entity identified in an extensive 

search that captures organic cotton price data, and is believed to be the only source of such 

information. As a result, the Contractor had no alternative to making these data the basis of the 

pricing analysis. As is discussed at length in the Organic Crop Pricing Research Report, the 

organic cotton dataset met all standards listed by RMA for data sufficiency. 

As all of the data available are derived from a single proprietary source, a number of issues must 

be considered relevant to its application in a Federal crop insurance program. Foremost among 

these are the veracity of the data (Are the data an accurate and reliable representation of producer 

pricing?), the future accessibility of the data (Will TOCMC continue to voluntarily provide its 

pricing information in the future?) and the validation of the data (Are the reported values tamperresistant and can they be substantiated?). Although these issues were explored in detail in the 

Organic Crop Pricing Research Report, these questions go to the heart of the potential offer of an 

organic price election for cotton and warrant a brief review. 

The question of TOCMC data veracity can be addressed through consideration of the way the 

reported data are derived. The annual value reported from TOCMC data is a weighted average 

for the net price received by producers, adjusted to exclude any patronage funds, dividends, or 

post-harvest value added. The information that was provided to the Contractor was a copy of the 

annual settlement statement provided to producers. As a result, we believe that the reported data 

do indeed represent a very accurate and reliable measure of producer value received. 

Data accessibility concerns appear to be a matter of incentives. The contractor has repeatedly 

made it clear to the TOCMC that the potential availability of organic cotton pricing is highly 

dependent on the reliable and consistent availability of pricing data. The cooperative‟s members 

have a strong vested interest in the availability of more effective risk management tools and 

understand the importance of providing accurate data to support the insurance offer. As 

producers understand the importance of making this data available to operating and sustaining a 

program, they have a strong incentive to provide data on an ongoing basis. Were the data ever to 

become unavailable, we would recommend that the organic cotton price offer be removed until 

the data become available again. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

36

Data validation is a serious concern, and one that was discussed in detail with TOCMC in the 

development process. In response to our concerns, the cooperative provided individual 

settlement sheets from each producer in the cooperative (about 30) for a sample year under the 

terms of a confidentiality agreement. These data, which included receipts for sales, were then 

used to validate the annual price reported by TOCMC for that year. It is the contractor‟s belief 

that the data reported are valid and that individual producer settlement sheets can be used to 

validate the information in future years if warranted. There may be some potential for 

manipulation of prices by the cooperative, but doing so would require coordinated complicity by 

many individual members, alteration of sales receipts, and in a general sense fraud in their own 

internal accounting. In addition, as this is not a revenue based insurance offer, the cooperative 

has little incentive to manipulate prices. 

Overall, a high measure of concern about basing an insurance offer on such a small, proprietary, 

and regional data source is warranted. The Contractor believes the circumstances in this 

particular instance are such that offering the program on a pilot basis is appropriate, but strongly 

encourages detailed monitoring of the data and the program performance. 

Only CCC payments and total progress payments are considered in the determination of annual 

prices received for organic cotton. All data reported for the crop years 1994 through 2007 are 

included in raw form in Appendix A to support independent replication of reported values. Based 

on the long marketing period for organic cotton (and indeed most cotton) values for the 2008 

crop year are expected to become available in February 2010. Figure 11 displays the annual 

prices for organic cotton for the years 1998 through 2007. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

37

FIGURE 11. Organic Cotton Producer Prices

Source: The Contractor based on data provided by TOCMC 

Figure 11 Data. 

Year Organic Price

1998 0.81

1999 0.51

2000 0.60

2001 0.71

2002 0.58

2003 0.80

2004 0.75

2005 0.86

2006 0.95

2007 1.09

The development of organic prices for cotton is not made in a vacuum, but rather is conducted as 

a complement to price election development and maintenance for conventional cotton. Under the 

new proposed “Combo” product, price elections for yield-based insurance will be the same as 

base prices established for the “revenue” product. For most of the cotton production area, this 

will be calculated as the simple average of daily settlement prices of the December NYBOT 

cotton contract for the market dates January 15 through February 14. Table 9 displays the base 

price election that would be determined under this procedure for the years 1998 through 2009. 

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

Dollars / Pound
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

38

TABLE 9. Conventional Cotton Price Election “Backcast” Determination 1998 through 2009 

December 1998 Cotton December 1999 Cotton December 2000 Cotton December 2001 Cotton

Date Close Date Close Date Close Date Close

1/15/1998 71.78 1/15/1999 63.54 1/18/2000 59.13 1/16/2001 63.42

1/16/1998 71.81 1/19/1999 63.41 1/19/2000 61.20 1/17/2001 62.85

1/20/1998 72.13 1/20/1999 63.50 1/20/2000 61.00 1/18/2001 62.24

1/21/1998 72.05 1/21/1999 63.70 1/21/2000 59.66 1/19/2001 61.90

1/22/1998 71.59 1/22/1999 63.15 1/24/2000 59.65 1/22/2001 61.30

1/23/1998 71.00 1/25/1999 61.76 1/25/2000 60.94 1/23/2001 60.80

1/26/1998 71.00 1/26/1999 61.92 1/26/2000 60.70 1/24/2001 61.51

1/27/1998 71.11 1/27/1999 62.04 1/27/2000 60.98 1/25/2001 61.30

1/28/1998 71.85 1/28/1999 63.14 1/28/2000 60.99 1/26/2001 61.25

1/29/1998 71.87 1/29/1999 63.21 1/31/2000 60.80 1/29/2001 60.56

1/30/1998 72.17 2/1/1999 63.14 2/1/2000 60.60 1/30/2001 61.20

2/2/1998 73.12 2/2/1999 62.98 2/2/2000 60.68 1/31/2001 60.68

2/3/1998 73.00 2/3/1999 62.70 2/3/2000 60.42 2/1/2001 60.25

2/4/1998 72.72 2/4/1999 61.84 2/4/2000 60.41 2/2/2001 60.55

2/5/1998 72.70 2/5/1999 61.56 2/7/2000 60.45 2/5/2001 60.50

2/6/1998 72.39 2/8/1999 61.98 2/8/2000 60.00 2/6/2001 60.40

2/9/1998 73.08 2/9/1999 60.99 2/9/2000 60.35 2/7/2001 59.58

2/10/1998 73.32 2/10/1999 60.50 2/10/2000 61.50 2/8/2001 59.25

2/11/1998 73.00 2/11/1999 59.88 2/11/2000 61.50 2/9/2001 58.70

2/12/1998 72.93 2/12/1999 59.75 2/14/2000 61.72 2/12/2001 58.70

2/13/1998 72.41 2/13/2001 58.67

2/14/2001 59.47

Implied 1998 Base Price Implied 1999 Base Price Implied 2000 Base Price Implied 2001 Base Price

0.72 $/lb 0.62 $/lb 0.61 $/lb 0.61 $/lb

December 2002 Cotton December 2003 Cotton December 2004 Cotton December 2005 Cotton

Date Close Date Close Date Close Date Close

1/15/2002 43.31 1/15/2003 58.30 1/15/2004 69.45 1/18/2005 51.20

1/16/2002 43.71 1/16/2003 58.38 1/16/2004 69.36 1/19/2005 52.43

1/17/2002 43.98 1/17/2003 57.63 1/20/2004 69.10 1/20/2005 52.30

1/18/2002 43.50 1/21/2003 57.48 1/21/2004 69.40 1/21/2005 51.40

1/22/2002 43.04 1/22/2003 57.20 1/22/2004 69.62 1/24/2005 51.20

1/23/2002 42.95 1/23/2003 57.75 1/23/2004 69.73 1/25/2005 51.80

1/24/2002 42.36 1/24/2003 57.90 1/26/2004 69.65 1/26/2005 51.95

1/25/2002 42.90 1/27/2003 58.40 1/27/2004 69.05 1/27/2005 49.58

1/28/2002 42.48 1/28/2003 58.13 1/28/2004 67.50 1/28/2005 48.82

1/29/2002 42.60 1/29/2003 58.35 1/29/2004 67.30 1/31/2005 49.25

1/30/2002 41.90 1/30/2003 58.65 1/30/2004 68.10 2/1/2005 49.35

1/31/2002 41.70 1/31/2003 59.60 2/2/2004 67.35 2/2/2005 50.00

2/1/2002 43.15 2/3/2003 59.48 2/3/2004 67.70 2/3/2005 49.13

2/4/2002 43.24 2/4/2003 59.05 2/4/2004 67.75 2/4/2005 49.00

2/5/2002 43.02 2/5/2003 59.00 2/5/2004 67.30 2/7/2005 49.07

2/6/2002 43.20 2/6/2003 58.70 2/6/2004 67.51 2/8/2005 48.82

2/7/2002 44.04 2/7/2003 57.70 2/9/2004 66.65 2/9/2005 48.95

2/8/2002 44.34 2/10/2003 58.50 2/10/2004 65.32 2/10/2005 50.33

2/11/2002 43.74 2/11/2003 60.00 2/11/2004 65.28 2/11/2005 50.30

2/12/2002 44.53 2/12/2003 59.73 2/12/2004 66.69 2/14/2005 51.05

2/13/2002 42.27 2/13/2003 59.40 2/13/2004 65.70

2/14/2002 42.80 2/14/2003 59.77
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

39

TABLE 9. Conventional Cotton Price Election “Backcast” Determination 1998 through 2009 

Implied 2002 Base Price Implied 2003 Base Price Implied 2004 Base Price Implied 2005 Base Price

0.43 $/lb 0.59 $/lb 0.68 $/lb 0.50 $/lb

December 2006 Cotton December 2007 Cotton December 2008 Cotton December 2009 Cotton

Date Close Date Close Date Close Date Close

1/17/2006 59.81 1/16/2007 59.88 1/15/2008 79.88 1/15/2009 53.50

1/18/2006 58.79 1/17/2007 60.15 1/16/2008 79.43 1/16/2009 54.50

1/19/2006 59.60 1/18/2007 60.00 1/17/2008 79.99 1/20/2009 52.45

1/20/2006 59.98 1/19/2007 60.02 1/18/2008 78.76 1/21/2009 52.71

1/23/2006 60.21 1/22/2007 59.95 1/22/2008 77.85 1/22/2009 54.03

1/24/2006 60.25 1/23/2007 60.67 1/23/2008 74.85 1/23/2009 55.11

1/25/2006 60.53 1/24/2007 60.22 1/24/2008 76.62 1/26/2009 56.70

1/26/2006 60.89 1/25/2007 60.11 1/25/2008 75.88 1/27/2009 56.64

1/27/2006 60.09 1/26/2007 59.82 1/28/2008 76.60 1/28/2009 56.27

1/30/2006 59.96 1/29/2007 59.35 1/29/2008 76.40 1/29/2009 55.97

1/31/2006 60.50 1/30/2007 59.26 1/30/2008 77.05 1/30/2009 55.45

2/1/2006 60.50 1/31/2007 59.61 1/31/2008 76.45 2/2/2009 56.03

2/2/2006 61.50 2/1/2007 59.23 2/1/2008 76.80 2/3/2009 55.41

2/3/2006 61.44 2/2/2007 59.49 2/4/2008 77.45 2/4/2009 56.16

2/6/2006 61.50 2/5/2007 60.05 2/5/2008 76.60 2/5/2009 55.58

2/7/2006 59.83 2/6/2007 58.70 2/6/2008 77.00 2/6/2009 55.70

2/8/2006 60.90 2/7/2007 58.24 2/7/2008 76.65 2/9/2009 55.84

2/9/2006 61.00 2/8/2007 57.43 2/8/2008 77.50 2/10/2009 53.60

2/10/2006 60.55 2/9/2007 58.00 2/11/2008 75.77 2/11/2009 52.91

2/13/2006 60.05 2/12/2007 57.40 2/12/2008 75.56 2/12/2009 52.35

2/14/2006 60.80 2/13/2007 57.28 2/13/2008 75.34 2/13/2009 51.10

2/14/2007 56.59 2/14/2008 77.03

Implied 2006 Base Price Implied 2007 Base Price Implied 2008 Base Price Implied 2009 Base Price

0.60 $/lb 0.59 $/lb 0.77 $/lb 0.55 $/lb

Source: The Contractor based on data provided by NYBOT and a methodology provided by RMA 

In addition to back-cast base prices, actual price elections for historical crop years are available 

on the RMA website at www.rma.usda.gov under the “tools and calculators” widget through the 

prices inquiry system.16 Figure 12 displays the reported organic cotton prices, the back-cast 

conventional cotton prices, and the historical price elections for the years 1998 through 2009. 

 

16 RMA Reports five different price elections for cotton each year. To facilitate comparison, the price elections reported in the figure and 

subsequent table were those in effect for the northern Texas region from which the organic cotton price data were also reported. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

40

FIGURE 12. Organic and Conventional Cotton Prices 1998 through 2009

Source: The Contractor based on data provided by or obtained from TOCMC, NYBOT, RMA, and a methodology provided by 

RMA

Figure 12 Data. 

Year

Organic 

Cotton 

Price

RMA 

Cotton 

Price 

Election

Implied 

Cotton 

Base Price

1998 0.81 0.70 0.72

1999 0.51 0.65 0.62

2000 0.60 0.61 0.61

2001 0.71 0.62 0.61

2002 0.58 0.52 0.43

2003 0.80 0.52 0.59

2004 0.75 0.62 0.68

2005 0.86 0.52 0.50

2006 0.95 0.52 0.60

2007 1.09 0.52 0.59

2008 0.66 0.77

2009 0.61 0.55

Consistent with analyses performed for organic corn and soybeans, the Contractor considered 

various measures of relationships between organic and conventional cotton prices, including 

differences in prices and ratios. Table 10 displays organic and conventional prices and their 

relationships for the years 1998 through 2009. 

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 2000 2002 2004 2006 2008

Year

Dollars / Pound

Organic Cotton Price 

RMA Cotton Price

Election

Implied Cotton Base

Price
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

41

TABLE 10. Organic and Conventional Cotton Price Relationships 

Year RMA Cotton 

Price Election

Organic 

Cotton Price 

Implied 

Cotton Base 

Price

Organic Cotton to 

Implied Base Price

Difference Ratio 

Dollars per lb

1998 0.70 0.81 0.72 0.09 1.15

1999 0.65 0.51 0.62 -0.11 0.79

2000 0.61 0.60 0.61 -0.01 0.99

2001 0.62 0.71 0.61 0.10 1.14

2002 0.52 0.58 0.43 0.15 1.11

2003 0.52 0.80 0.59 0.21 1.54

2004 0.62 0.75 0.68 0.06 1.20

2005 0.52 0.86 0.50 0.36 1.65

2006 0.52 0.95 0.60 0.35 1.83

2007 0.52 1.09 0.59 0.50 2.10

2008 0.66 0.77

2009 0.61 0.55

Mean 0.59 0.77 0.61 0.17 1.35

Median 0.61 0.77 0.61 0.12 1.18

Maximum 0.70 1.09 0.77 0.50 2.10

Minimum 0.52 0.51 0.43 -0.11 0.79

Standard 

Deviation 0.06 0.17 0.09 0.18 0.39

Source: Table developed by the Contractor based on data provided by TOCMC, NYBOT, RMA, and a methodology provided by RMA 

In the 1999 and 2000 crop years, the prices received by producers for organic cotton briefly 

dipped below the conventional base prices. However, the price election and the implied base 

price both substantially exceeded the actual price received by producers in those years. The 

organic price still exceeded the season average price received by producers as reported by 

NASS. The analysis for cotton differs from corn and soybeans, where the organic price was 

always higher than the conventional price because the comparisons were based on monthly 

actual prices, not on the implied base price election. The difference in the analytical approach is 

founded in adequacy of data: only two complete crop years were available for corn and soybeans 

whereas ten are available for organic cotton. Hence, the basis of comparison for cotton is the 

implied base price that will be established under the Combo policy. For corn and soybeans, the 

difference in monthly market prices served as a proxy for the difference in the organic price to 

the base price election. 

The general tendency of organic cotton prices is consistent with that for other organic markets 

(considerable premiums for organic production). For cotton, both the minimum difference and 

minimum ratio approaches as applied to corn and soybeans would result in a price election lower 

than the conventional price election, and are not considered in this analysis. Instead, median 

difference and ratio are used to consider the application of a relational approach to organic cotton 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

42

pricing. Figures 13 and 14 display the observed organic prices and conventional prices adjusted 

by the median difference and the median ratio, respectively, for the years 1998 through 2009. 

FIGURE 13. Cotton Median Price Difference Model

Source: Figure developed by the Contractor based on data provided by TOCMC, NYBOT, and a methodology provided by 

RMA

Figure 13 Data. 

Year

Organic 

Price

Median 

Difference 

Adjusted

1998 0.81 0.84

1999 0.51 0.74

2000 0.60 0.73

2001 0.71 0.73

2002 0.58 0.55

2003 0.80 0.71

2004 0.75 0.80

2005 0.86 0.62

2006 0.95 0.72

2007 1.09 0.71

2008 0.89

2009 0.67

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 2000 2002 2004 2006 2008

Organic Price

Median Difference

Adjusted
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

43

FIGURE 14. Cotton Median Price Ratio Model

Source: Figure developed by the Contractor based on data provided by TOCMC, NYBOT, and a methodology provided by RMA

Figure 14 Data. 

Year

Organic 

Price

Median 

Ratio 

Adjusted

1998 0.81 0.85

1999 0.51 0.73

2000 0.60 0.72

2001 0.71 0.72

2002 0.58 0.51

2003 0.80 0.70

2004 0.75 0.80

2005 0.86 0.59

2006 0.95 0.71

2007 1.09 0.70

2008 0.91

2009 0.65

As both these relational models display, the potential for overestimating observed values through 

the application of median relationships (whether proportional or additive) are, by definition 50 

percent. This may be inconsistent with the desired conservatism that would be suggested by the 

uncertainty and volatility expresses in the available data. 

The Contractor also considered the actual pricing data as a basis of estimating the price rather 

than a relational adjustment as was used for corn and soybeans. Rather than considering only 

relational measures, the organic cotton data may contain sufficient high confidence historical 

observations over a sufficient period of time to support stand-alone analysis. Given the high 

measure of autocorrelation in many thin markets, the Contractor considered the “forecasting” 

ability of a one-period autoregressive model, i.e., simply applying the most recent available 

organic price observation as the price election for the future crop year. Based on the long 

marketing period of organic cotton, the most recent observation available for development of 

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 2000 2002 2004 2006 2008

Organic Price

Median Ratio

Adjusted
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

44

price elections is two years prior to the applicable crop year (i.e. 2007 data would be used for 

making projections for the 2009). Figure 15 displays this model.

FIGURE 15. Cotton Most Recent Observation Model

Source: Figure developed by the Contractor based on data provided by TOCMC, NYBOT, and a methodology provided by RMA

Figure 15 Data. 

Year

Organic 

Price

Most Recent 

Observation

1998 0.81

1999 0.51

2000 0.60 0.81

2001 0.71 0.51

2002 0.58 0.60

2003 0.80 0.71

2004 0.75 0.58

2005 0.86 0.80

2006 0.95 0.75

2007 1.09 0.86

2008 0.95

2009 1.09

The most recent observation, particularly in the case of organic cotton prices (which display a 

strong trend) consistently underestimates prices over the sample period, but also provides a 

highly volatile measure of pricing. The Contractor also considered a more stable model based on 

the simple average of observations of the previous three crop years. This model is displayed in 

Figure 16. 

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 2000 2002 2004 2006 2008

Organic Price

Most Recent

Observation
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

45

FIGURE 16. Cotton Three Year Average Model

Source: Figure developed by the Contractor based on data provided by TOCMC, NYBOT, and a methodology provided by RMA

Figure 16 Data. 

Year

Organic 

Price

Three Year 

Moving 

Average

1998 0.81

1999 0.51

2000 0.60

2001 0.71 0.64

2002 0.58 0.61

2003 0.80 0.63

2004 0.75 0.70

2005 0.86 0.71

2006 0.95 0.80

2007 1.09 0.85

2008 0.97

2009 1.02

Based on the strong trend observed in the dataset, the three year moving average model 

consistently underestimated the actual observed value, but provided a stable estimate of prices. 

The Contractor also developed a simple least squares regression on the available data, calculating 

the slope of the regression line to be $0.044/lb. per year with an intercept of $0.523/lb and an 

unadjusted R2of 0.56. Figure 17 displays the trend adjusted model. 

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 2000 2002 2004 2006 2008

Organic Price

Three Year Moving

Average
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

46

FIGURE 17. Cotton Trend Adjusted Model

Source: Figure developed by the Contractor based on data provided by TOCMC, NYBOT, and a methodology provided by RMA

Figure 17 Data. 

Year

Organic 

Price

TrendAdjusted

1998 0.81 0.57

1999 0.51 0.61

2000 0.60 0.66

2001 0.71 0.70

2002 0.58 0.74

2003 0.80 0.79

2004 0.75 0.83

2005 0.86 0.88

2006 0.95 0.92

2007 1.09 0.96

2008 1.01

2009 1.05

As displayed in the figure, the linear trend for prices in the available sample period implies a 

steep increase in organic cotton prices each year. In addition, it ignores current market 

information that affects the base price election. That is, it increases without regard to information 

that indicates the market price for cotton should be reduced relative to prior years. To facilitate 

comparison, Figure 18 displays the outputs of each of the models tested. 

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 2000 2002 2004 2006 2008

Organic Price

Trend-Adjusted
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

47

FIGURE 18. Cotton Organic Price Projection Models

Source: Figure developed by the Contractor based on data provided by TOCMC, NYBOT, and a methodology provided by RMA

Figure 18 Data. 

Year Organic Conventional

Median 

Difference

Median 

Ratio

Most Recent 

Observation

3 Year 

Moving 

Average

Trend 

Adjusted

1998 0.81 0.72 0.84 0.85 0.57

1999 0.51 0.62 0.74 0.73 0.61

2000 0.60 0.61 0.73 0.72 0.81 0.66

2001 0.71 0.61 0.73 0.72 0.51 0.64 0.70

2002 0.58 0.43 0.55 0.51 0.60 0.61 0.74

2003 0.80 0.59 0.71 0.70 0.71 0.63 0.79

2004 0.75 0.68 0.80 0.80 0.58 0.70 0.83

2005 0.86 0.50 0.62 0.59 0.80 0.71 0.88

2006 0.95 0.60 0.72 0.71 0.75 0.80 0.92

2007 1.09 0.59 0.71 0.70 0.86 0.85 0.96

2008 0.77 0.89 0.91 0.95 0.97 1.01

2009 0.55 0.67 0.65 1.09 1.02 1.05

As displayed in the figure, there are considerable differences in the prices projected by each of 

the potential models from year to year. As graphical information is difficult to quantify, Table 11 

displays the summary statistics for the errors (calculated as the actual observed organic price less 

the projected price) for each model. 

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year 

Price ($/bu)

Organic

Conventional

Median Difference

Median Ratio

Most Recent

Observation

3 Year Moving

Average

Trend Adjusted
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

48

TABLE 11. Organic Cotton Model Performance Summary Statistics 

Conventional

Median 

Difference

Median 

Ratio

Most Recent 

Observation

3 Year 

Moving 

Average

Trend 

Adjusted

Average 0.17 0.05 0.06 0.09 0.11 0.00

Median 0.12 0.00 0.03 0.13 0.15 0.00

Maximum 0.50 0.38 0.39 0.23 0.24 0.24

Minimum -0.11 -0.23 -0.22 -0.21 -0.03 -0.17

Sum of Squared 

Errors 0.59 0.27 0.31 0.18 0.14 0.05

Source: Table developed by the Contractor based on data provided in previous tables and figures. 

As displayed in the table, each of the models underestimates the actual reported price for organic 

cotton when measured by the average and median differences. Unfortunately, each of the models 

also overestimates the actual reported price at least once during the ten years. Interestingly, each 

of the relational models (difference and ratio) perform considerably worse than the absolute 

models, but it is important to remember that all model performance measures are within the time 

period of the data. Research indicates such measures are likely to overstate future performance. 

By most measures, the trend adjusted model displayed superior performance, including a sum of 

squared errors that was (by definition) the lowest tested. Disconcertingly, this model projects 

swiftly annually increasing prices for organic, which represents the available data well, but is 

likely not sustainable in the long term and creates a strong potential for overestimating actual 

organic prices in future years. Additionally, as noted earlier, it ignores market information 

included in the determination of the base price. 

Based on the performance criterion, its strong stabilizing effect, the long lag time in data 

availability, and the low potential for substantially overestimating actual organic cotton prices, 

the Contractor recommends RMA adopt a three year average of the most recently reported 

historical prices as the price election for organic cotton. While this model also suffers from the 

deficiency of not fully incorporating the market information that results in the base price 

election, it does ultimately react to that information. Accordingly, the Contractor recommends 

this model be used only as a starting point in the decision-making process. Market information 

indicating a substantial change in cotton markets embodied in the base price election should 

considered also. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

49

SECTION VI. RECOMMENDATIONS 

The Contractor was charged with developing price election determination methods for organic 

feed-grade corn, feed-grade soybeans, and cotton based on the findings of previous research. 

Currently, each of these organic commodities is insurable at the price elections established for 

conventional production. While this approach was certainly reasonable given the near total lack 

of organic price data available when the offer of organic coverage was initiated, subsequent 

organic price data collected by AMS, NASS, and other entities provide evidence for consistent 

premiums paid for organic production. For each of the selected crops, the Contractor considered 

a number of alternative approaches, assessed the performance of each in historical scenarios, and 

determined a method which offered a conservative, but broadly representative value for organic 

commodities. 

For both organic feed-grade corn and organic feed-grade soybeans, the Contractor determined a 

valuation model based on the minimum ratio of the aggregated monthly organic price to monthly 

conventional price over the available data period. This resulted in what the Contractor believes to 

be a conservative, but representative price for organic production. The Contractor recommends 

this minimum ratio model be implemented on a pilot basis. While the ratios were developed 

using the price derived from feed-grade corn and soybeans, the Contractor believes evidence 

premiums paid for both food-grade corn and soybeans are even greater. Therefore, these price 

elections should be applied to an organic type without discriminating between food and feedgrade production. Further, the Contractor recommended these price elections be monitored 

carefully, with the objective of replacing this relationship-based price election with an approach 

based entirely on independent organic price data as more lengthy datasets become available in 

future years. 

The data for organic cotton met all the standards included in the research and development 

contract. The data were collected from a source representing sales of between 50 and 75 percent 

of the cotton grown organically each year. The Contractor tested five alternative approaches to 

assessing price elections for organic cotton, including two based on relationships between 

organic and conventional cotton prices and three based on analysis of the available organic 

cotton data series. Based on these assessments, the Contractor recommended the organic cotton 

price election be determined as the simple average of the observed organic cotton prices in the 

most recent three crop years on a pilot basis, and should apply only to organic upland cotton in 

the state of Texas. This price election method should also be carefully monitored and RMA 

pricing personnel should be granted the flexibility to make ad hoc adjustments to the determined 

price election if information should become available that the market for the coming crop year is 

expected to represent a marked departure from previous years‟ historical data. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

Appendix A 

Organic Cotton Raw Pricing Data 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A1

This appendix provides excerpts of the pertinent organic cotton price data used in determining 

annual prices for organic cotton for the years 1998 through 2007. These data are annual 

summaries of payment calculations for producer-members in the Texas Organic Cotton 

Marketing Cooperative (TOCMC). Insurable prices include all payments made for cotton but 

exclude any dividends or post-harvest value added as a result of marketing. Data for a given crop 

year are available by request from TOCMC in February of the calendar year that falls two years 

after the given crop was planted. 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A2

TABLE A1. TOCMC Organic Cotton Price Data for 1998 

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

1998 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.807 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans

Bales 4,325 1 609 1,589 452 385 1,289 

Pounds 2,131,508 484 297,667 782,767 222,551 194,069 633,970

CCC Loan Proceeds 01/15/99 0.493 0.540 0.530 0.500 0.480 0.470 0.480 

Progress Payment #1 04/14/99 0.199 0.310 0.230 0.190 0.180 0.170 0.210 

Progress Payment #2 07/15/99 0.070 0.070 0.070 0.070 0.070 0.070 0.070 

Progress Payment #3 10/13/99 0.045 0.080 0.070 0.060 0.050 0.020 0.020 

Total Progress Payments 0.314 0.460 0.370 0.320 0.300 0.260 0.300 

Total Payments 0.807 1.000 0.900 0.820 0.780 0.730 0.780 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A3

TABLE A2. TOCMC Organic Cotton Price Data for 1999

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

1999 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.511 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans

Bales 6,326 2 815 1,366 843 721 2,579 

Pounds 3,087,223 945 398,734 668,856 410,299 346,330 1,262,059

CCC Loan Proceeds 01/15/00 0.493 0.547 0.537 0.510 0.481 0.469 0.481 

Progress Payment #1 06/06/00 0.018 0.230 0.099 0.005 0.007 0.007 0.007 

Progress Payment #2

Progress Payment #3

Total Progress Payments 0.018 0.230 0.099 0.005 0.007 0.007 0.007 

Total Payments 0.511 0.777 0.636 0.515 0.488 0.475 0.488 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A4

TABLE A3. TOCMC Organic Cotton Price Data for 2000

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2000 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.602 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans 1 Trans 2 Trans 3 Trans 4 Trans 5

Bales 3,140 0 385 355 423 433 0 753 257 296 238 

Pounds 1,544,637 0 188,010 173,330 208,016 210,402 0 371,421 126,595 148,603 118,260

CCC Loan Proceeds 01/15/01 0.469 0.526 0.481 0.448 0.413 0.522 0.449 0.420 0.419 

Progress Payment #1 07/12/01 0.133 0.310 0.160 0.110 0.060 0.160 0.110 0.060 0.010 

Progress Payment #2

Progress Payment #3

Total Progress Payments 0.133 0.000 0.310 0.160 0.110 0.060 0.000 0.160 0.110 0.060 0.010 

Total Payments 0.602 0.000 0.836 0.641 0.558 0.473 0.000 0.682 0.559 0.480 0.429 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A5

TABLE A4. TOCMC Organic Cotton Price Data for 2001

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2001 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.707 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans 1 Trans 2 Trans 3 Trans 4 Trans 5

Bales 4,989 69 1,306 1,176 357 415 142 1,178 278 27 41 

Pounds 2,450,830 34,531 641,790 581,200 169,167 208,611 69,646 579,202 133,849 12,836 19,998 

CCC Loan Proceeds 01/15/02 0.510 0.554 0.537 0.490 0.454 0.444 0.555 0.539 0.504 0.427 0.417 

Progress Payment #1 06/24/02 0.099 0.185 0.160 0.085 0.060 0.035 0.110 0.085 0.060 0.035 0.010 

Progress Payment #2 07/25/02 0.099 0.185 0.160 0.085 0.060 0.035 0.110 0.085 0.060 0.035 0.010 

Progress Payment #3

Total Progress Payments 0.197 0.370 0.320 0.170 0.120 0.070 0.220 0.170 0.120 0.070 0.020 

Total Payments 0.707 0.924 0.857 0.660 0.574 0.514 0.775 0.709 0.624 0.497 0.437 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A6

TABLE A5. TOCMC Organic Cotton Price Data for 2002

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2002 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.578 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans 2 Trans 3 Trans 4-5

Bales 5,971 131 2,305 2,419 270 477 74 256 39 

Pounds 2,932,351 62,759 1,129,183 1,188,942 133,134 237,116 36,288 125,962 18,967 

CCC Loan Proceeds 01/15/03 0.514 0.560 0.530 0.510 0.500 0.460 0.540 0.520 0.480 

Progress Payment #1 06/30/03 0.064 0.150 0.090 0.060 0.030 0.000 0.030 0.000 0.000 

Progress Payment #2

Progress Payment #3

Total Progress Payments 0.064 0.150 0.090 0.060 0.030 0.000 0.030 0.000 0.000 

Total Payments 0.578 0.710 0.620 0.570 0.530 0.460 0.570 0.520 0.480 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A7

TABLE A6. TOCMC Organic Cotton Price Data for 2003

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2003 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.803

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5

Bales 2,461 557 1,202 526 97 79 

Pounds 1,224,158 276,462 598,307 262,127 48,105 39,157

CCC Loan Proceeds 01/15/04 0.542 0.564 0.554 0.508 0.503 0.504 

Progress Payment #1 07/15/04 0.261 0.400 0.250 0.200 0.100 0.050 

Progress Payment #2

Progress Payment #3

Total Progress Payments 0.261 0.400 0.250 0.200 0.100 0.050 0.000

Total Payments 0.803 0.964 0.804 0.708 0.603 0.554 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A8

TABLE A7. TOCMC Organic Cotton Price Data for 2004

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2004 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.745

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5

Bales 5,334 86 2,560 1,732 427 529 

Pounds 2,640,500 42,861 1,266,420 861,592 208,984 260,643

CCC Loan Proceeds 01/15/05 0.516 0.570 0.535 0.511 0.471 0.466 

Progress Payment #1 07/29/05 0.229 0.450 0.300 0.200 0.100 0.050 

Progress Payment #2

Progress Payment #3

Total Progress Payments 0.229 0.450 0.300 0.200 0.100 0.050 0.000

Total Payments 0.745 1.020 0.835 0.711 0.571 0.516 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A9

TABLE A8. TOCMC Organic Cotton Price Data for 2005

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2005 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.860 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans

Bales 8,377 1,244 5,930 704 211 157 131 

Pounds 4,145,895 614,600 2,928,699 352,648 104,248 79,246 66,454

CCC Loan Proceeds 01/15/06 0.558 0.577 0.563 0.528 0.509 0.471 0.535 

Progress Payment #1 06/15/06 0.302 0.450 0.300 0.200 0.100 0.050 0.150 

Progress Payment #2

Progress Payment #3

Total Progress Payments 0.302 0.450 0.300 0.200 0.100 0.050 0.150 

Total Payments 0.860 1.027 0.863 0.728 0.609 0.521 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A10

TABLE A9. TOCMC Organic Cotton Price Data for 2006

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2006 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 0.952 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans

Bales 5,940 563 2,763 996 391 968 259 

Pounds 2,951,388 276,943 1,377,718 499,557 193,680 475,560 127,930

CCC Loan Proceeds 01/15/07 0.550 0.588 0.571 0.542 0.543 0.492 0.515

Progress Payment #1 39,282.000 0.337 0.550 0.400 0.300 0.200 0.150 0.250

Progress Payment #2 39,374.000 0.065 0.065 0.065 0.065 0.065 0.065 0.065

Progress Payment #3

Total Progress Payments 0.402 0.615 0.465 0.365 0.265 0.215 0.315 

Total Payments 0.952 1.203 1.036 0.907 0.808 0.707 
Organic Crops: Final Development of Additional Price Elections 

Use or disclosure of information or data Risk Management Agency 

contained on this sheet is subject to the Contract No: AG-645S-C-09-0003 

restrictions on the title page of this report.

A11

TABLE A10. TOCMC Organic Cotton Price Data for 2007

TEXAS ORGANIC COTTON MARKETING COOPERATIVE

2007 Crop

Insurable Price (Average CCC Loan Proceeds + Average Total Progress Payments) 1.091 

Payments Received by Producers

Date Avg./Total Pool 1 Pool 2 Pool 3 Pool 4 Pool 5 Trans 1-3 Trans 4 Trans 5

Bales 14,878 3,606 7,343 852 144 361 2,171 87 314 

Pounds 7,336,854 1,758,420 3,637,363 427,150 69,493 176,568 1,069,543 43,775 154,542 

CCC Loan Proceeds 02/01/08 0.571 0.590 0.574 0.541 0.498 0.462 0.577 0.523 0.519 

Progress Payment #1 06/11/08 0.386 0.530 0.430 0.330 0.230 0.130 0.130 0.080 0.080 

Progress Payment #2 10/29/08 0.114 0.071 0.094 0.117 0.140 0.163 0.240 0.213 0.136 

Progress Payment #3 02/17/09 0.019 0.027 0.021 0.015 0.009 0.002 0.009 0.002 (0.004)

Total Progress Payments 0.519 0.628 0.544 0.461 0.378 0.295 0.378 0.295 0.212 

Total Payments 1.091 1.217 1.119 1.002 0.876 0.757