Drought Conditions and Projected Crop Insurance Indemnities: 2026 Outlook

By Dylan Turner

As the 2026 growing season progresses, drought conditions persist across much of the United States. Based on the U.S. Drought Monitor’s weekly assessments, approximately 75% of counties in the contiguous U.S. are experiencing at least some degree of drought as of June 2026, with roughly half facing severe drought conditions or worse. These conditions raise questions about the potential financial exposure of the Federal Crop Insurance Program (FCIP) to losses during the current growing season.

This brief uses over twenty years of historical data to estimate the relationship between early-season drought severity and drought-attributed crop insurance indemnities at the county level for six major field crops: corn, soybeans, wheat, cotton, rice, and grain sorghum. By linking weekly drought assessments from the U.S. Drought Monitor with cause-of-loss data from the USDA Risk Management Agency (RMA), a panel is constructed consisting of 2,155 counties observed from 2003 through 2025, which is used to estimate a simple model linking early-season drought conditions to drought-induced production losses. These estimated relationships are then applied to current 2026 drought conditions to project expected drought indemnities across the country.

The analysis relies on the Drought Severity and Coverage Index (DSCI), a composite measure that ranges from 0 (no drought) to 500 (entire area in exceptional drought). The DSCI integrates both the spatial extent and intensity of drought within each county. Figure 1 places the current drought in a historical context. The 2026 January–May DSCI is among the highest observed in the 2003–2026 period. This level of drought severity is comparable to the conditions observed in 2013, 2021, and 2022, years that produced substantial crop insurance losses. Monthly average DSCI values from January through May are included as separate predictors in the regression models, allowing the model to capture how the temporal progression of drought through the early season affects insurance losses. To account for changes in crop insurance participation over time, indemnities were normalized by total insured liability to express losses as loss cost ratios. The county fixed effects control for time-invariant differences in crop mix, geography, and baseline risk. In the production loss model, the May DSCI coefficient is the largest and most statistically significant predictor (? < 0.001).

Figure 1: Monthly Drought Severity by Census Region, 2003–2026

Note: Line shows monthly average DSCI nationally. Higher values indicate more widespread and severe drought conditions. Shaded bands highlight January through May of each year to facilitate comparison of drought conditions across years. The 2026 series ends at the most recently available month.

Source: ARPC calculations using U.S. Drought Monitor (National Drought Mitigation Center et al., 2026).

Figure 2 displays the geographic distribution of predicted drought-specific loss cost ratios for 2026, combining prevented planting and production loss projections attributed to drought or failure of irrigation supply. For context, the cumulative all-cause loss cost ratio for these six crops from 2003 through 2025 is approximately 0.08, however, the drought-specific ratios shown here reflect only the drought-attributed component of total losses. The highest predicted drought loss cost ratios are concentrated in the Great Plains and Midwest. Of the 2,154 counties with predictions, 1,247 have projected drought-only loss cost ratios exceeding 0.08, meaning drought losses alone in 2026 are projected to surpass typical levels of indemnities from all causes of loss combined.

Figure 2: Predicted 2026 Loss Cost Ratios from Early-Season Drought Conditions

Note: Loss cost ratios are predicted drought-attributed indemnity (prevented planting plus production loss) divided by total insured liability. Predictions are based on county fixed-effects regressions estimated on 2003–2025 county-level data using monthly Drought Severity and Coverage Index (DSCI) values from January through May. Only indemnities with drought or failure of irrigation supply as the identified cause of loss are included.

Source: ARPC calculations using U.S. Drought Monitor (National Drought Mitigation Center et al., 2026) and USDA RMA cause- of-loss and summary of business data (USDA Risk Management Agency, 2026).

Figure 3 aggregates the predictions to the state level for the 20 states with the highest projected drought indemnities, alongside each state’s average annual drought indemnity from 2015 through 2025 as a his- torical reference. Nationally, the model projects approximately $8.4 billion in total drought indemnities for the six major field crops. The top five states are Nebraska, South Dakota, Texas, Kansas, and Iowa and account for nearly half of the projected national total. In all cases, these states show 2026 predictions substantially above their recent historical averages.

Figure 3: Top 20 States by Predicted 2026 Drought Indemnity

Note: Yellow bars show predicted 2026 drought indemnities based on January–May 2026 DSCI values applied to county-level regression models estimated on 2003–2025 data, with 95% confidence intervals derived from clustered standard errors. Green bars show average annual drought indemnities from 2015 through 2025 as a historical reference. Dollar amounts for 2026 predictions are obtained by multiplying predicted loss cost ratios by 2025 insured liabilities.

Source: ARPC calculations using U.S. Drought Monitor (National Drought Mitigation Center et al., 2026) and USDA RMA cause- of-loss and summary of business data (USDA Risk Management Agency, 2026).

Several caveats apply to these projections. First, the models rely on drought conditions observed through May and do not capture how drought may evolve during the remainder of the growing season. Drought conditions may improve or worsen between now and harvest, and the actual growing-season experience will ultimately determine realized losses. Second, the analysis does not account for crop-specific planting windows or regional timing differences. Third, the nexus of western snowpack and irrigated agriculture is not explicitly modeled or accounted for (although the “failure of irrigation supply” cause of loss is included in the data being passed to the regression model). Finally, the projections assume that the historical relationship between drought severity and insurance losses is stable, though changes in crop varieties, farming practices, and insurance participation patterns could shift this relationship over time. Despite these limitations, the results provide a data-driven baseline for assessing the potential financial exposure of the crop insurance program to current drought conditions.

References

National Drought Mitigation Center, U.S. Department of Agriculture, and National Oceanic and Atmospheric Administration (2026). United States Drought Monitor. https://droughtmonitor.unl.edu. Accessed April 2026.

USDA Risk Management Agency (2026). Summary of Business and Cause of Loss Data Files. https://www. rma.usda.gov/SummaryOfBusiness. Accessed April 2026.