FS-970 | August 2014
Trend-Adjusted Yield Option Introduced for Crop Insurance
Actual Production History (APH) is a 4- to 10-year yield average used to calculate each producer’s production guarantee. Producers with 10 years of yield history are penalized under APH because yields have increased over time, and APH yields can lag behind their most recent yields. Therefore producers with only 4 years of yield history can actually have higher average yields.
Maryland corn, soybean, and wheat producers can select a Trend-Adjusted (TA) yield endorsement. Using this endorsement, a producer can adjust the APH yields to account for better genetics or farming techniques. These yield adjustments are based on historical county-level yield data from USDA’s National Agricultural Statistic Service.
The adjustments also include trend controls for weather and spatial considerations. Coverage for qualifying producers who select the TA option will add the county-level trend to their individual APH. The Midwest has been utilizing TA yields since 2012.
Using TA yields, a corn, soybean, or wheat producer needs to farm in an eligible county. Currently all Maryland counties have a TA yield for corn, and all counties but Allegany and Garrett have a TA yield for soybeans. For wheat, Baltimore, Caroline, Carroll, and Cecil, Dorchester, Frederick, Harford, Howard, Kent, Montgomery, Queen Anne’s, Somerset, Talbot, Washington, and Worcester counties currently have approved TA yields. An eligible corn, soybean, or wheat producer must have an actual corn, soybean, or wheat yield in one of the last four years, and choose the TA yield endorsement for their existing or new insurance policy before March 15 for corn and soybeans and September 30 for wheat -- the sales closing dates for these crops.
Organic corn, soybean, and wheat are ineligible for the TA endorsement. Corn produced for silage with a tonnage guarantee is also ineligible. The TA endorsement will not be available for Catastrophic Risk Protection (CAT), Group Risk Plan (GRP), and Group Risk Income Protection (GRIP) policies.
USDA’s Risk Management Agency will publish a TA yield for each county. Each insured unit within a county will use the same TA yield adjustment factor. Appendix 1 lays out each TA yield adjustment for Maryland’s counties.
To calculate the impact of electing a TA yield adjustment, a farmer must determine the TA for each crop year. The examples show the approach for irrigated corn (table 1), soybeans (table 2), and wheat (table 3) grown in Queen Anne’s county with 10 years of yield history. Looking at table 1, our farmer would plug in their average per acre corn yields for 2004 to 2013. The farmer would be looking at a TA yield adjustment of .99 for non-irrigated corn and 1.04 for irrigated corn. To calculate the TA for each of the 10 years, our farmer would use the following formula:
(2014 – Year) x TA rate = TA
To calculate the trend adjustment for 2004, our farmer would take:
(2014 – 2004) x 1.04 = 10 x 1.04 = 10.40
For 2005, the TA would equal 9.36 or:
(2014 – 2005) x 1.04 = 9 x 1.04 = 9.36
|APH = 133.80||TA = 1.04||TA APH = 139.50|
In addition, the farmer must calculate the yield cap. The TA would be capped at the year with the highest average yield plus the annual TA. Table 1 shows the highest average yield (164.4) for corn would be in 2005. The TA APH would be capped at (164.4 + 1.04) = 165.44. Table 2 shows the highest average yield (42.8) for soybeans would be in 2005. The TA APH would be capped at (42.8 + 0.30) = 43.10. Table 3 shows the highest average yield (70.0) for wheat would be in 2010. The TA APH would be capped at (70.0 + 0.67) = 70.67. The TA APH could not exceed these caps. So the highest our farmer could expect their APH to trend upward is to 165.44 for irrigated corn, 43.1 for soybeans, and 70.67 for wheat. Table 1 reveals that our hypothetical farmer could increase their APH yield by close to 6 bushels per acre by electing to use the TA option. A soybean farmer could increase APH yield by 1.65 bushels per acre from electing to use the TA option (table 2). A wheat producer could increase APH yield by 3.69 bushels per acre from electing to use the TA option (table 3).
The TA APH yield endorsement does not cost the producer anything to elect but will change the amount of coverage through the APH, which may change the cost of the premium.
|APH = 35.80||TA = 0.30||TA APH = 37.48|
|APH = 61.80||TA = 0.67||TA APH = 64.83|
A farmer’s total trend adjustment depends on the number of years of yield history used to calculate the APH. To receive 100 percent of the trend adjustment, a producer will need to have at least 4 or more years of a yield history in the last 12 years. Producers with yields for 3 out of the last 12 years will be able to receive 75 percent of the trend adjustment; those with a yield history for 2 out of the last 12 years will only receive 50 percent of the trend adjustment; and those with yields for 1 out of the past 12 years will only receive 25 percent of the trend adjustment.
The TA APH yield endorsement does not cost the producer anything to elect but will change the amount of coverage through the APH, which may change the cost of the premium. The same amount of coverage available from using the TA election always costs less or the same as it would cost to purchase the increased protection by increasing the level of coverage without TA. The real benefit of electing the TA option is that it could allow a producer to buy a lower level of coverage, but because of the trend adjustment still receive the higher coverage. Consider a producer with an APH of 135 who typically buys coverage at the 75-percent level at 101.25 bushels per acre coverage (table 4). By electing to use the TA endorsement, the producer could potentially gain the same level of coverage at the 70-percent level (table 4). A producer could experience premium savings by being able to buy down coverage levels.
|Coverage Level||Bushel Guarantee
APH = 135 (No TA)
TA-APH = 143 (with TA)
Irrigated = 1.22
Irrigated = 1.24
|Kent||Non-Irrigated = 0.89;
Irrigated = 0.90
|Queen Anne's||Non-Irrigated = 0.99;
Irrigated = 1.04
|Talbot||Non-Irrigated = 0.97;
Irrigated = 1.02
|Wicomico||Non-Irrigated = 1.03;
Irrigated = 1.09
|Worcester||Non-Irrigated = 1.05;
Irrigated = 1.08
Note: *Unless otherwise stated, TAs for irrigated and non-irrigated are the same. Source: USDA-Risk Management Agency
- Edwards, E. “Trend-Adjusted Actual Production History (APH).” Ag Decision Maker, Iowa State University Extension and Outreach, 2012. Internet site:http://www.extension.iastate.edu/agdm/crops/pdf/a1-56.pdf.
- Sherrick, B., and G. Schnitkey. “Trend-Adjusted APH Yield Endorsement.” Dept. of Agr. and Consumer Econ., University of Illinois Extension, 2011. Internetsite: http://farmdoc.illinois.edu/manage/newsletters/fefo11_23/fefo_11_23.pdf.
Based on an earlier edition prepared by Paul Goeringer and Lori Lynch.
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Extension Legal Specialist
Professor & Chair, Agricultural and Resource Economics
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