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Thursday, October 20, 2011

New Crop Insurance Option Updates APH Yield To Trend Yield



 

When you meet with your crop insurance agent next spring, assuming the Congressional Deficit Reduction Committee does not eliminate crop insurance, ask about the new trend-adjusted yield option.  It is new and will prompt many farmers to say, “Well, it’s about time.”  In basic terms, this new endorsement will convert your APH, which is the average yield over the past ten years, into your current potential yield.  Yes, it’s about time.

Yields have been trending upward because of improved production practices and improved crop genetics.  Corn yields trend upward about 1.5 bushels per year and soybean yields trend upward about .4 bushels per year.  But for many years crop insurance policies have based any indemnity payment, not on what your trend yield would have been, but on the average of the past ten years of crop yields.  Subsequently, indemnity payments are calculated on the past and not the present.

University of Illinois ag economist Bruce Sherrick says USDA’s Federal Crop Insurance Corporation Board has approved an adjustment that will be available for farmers to use in the 2012 crop year, that shifts the APH to a more current yield basis.  Crop insurance providers will offer the option to corn growers in 820 counties and soybeans in 880 counties, as designated by USDA’s Risk Management Agency.

Sherrick was one of the two ag economists at the University of Illinois who developed the rather simple adjustment, but had to create the documentation to present to USDA.  He says, “The intent of the Policy Endorsement is to improve the accuracy of the estimate of future insured yields, and to allow accurate coverage elections to be made against expected crop production.”

The trend yield was used by the economists to adjust historic yields to their current equivalent levels.  It was combined with the county’s historic yield data along with weather data to identify local yield trends.  Sherrick says for a farmer to obtain the Trend Endorsement, there must be one actual yield record in the previous four years, and limited use of the substituted yields.  Sherrick says for the 2012 crop, 2 bushels will be added to the 2011 yield, 4 bushels to the 2010 yield, 6 bushels to the 2009 yield, and so on.

What does it cost?  Sherrick says that question will be answered next spring, but it should not be much if anything, “Premium impacts will depend somewhat on the projected price and volatility factors that occur next spring, and on final base rates that are being determined by RMA, but importantly, base rates per bushel will not be affected by the trend endorsement.”

Summary:
Crop insurance customers will find a new option available for use with the 2012 crop, which adjusts their APH yield by 2-8 bushels, to convert it to a current yield, instead of an average of historic yields.  The option is not expected to cost additional money beyond typical premiums, but will make the insured yield more relevant than the historic yield average.

Posted by Stu Ellis on 10/20 at 12:00 AM | Permalink

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