Numbers game: Yield versus revenue protection
WASHINGTON — For grain commodities, the two most popular types of crop insurance are Yield Protection and Revenue Protection.
In Delaware, Maryland and Virginia, Revenue Protection is the more popular of the two.
In 2018, the Federal Crop Insurance Corporation, managed by the Risk Management Agency, reported that farmers in the tri-state region enrolled a total of 1.96 million acres in Revenue Protection, representing $685.6 million in liabilities.
By comparison, only were 295,996 acres enrolled in Yield Protection, representing $35 million in liabilities.
The two programs are very similar and each is managed by the USDA Risk Management Agency.
Both programs establish coverage on a farm’s Actual Production History, which averages the farm’s yield on an insured unit for four to 10 consecutive crop years.
And Yield Protection and Revenue Protection each uses a base price (or projected price) for the commodity indemnity payment, which is based on the commodity future prices for that year’s expected harvest.
They each protect the farm for crop losses due to natural causes such as drought, excessive moisture, damaging weather (wind, hail, frost etc), insects and disease.
It’s how the indemnity payment is triggered that makes the difference between each program.
Yield Protection is a basic program that formed the basis for crop insurance. Actual production history is used to determine insurance yield. The farmer then chooses a level of yield coverage ranging from 50 to 80 percent of the farm’s APH for the specified crop.
For example, if a farm’s APH for corn is 175 bushels per acre and the farmer selects 65 percent coverage, the indemnity payment is triggered if the yield falls below 113.75 bushels per acre.
In addition to yield coverage, the farmer also sets a “price election,” which is a percentage of the base price.
At the catastrophic level, farmers can select to insure 50 percent of the APH yield at 55 percent of the base price.
This provides the farmer with a low-cost risk management tool in the event of a significant loss.
However, most farmers will select a yield coverage based on higher percentage of the base price.
The policy premium is set based on the combination of coverage selected by the farmer.
Rather than covering a farm’s actual yield in an insured year, Revenue Protection Crop Insurance protects the farm’s “expected” revenue.
Farmers have the option to choose RP with or without harvest price exclusion.
The RP policy protects against lost revenue, providing a guaranteed minimum gross revenue per acre.
As with YP, the farmer starts with his or her actual production history, which will establish an expected yield.
That number is then multiplied by the projected price, set by futures pricing, to establish an expected revenue.
Then, the farmer selects a revenue coverage, that is how much revenue do they want to guarantee, ranging from 50 to 85 percent.
For example, if the farm’s APH is 175 bushels per acre for corn and the projected price is $4, the expected revenue would be $700 per acre.
If the farm chooses to insure at 80 percent, an indemnity payment would be made if actual revenue falls below $560 per acre.
The actual revenue is determined by multiplying the farm’s actual yield in an insured year by the actual harvest price.
Some farms may opt for Revenue Protection with Harvest Price Exclusion (RPE), which is fixed at the base level price.
RPE carries a lower premium rate, but the farmer assumes more of the financial risk, especially in years where there is excessive yield loss.
Now is the time to discuss crop insurance options with your agent. March 15 is the sales closing date on crop insurance for most spring-planted crops.
Get more information about Yield Protection and Revenue Protection options at rma.usda.gov and search for a local crop insurance agent using their tool: https://prodwebnlb.rma.usda.gov/apps/AgentLocator/#/
1-800-634-5021 410-822-3965 Fax- 410-822-5068
P.O. Box 2026 Easton, MD 21601-8925