Overview
In 2014, Maryland wheat producers will have a new option in their crop insurance coverage. 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 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. Starting in 2014, Maryland wheat producers can select a Trend- Adjusted (TA) yield endorsement and Maryland corn and soybean producers will continue to be able to select a TA yield endorsement. Using this new 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 National Agricultural Statistic Services. They also include trend controls for weather and spatial considerations. The 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.
Eligibility
A corn, soybean, or wheat producer needs to farm in an eligible county. Currently all Maryland counties have a TA yield for corn. All counties but Allegany, Charles, Garrett, and St. Mary’s have a TA yield for soybeans. For wheat, currently only Baltimore, Caroline, Carroll, and Cecil, Dorchester, Frederick, Harford, Howard, Kent, Montgomery, Queen Anne’s, Somerset, Talbot, Washington, and Worcester counties have approved TA yields. The corn, soybean, and wheat producer would need to have an actual corn, soybean, or wheat yield in one of the last four years. Producers need to choose the TA yield endorsement for their existing or new insurance policy before March 15, 2014 for corn and soybeans and September 30, 2013 for wheat, the sales closing date.
Organic corn, soybean, or wheat producers will be ineligible from electing the TA endorsement. Corn produced for silage with a tonnage guarantee is also not eligible. The TA endorsement will not be available for Catastrophic Risk Protection (CAT), Group Risk Plan (GRP), and Group Risk Income Protection (GRIP) policies.
Calculating the TA APH
As stated earlier, RMA will publish a TA yield for each county. Each insured unit within the same 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 needs to determine the TA for each crop year. The examples in Table 1, Table 2, and Table 3 show the approach for 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 2003 to 2012. The farmer would be looking at a TA yield adjustment of 1.08 for corn. To calculate the TA for each of the 10 years, our farm would use the following formula:
(2014 – Year) * TA = TA Year
To calculate the trend adjustment for 2003, our farmer would take:
(2014 – 2004) * 1.08 = 10 * 1.08 = 10.80
For 2005, the TA would equal 8.64 or: (2014 – 2005) * 1.08 = 9 * 1.08 = 9.72
In addition, the farmer needs to calculate the yield cap. The TA would be capped at the year with the highest average yield plus the annual TA. From Table 1, the highest average yield (164.4) would be in 2004. The TA APH would be capped at (164.4 + 1.08) = 165.48. From Table 2, the highest average yield (42.8) would be in 2004. The TA APH would be capped at (42.8 + 0.27) = 43.07. From Table 3, the highest average yield (70.0) would be in 2009. 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 his/her APH to be trended upward is to165.48 or 43.07. Table 1 reveals that our hypothetical farmer could increase his APH yield by close to 6 bushels per acre from electing to use the TA option. A soybean farmer could increase APH yield by 1.5 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).
Years of Yield History
One’s total trend adjustment dependents 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 years out of the last 12 years will be able to receive 75 percent of the trend adjustment. Producers with a yield history for 2 years out of the last 12 years will only receive 50 percent of the trend adjustment. Producers with yields for 1 year out of the past 12 years will only receive 25 percent of the trend adjustment.
Premiums
The TA APH yield endorsement does not cost the producer anything to elect but will change amount of coverage through the APH which may change the premium. The same amount of coverage under the TA election always costs the same or less changing the level of coverage under the regular APH. The real benefit of electing the TA option is that it could allow a producer to buy a lower level of APH coverage, but because of the trend adjustment still receive the higher coverage. Consider a producer with an APH of 135 and typically buys coverage at the 75% level at 101.25 bu./acre coverage (Table 4). By electing to use the TA endorsement, the producer could potentially be able to gain the same level of coverage at the 70% level (Table 4). A producer could experience premium savings by being able to buy down coverage levels.
References:
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. Internet site:http://farmdoc.illinois.edu/manage/newsletters/fefo11_23/fefo_11_23.pdf.
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