Fall 2013 Crop insurance price discovery update
(information provided by the Washington state office of the USDA's Risk Management Agency)
DISCLAIMER: The purpose of the following material is to promote awareness of risk management concepts and to highlight USDA’s risk management products, features, benefits and availability. This presentation does not provide full details of policy provisions or approved procedures. Producers should consult with a local agent for specific details and program requirements.
T-Yields (Transitional Yields) are developed based on a National Agricultural Statistics Service (NASS) ten-year data set. NASS data is based on producer surveys. T-yields are reviewed and updated at least every 3 years.
RMA (Risk Management Agency) anticipates moving to Personal T-Yields in future years. The advantage of personal T-Yields are a more complete data set on a county level because nearly 90 percent of all wheat acres are insured, and NASS has increased the amount of counties where they weren’t disclosing data.
Wheat Transitional Yields (T-Yields) changed for the 2013 crop year. The new winter wheat (top) summerfallow and non-irrigated T-yields for the PNW are represented by the number printed in each county and the corresponding color represents the percent change from last year’s T-yield. Similar information is shown for spring wheat (bottom).
Basic examples of T-Yield use
An Actual Production History (APH) database is set up for each unit and consists of no more than 10-years and no fewer than 4-years of history consisting of acres and production. If a producer has less than 4-years of actual history, the county T-yield is used to complete the required 4-years.
Besides completing an APH database of less than four years, T-yields can also be used for Yield Adjustments (YA) or Yield Floors (YF). Under YA, as shown in the chart to the right, actual yields that are less than 60 percent of the T-yield can be replaced. In this example with the T-yield equal to 80 bushels, the insured can replace any actual yield that is 48 bushels (60 percent of 80 bu) or less. The premium rate the insurer is charged is based on the left database with an actual yield of 85 bu. while their guarantee is based on the database to the right of 87 bu.
Under the scenario to the right, (Yield Floor), the producer farms in a county with a T-yield of 80 bu. If they have five or more years of actual history, their approved yield could be 64 bu. (80 percent of 80 bu.). The premium rate is based on the actual yield of 37 bu. while the guarantee is based on 64 bu. This show the importance of having accurate T-yields for areas and counties, so yields are not “artificially” held higher than could be produced.
It's important to look at unit options
When working with your crop insurance agent, be aware of the many unit options that may be available to you. Unit structure is the “backbone” of your policy and special attention should be given to how your policy is designed.
Optional Units. Optional units for wheat may be set up by section, irrigated/non-irrigated, or winter and spring. Losses are calculated on a unit basis, so the insured may be eligible for a loss payment on one optional unit while the others experience no loss.
Enterprise Units. Enterprise units consist of all acreage of the same crop in the county. In this example, the producer raised both wheat and barley and qualifies for two separate enterprise units, one for wheat and one for barley. Losses are calculated on a unit basis, so a poor wheat crop in one field can be offset by a good wheat crop in another location. There are however, substantial premium discounts for using enterprise units.
The table on the right shows the potential impact enterprise unit discounts can have on the insured’s premium, as compared to the other unit structure options of basic and optional units.
As in previous years, the winter wheat Projected Price uses a fall discovery period for the Chicago Board of Trade (CBOT) September Soft Red Winter contract plus a basis adjustment to the Portland Merchants Exchange (PME), and the Harvest Price uses the average daily settlement price for the PME Soft White Wheat contract.
New for 2014, based on recommendations from Tri-State growers, spring wheat will also have a fall discovery period now based on the Minneapolis Grain Exchange (MGE) September Hard Red Spring contract, and the Harvest Price based on the MGE Hard Red Spring contract. This new pricing method allows producers to know the Projected Price of spring wheat at sign up time in the fall. The insured can go to RMA’s website to track upcoming Projected and Harvest Prices. http://www.rma.usda.gov/tools/pricediscovery.html
The importance of unit structure, coverage levels and the type of plan you choose (yield protection, revenue protection, or revenue protection with the harvest price exclusion) is also an important consideration when tailoring your insurance plan to your specific operation and achieving your risk management goals. These tables show a comparison of premiums based on different coverage levels, unit structure, and chosen plans of insurance.
As always, both RMA and WAWG recommend you talk extensively with your crop insurance agent before making any final decisions. Here is a listing of crop insurance providers in Washington.