Guiding Your Crop Insurance Needs

Yield Protection—commonly called YP—is designed to protect a producer when an insured cause of loss reduces crop production below the policy’s yield guarantee. Unlike Revenue Protection, Yield Protection does not cover a loss caused solely by declining commodity prices. Its primary purpose is to protect insured bushels rather than a calculated amount of crop revenue. Yield Protection may be appropriate for producers who want protection against physical production losses but prefer to manage price risk separately through forward contracts, futures, options or other marketing tools. Delta Crop Insurance helps producers in Eastern Arkansas and Western Mississippi compare Yield Protection with other coverage options and determine how much production risk their operation can afford to retain. What Does Yield Protection Cover? Yield Protection may provide an indemnity when harvested and appraised production falls below the insured yield guarantee because of a covered cause of loss. Depending on the crop and applicable policy provisions, covered causes may include: - Drought - Excessive rainfall or moisture - Flooding - Hail - Wind - Frost or freeze - Certain plant diseases - Certain insect damage - Other unavoidable natural causes listed in the policy Not every reduction in yield is covered. The loss must result from an insured cause, and the producer must follow recognized good farming practices and meet all applicable policy requirements. Yield Protection generally does not cover losses caused by poor management, failure to properly care for the crop, chemical damage, avoidable irrigation problems, equipment failure or a decline in market price. How Yield Protection Works Yield Protection is built around the number of bushels, pounds or other units of production the policy guarantees. The basic calculation involves four primary components: 1. The farm’s approved yield 2. The selected coverage level 3. The projected price and selected price percentage 4. The production counted for the insured unit When production to count is less than the yield guarantee, the difference may produce an indemnity. Approved Yield The approved yield is generally developed from the farm’s Actual Production History, commonly called APH. The APH database contains the producer’s reported and verified yields for the insured crop, unit, practice and type. Depending on the crop and policy provisions, the approved yield may also be affected by: - Trend adjustments - Yield exclusions - Yield substitutions - Yield cups or floors - Transitional yields - Added land procedures - New producer provisions - Changes in crop practices or unit structure Accurate production reporting is important because the approved yield directly affects the number of bushels or pounds protected by the policy. For example, a producer with a 60-bushel approved soybean yield has more potential protection than a producer with a 45-bushel approved yield, assuming both select the same coverage level and price percentage. Coverage Level The producer selects the percentage of the approved yield to insure. Available coverage levels commonly range from 50% through 85%, although availability varies by crop, county and practice. The coverage level determines the yield guarantee. For example, if a soybean producer has a 60-bushel approved yield and selects 75% coverage: **60-bushel approved yield × 75% coverage = 45-bushel yield guarantee** In this situation, production must generally fall below 45 bushels per acre before a Yield Protection indemnity is triggered. A higher coverage level provides a larger yield guarantee but normally increases the producer-paid premium. Projected Price Yield Protection uses the applicable projected price to establish the dollar value of the insured production. The projected price is established under USDA Risk Management Agency procedures. For many major crops, it is based on settlement prices for a designated commodity futures contract during a specified price-discovery period. The projected price is an insurance price. It is not necessarily the price a producer will receive from a local elevator, gin, rice mill or grain buyer. The producer may also be permitted to select a percentage of the projected price, generally between 55% and 100%, subject to the applicable policy and actuarial documents. Most comparisons should show both the selected coverage level and the selected percentage of price. Yield Protection Does Not Use the Harvest Price A major difference between Yield Protection and Revenue Protection is how prices are handled. Yield Protection uses the projected price to determine coverage and calculate an indemnity. The harvest price does not increase the guarantee, decrease the guarantee or change the price used to value a yield shortfall. This means: - A lower harvest price will not create a Yield Protection payment. - A higher harvest price will not increase the Yield Protection guarantee. - A payment is based on an insured production loss—not a price decline. A producer can suffer a major decline in crop prices and receive no Yield Protection payment if production remains above the insured yield guarantee. How the Yield Guarantee Is Calculated The simplified per-acre calculation is: **Approved yield × Coverage level = Yield guarantee per acre** The final guarantee for the insured unit also considers: - Insured acreage - Producer’s ownership share - Crop, type and practice - Unit structure - Information reported on the acreage report - Applicable policy adjustments The guarantee is established for the insured unit—not necessarily for each individual field. ## How a Yield Protection Loss Is Calculated The first step is to compare the yield guarantee with production to count. **Yield guarantee − Production to count = Yield loss** If the result is greater than zero, the potential indemnity is calculated using the projected price and the producer’s selected percentage of that price. A simplified calculation is: **Yield loss × Projected price × Selected price percentage × Insured acres × Producer’s share = Potential indemnity** If production to count equals or exceeds the yield guarantee, no Yield Protection indemnity is due. Yield Protection Example Assume a soybean producer has the following coverage: - Approved APH yield: 60 bushels per acre - Coverage level: 75% - Projected price: $12.00 per bushel - Selected price percentage: 100% - Production to count: 40 bushels per acre - Insured acreage: 100 acres - Producer’s share: 100% Step 1: Calculate the yield guarantee **60-bushel approved yield × 75% coverage = 45 bushels per acre** The policy guarantees 45 bushels per acre. Step 2: Determine production to count The producer has 40 bushels per acre of production to count. Step 3: Calculate the yield shortfall **45-bushel guarantee − 40 bushels of production = 5-bushel loss per acre** The insured yield loss is five bushels per acre. Step 4: Apply the projected price **5-bushel loss × $12.00 projected price = $60 per acre** Because the producer selected 100% of the projected price, the entire $12.00 price is used. Step 5: Calculate the potential unit indemnity **$60 per acre × 100 acres × 100% share = $6,000** In this simplified example, the potential Yield Protection indemnity would be: **$60 per acre, or $6,000 for the insured unit** This calculation does not include producer-paid premium or additional policy adjustments that may apply. What if the Harvest Price Falls? Assume the projected price in the example was $12.00, but the harvest price later fell to $10.00. The Yield Protection calculation would still use the $12.00 projected price: **5-bushel insured loss × $12.00 projected price = $60 per acre** The lower harvest price would not create an additional payment. If the producer harvested 50 bushels per acre instead of 40, no Yield Protection payment would be due because the 50-bushel production would exceed the 45-bushel guarantee—even though the market price had declined. This is why producers should understand that Yield Protection protects production but does not provide the same price protection as Revenue Protection. Production to Count Production to count can include more than the bushels or pounds delivered to a buyer. Depending on the situation, it may include: - Harvested production - Appraised unharvested production - Production left in the field - Production disposed of without authorization - Production that cannot be properly separated or documented - Other production required to be counted under the policy An approved quality adjustment may reduce production to count when the harvested crop fails to meet applicable quality standards because of an insured cause. Quality-adjustment eligibility depends on the crop, type of damage, test results, sales records and policy requirements. Producers should keep settlement sheets, scale tickets, bin measurements, load records, quality tests and other production records needed to verify the claim. Losses Are Calculated by Insured Unit Yield Protection claims are generally calculated across the insured unit rather than on each individual field. Suppose one field produces 25 bushels per acre while another field in the same unit produces 60 bushels. Production from both fields may be combined when determining the unit’s average production. The higher-yielding field can offset the loss from the lower-yielding field. Unit structures may include: - Enterprise units - Basic units - Optional units - Other unit arrangements available under the policy Enterprise units generally combine more acreage into a single unit and may qualify for a larger premium discount. Basic or optional units may separate certain acreage when all eligibility and recordkeeping requirements are satisfied. The appropriate unit structure depends on the location of the acreage, ownership arrangements, irrigation practices, production history, recordkeeping ability and the producer’s risk tolerance. Irrigated and Non-Irrigated Acreage Irrigated and non-irrigated acreage can have different approved yields, premium rates and coverage considerations. To insure acreage under an irrigated practice, the producer must generally have adequate irrigation equipment and water available to apply the amount of water needed at the proper times under the policy’s requirements. Acreage should not be reported as irrigated simply because a well or irrigation system is located nearby. The acreage must qualify for the irrigated practice under the applicable policy and actuarial documents. Producers should discuss changes involving wells, pumps, water availability, power units or irrigated acreage with their crop-insurance agent before acreage reporting. Yield Protection Versus Revenue Protection Both Yield Protection and Revenue Protection can protect against an insured physical production loss. The main difference is how price risk is handled. Yield Protection - Protects against an insured yield loss - Uses the projected price to value the loss - Does not provide a payment for a price decline by itself - Does not increase the guarantee when the harvest price rises - May have a lower premium than comparable Revenue Protection coverage Revenue Protection - Protects against yield loss, price decline or a combination of both - Uses the applicable projected and harvest prices - May provide a payment when revenue falls even without a major yield loss - Can increase the guarantee when the harvest price is higher than the projected price Yield Protection may be worth considering when a producer is comfortable managing commodity price risk separately or when the premium difference makes Revenue Protection less attractive. The decision should be based on more than premium alone. When Should a Potential Yield Loss Be Reported? Contact Delta Crop Insurance as soon as you believe an insured crop has been damaged or may fall below its guarantee. Producers should obtain guidance before: - Destroying damaged acreage - Replanting the crop - Abandoning acreage - Harvesting the crop in a way that prevents an accurate appraisal - Putting the acreage to another use - Grazing insured acreage - Commingling production when separate records are required Early notice allows the approved insurance provider to assign an adjuster, inspect the crop when necessary and explain what records must be maintained. The approved insurance provider and assigned adjuster determine whether the damage is covered, establish production to count and calculate the final indemnity. Delta Crop Insurance assists producers with reporting the potential loss and working through the claims process. Is Yield Protection Right for Your Farm? Yield Protection is not automatically the best or least expensive choice for every producer. A proper comparison should consider: - Approved yield - Coverage level - Projected price - Percentage of price selected - Producer-paid premium - Unit structure - Irrigated and non-irrigated practices - Marketing strategy - Operating expenses - Debt obligations - Ability to withstand a price decline - Availability of supplemental coverage A producer should understand exactly how many bushels or pounds are guaranteed, what price will be used to value a loss and how much production must be lost before a payment begins. **Contact Delta Crop Insurance to request a Yield Protection comparison for your operation.** *This information is provided for general educational purposes and does not change or replace the terms of any crop-insurance policy, crop provisions, actuarial documents or Special Provisions. Coverage, availability and policy requirements vary by crop, county, practice and crop year.*