Producers can track their price risk protection through revenue insurance in a given growing season by comparing the harvest price (fall) to the projected price (spring) determined by the U.S. Department of Agriculture Risk Management Agency. In the broader marketing plan, revenue crop insurance provides a form of price guarantee at a premium expense similar to locking in a price guarantee using a put option contract. A previous article examined the price protection offered by Revenue Protection, Supplemental Coverage Option and Enhanced Coverage Option crop insurance for corn and rice (Biram, 2023). That article considered the change in price and not the potential change in yield. This article builds on that by considering price and yield protection offered by ECO and providing a snapshot of how changes in county yields can also trigger indemnities.
ECO is an area-based crop insurance product and must be paired with farm-level insurance like Yield Protection or RP. The liability insured by ECO is calculated using the same parameters as RP (e.g., actual production history farm yield and futures prices) at coverage levels of 90% and 95%. The futures price is based on the higher of the projected price and the harvest price determined by USDA-RMA. Unlike RP, which triggers indemnities based on farm-level losses, ECO triggers an indemnity based on county-wide losses and will trigger a full indemnity when county-level revenue losses fall to 86%.
A county-level map shows the extent the final county yield can change relative to the expected yield and still trigger an indemnity for corn that is equal to the producer-paid premium. In other words, this map answers the question of how much the county yield must change to trigger an indemnity that will at least cover the premium. For RP, the premium was determined at 75% coverage under optional units paired with ECO at the 95% coverage level with the associated premium subsidy rate applied. Projected and harvest prices reported by the RMA Price Discovery Tool are used with the associated price volatility.
What Is A Triggering Yield Change?
For example, a county in the darkest green shows that the final county yield may increase at least 21%-26% for an indemnity to trigger. This suggests the price decline in the futures market was severe enough to allow for yield upside risk that would offset indemnities triggered on price alone. Conversely, a county shaded in the darkest red indicates the final county yield must decline at least 6%-11% before a large enough indemnity to cover the producer premium is triggered. This implies that the price decline was not severe enough to trigger an indemnity on price alone. Most counties have experienced severe enough price declines that corn yield can increase in comparison to expected yield and potentially obtain a net indemnity above zero (e.g., yellow and green counties).
For maps on cotton, soybeans and rice, go to www.southernagtoday.com.