Trend Yields and the Crop Insurance Program
Matthew Smith, Hitchcock, S.D., defended his thesis, “Trend Yields and the Crop Insurance Program,” on April 13, 2012. Smith is an Insurance Account Specialist with Farm Credit Services of America in Huron, S.D. He graduated from Kansas State University in May with a Master of Agribusiness (MAB) degree.
Crop insurance was designed to help producers mitigate risk to their crops. As technology developments have led to improved yields, producers express concern that they may not be able to adequately cover their risk when the Actual Production History (APH) for a particular section of land is below the farmer’s expected yield. As an Insurance Account Specialist, Smith works with farmers to protect their growing crops. He examined how APH can be different depending on the method used to calculate it.
“The key issue is how APH is determined and that it may not be reflective of a producer’s yield goals,” Smith said. “There are many factors that contribute to low APHs, but the main one is the use of historical yields that are not representative of improved current production practices.”
Smith analyzed five different APH methods: 30-Year Sloped Trend APH, RMA Un-trended APH, 7-Year Un-trended Olympic APH, RMA 10-Year Trended APH, and a 7-Year Olympic Trended AHP to determine which provided the most accurate APH.
Allen Featherstone, Professor of Agricultural Economics and Smith’s thesis advisor, said, “Matt examined the effect of alternative methods to determine APH with and without trend adjustments. He found that the trend adjustment allows producers to more completely insure their crop if the farmer had bought the maximum coverage available. In cases where the farmer was not completely insured, Matt found that more of the crop would be eligible for a subsidy under a trend adjusted yield.”
The full thesis publication can be found online on Kansas State University’s Research Exchange at http://hdl.handle.net/2097/13748.