Last time we talked about the basics of APH (Actual Production History) and how to find the “Naked APH” without any options. This time I thought we would take a look at the most popular, and most commonly used, option YA aka Yield Adjustment, and YC aka Yield Cup. In the past YA included YC, but now you can elect to take YA without YC. Not sure why you would, but you can. Most producers take both – FYI.
If you remember from last time your APH is figured on an average of up to 10 line items in your database which could span 10 years, 20 years, etc. depending on your unit structure and seeding plan. What YA does is it takes a look at your database and any year where the Actual Production is less then 60% of the County T-Yield it plugs in 60% of the County T-Yield as your Yield and factors this into the average.
In years where a Producer gets hailed out instead of factoring a 0 bushel per acre figure it would factor in 60% of the County T-Yield. For argument’s sake we refer to this as your “massaged yield.” 100% of the time when the YA option is used the APH for the Producer is increased. It is a very common option that I see used almost exclusively.
Here is an example:
Take a look at the graphic below to see how the “Naked” APH would pencil out by simply taking the average:
You will notice that in 2014 and in 2010 the Producer had some difficult years. They had Zero production in 2014 – they were hailed out, and only averaged 4.7 bushels to the acre in 2010 – they had severe frost damage/winter kill.
If you add up all of their line items in their database and take the average you end up with 35.7 bushels to the acre.
Now let’s take a look at what would happen to that very same Producer if he/she had the YA Option on their Federal Crop Insurance policy:
In the above example you can see in 2014 & 2010 the Producer’s Yield was less then 60% of the County T-Yield (County T-Yield was 40 bushels per acre times 60% or 40 x 0.65 = 24.0). With the YA Option the Producer was able to plug in 24.0 instead of the low production numbers. The end result is the Producer’s APH is 40.0 vs 35.7.
This may not seem like much at first glance, but over time the YA Option is an excellent tool to help Farmers recover from losses to Production in more ways then just a loss payment. The key to Crop Insurance starts with your APH.
Yield Cup (YC) mitigates the effect of a catastrophic year on an approved APH yield by preventing the approved APH from decreasing more than 10% from the previous approved APH yield. In the above example you would take the “Naked APH” from the previous year, which would be 34.42. YC then says – your APH for the next year cannot come in lower then 0.90 x “Previous Year Naked APH” or 0.90 x 34.42 = 30.98. If for some reason you had a catastrophe in 2016 and harvested 0 bushels, your “Naked APH” for 2017 could not be less then 30.98. However, since our farmer in this example had YA their APH would be much higher then 30.98 because they would be plugging in 60% of the County T-Yield in for any year where the production was less then that. In other words, the farmer would not utilize YC as YA helped them out more.
There could be a scenario where you are plugging in 60% of the County T-Yield, utilizing YA, but the APH from one year to the next drops by more then 10% – at that point you would utilize YC – you get the higher of the two numbers.
Note – Hemp does not have an established County T-Yield yet. This is going to be part of the process for the USDA to establish for the Hemp Crop Insurance program. Hemp producers will want to be a part of this process to help educate the policy makers on what a sustainable Hemp crop looks like in your geographic region.
Remember, if you are new to farming Hemp, and they eventually have a Hemp Crop Insurance program you will most likely (currently we do not know, but based on other crops) have to plug in 4 Years of County T-Yields to startup your Hemp Crop Insurance APH. A low County T-Yield will have adverse affects on your operation.
Continue to check out our blog as we dive deeper into Crop Insurance to help educate you.