Crop Insurance Basics | 6: RP vs YP

If this is your first time to our blog I would recommend reading up on our previous posts:

• Intro to APH –
• APH and the YA Option –
• Coverage Levels –
• Unit Structure
• Projected and Harvest Prices –

Now that we’ve laid the groundwork with the fundamentals of Crop Insurance, let’s dive into how it translates into coverage. For specific crops in Federal Crop Insurance (see table), two primary programs take center stage: Yield Protection and Revenue Protection. Understanding the nuances of these programs is key to selecting the right coverage for your farming operation.

Let’s explore the intricacies of Yield Protection and Revenue Protection, uncover the benefits and considerations of each. By the end of this article, you’ll have a clearer understanding of how these programs can safeguard your crops and mitigate your risks.

To help clarify the distinctions between yield protection and revenue protection, let’s establish a set of assumptions. By utilizing these assumptions, we can look at the loss calculations to gain a clearer understanding of how losses would play out under each program.

Assumptions

• County: Cascade, Montana
• Crop: Summer Fallow Winter Wheat
• APH: 50 bushels per acre
• Coverage Level: 70%
• Projected Price: $8.77 per bushel

Yield Protection (YP)

The guaranty in Yield Protection is determined by multiplying the Actual Production History (APH) by the Coverage Level. Unlike Revenue Protection, Yield Protection does not involve converting the loss to dollars until the final stage. Additionally, Yield Protection does not utilize a Harvest Price in its calculations.

Using the above assumptions:

YP Guaranty: 50 bushels per acre TIMES 70% = 35.0 bushels per acre.

If the harvest is less then 35.0 bushels per acre there will be a loss.

Revenue Protection (RP)

– – In Revenue Protection everything is converted to revenue – –

Using the above assumptions:

RP Guaranty: 50 bushels per acre TIMES 70% TIMES $8.77 = $306.95 per acre.

Loss Scenario (Harvest Price goes down)

Assumptions:
Harvest: 30 bushels per acre
Harvest Price: $7.77

Yield Protection Loss:

YP Guaranty: 35.0 bushels per acre
Production: 30.0 bushels per acre
YP Loss: 35.0 – 30.0 = 5.0 bushels per acre X $8.77 = $43.85 per acre

Revenue Protection Loss: 

RP Guaranty: $306.95 per acre
Production: 30.0 bushels per acre x $7.77 = $233.10

• note: Revenue Protection you multiply the Production times the Harvest Price

RP Loss: $306.95 – $233.10 = $73.85 per acre

Loss Comparison:

YP Loss = $43.85 per acre.
RP Loss = $73.85 per acre.

One notable advantage of Revenue Protection becomes apparent when the price of crops decreases. In such cases, the guaranty is still calculated based on the higher value between the Projected Price and the Harvest Price. However, the production is multiplied by the Harvest Price (which in this case was lower then the Projected Price).

This distinction becomes particularly beneficial when there is both a decline in production and a decrease in price. With Revenue Protection, if a farmer experiences a loss in production coupled with a decline in price, they have the potential to receive a higher payment compared to Yield Protection. This is because Revenue Protection takes into account both production and price factors, allowing for a potentially larger compensation amount under certain circumstances.

Loss Scenario (Revenue Decline ONLY)

Assumptions:
Harvest: 35.0 bushes per acres
Harvest Price: $7.77

Yield Protection Loss:

YP Guaranty: 35.0 bushels per acre
Production: 35.0 bushels per acres
YP Loss: No Loss Payable

Revenue Protection Loss

RP Guaranty: $306.95
Production: 35.0 bushels per acres X $7.77 = $233.10
RP Loss: $306.95 – $233.10 = $35.00

Loss Comparison

YP Loss = No Loss Payable
RP Loss = $35.00 per acre

Revenue Protection offers a unique advantage that allows farmers to receive a payment even if there is no loss in production, but rather a decline in price. In such cases, under Revenue Protection, it is possible to receive compensation based on the severity of the price decline. Depending on the extent of the price reduction, it may even be feasible to receive a payment that exceeds the traditional calculation of APH multiplied by the Coverage Level.

Loss Scenario (Harvest Price goes up)

Assumptions:
Harvest: 30 bushels per acre
Harvest Price: $9.77

Yield Protection Loss:

YP Guaranty: 35.0 bushels per acre
Production: 30.0 bushels per acre
YP Loss: 35.0 – 30.0 = 5.0 bushel per acre x $8.77 = $43.85

Revenue Protection Loss:

RP Guaranty: $341.95
Production: 30.0 bushels per acre x $9.77 = $293.10
RP Loss: $341.95 – $293.10 = $48.85

Loss Comparison:

YP Loss = $43.85 per acre.
RP Loss = $48.85 per acre

A notable advantage of Revenue Protection becomes evident even when there is an increase in price accompanied by a loss in production. In such cases, Revenue Protection outperforms Yield Protection by capitalizing on the higher harvest price. Despite the fact that both the guaranty and the loss may increase, it is important to highlight that the premium remains unchanged.

Loss Scenario (Harvest Price stays the same as the Projected Price)

This is a fairly uncommon circumstance. I am sure it has happened, but I cannot recall a time that it did.

Yield Protection Loss:

Same as the above two examples. No change. $43.85 per acre loss.

Revenue Protection Loss:

Exact same as Yield Protection loss as the Price did not change. $43.85 per acre loss.

Loss Comparison:

No difference – $43.85 per acre loss.

Continue to check out our blog as we dive deeper into Crop Insurance to help educate you.

Disclaimer

There are a lot of rules behind this program, so the above information is very high level.  You will want to take a deeper dive into understanding the program before making a purchasing decision.  Keep in mind the above information is for informational purposes only, and does not replace anything found in the Crop Insurance Handbook, Loss Adjustment Manual, RMA’s website, etc.  Always consult the Crop Insurance Handbook, Loss Adjustment Manual, RMA’s website, etc. before making a purchasing decision.  Any discrepancy between the above information and the policy is not intended.  The information provided in this article does not supersede policy and procedure.  Any changes to the policy and procedures may make this material obsolete.