TA-APH Yield Endorsement · 1 Understanding the Trend Adjusted APH Yield Endorsement Bruce J....
Transcript of TA-APH Yield Endorsement · 1 Understanding the Trend Adjusted APH Yield Endorsement Bruce J....
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Understanding the Trend Adjusted APH Yield Endorsement
Bruce J. SherrickUniversity of Illinois
September 12, 2013Mankato, MN
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• Originally Sponsored by Illinois Corn Growers
• Research and technical support provided by University of Illinois and iFAR
TA-APH Yield Endorsement
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• Problem addressed: Corn and soybean yields are increasing through time
• APH used in crop insurance guarantees is simple average of past yields (up to 10)
• Average of past trending yields lags actual expected yield, which is what APH is meant to measure
• INTRODUCE: Trend Adjusted APH yield
Trend Adjusted Yield Endorsement
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Trend Adjusted APH: Main Idea
Insu
ran
ce Y
ea
rAPH Window
Ave APH
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Trend Adjusted APH: Main Idea
Insu
ran
ce Y
ea
r
APH Window
Ave APH
TA APH
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TA APH Endorsement
• Applies to most APH-based yield and revenue policies (except organic, transitional, specialty)
• Does not apply to CAT• Does not apply to written agreements except
High-risk and UA• 2012 Pilot, 14 states, selected counties• 2013 expansion to larger area; added wheat,
canola, cotton, grain sorghum, and rice• 2014 includes sunflowers, barley, peanuts• Future expansions planned for other crops ranked
primarily by insured value and trend rates
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TA APH – Data Eligibility
• Must be in eligible county/crop (has trend in ADM)
• One or more actual yield in last four years
• Make election by sales closing date (March 15)
• Election made on crop/county basis
• Continuous unless cancelled or terminated by FCIC
• Transferred policies must re-elect
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• Must have at least 4 actual yields to be eligible for full adjustment
• Percentage of full trend adjustment:– 4 or more yields in last 12: 100%– 3 yields 75%– 2 yields 50%– 1 yield 25%
• Max trend APH yield can not exceed highest actual yield plus trend (e.g. max actual 190, TA =2, max TA APH = 192)
TA APH – Full Adjustment
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Yields “Counting” Toward Actual
For 1 in 4 determinationA -- actual yieldAY – A but less than 60% TNA – AY did not electPA – prorated productionDA – duplicate actual prodNW -- wgt avgPW – wgt. avgWY – wgt. avgAX – simple avgP – assigned yieldsJ – temporary yield
Receive adjustmentAAYNAPADANW PWWY
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Details
• Cups and Floors do not apply to TA APH– Rare case could result in better “floors” than
actual yields adjusted for trend
• T (and S,E,N) yields not adjusted• Yield reductions
– Excessive yield reductions still apply– Reductions in approved APH still apply
• Other restrictions intended to encourage additional accumulation of data
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TA APH yield
• Applicable to Enterprise, Basic, and Optional units
• Does not impact yield database
• TA-APH calculated for each database
• Trend rates updated annually
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Trend Adjustment Examples
• Generated with farmdoc Crop Insurance Decision Tool
• Microsoft Excel spreadsheet, annual release, calculates premiums, “what-if” scenarios, historic performance and other features of current programs.
• Available for download in FAST section of farmdoc website.
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4-year
Not allactual
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Establish Trend Rates
• Based on NASS county and Crop Reporting District yields from 1976 though 2012 in 2014CY.
• County data screens for number of yields, acreage and other quality conditions.
• Fit trends through data with controls for:– Weather
– Geographical weighting (spatial weights)
• Trend rates are capped at 90th percentile or lower based on crop, and statistical properties
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Trend Rates 2014 - Corn
Trend - bu./acre0.00 to 0.880.88 to 1.251.25 to 1.601.60 to 2.002.00 to 2.36No data
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Trend Rates 2014 - Soybeans
Trend - bu./acre0.00 to 0.260.26 to 0.400.40 to 0.460.46 to 0.500.50 to 0.57No data
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Trend Rates 2014 – Spring Wheat
Trends bu./ac- to 0.20 0.20 to 0.40 0.40 to 0.60 0.60 to 0.80
No data
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Trend Rates 2014 - Canola
Trend - lbs./acre0 to 2727 to 3333 to 3737 to 4040 to 42No data
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Premium effects of TA
• Total premium is the same for identical rate yield guarantee given APH or TA-APH
• Use of TA-APH will lower farmer-paid premium at given yield because subsidy levels are lower for higher coverage levels
• Always to advantage to elect TA endorsement if not “on floor”
Risk Subsidies (Percent of Total)
CoverageLevel
Basic,Optional Enterprise
50% 67% 80%
55% 64% 80%
60% 64% 80%
65% 59% 80%
70% 59% 80%
75% 55% 77%
80% 48% 68%
85% 38% 53%
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Example of Actual Premiums, Corn
Coverage Bu. Trigger Premium Bu. Trigger Premium
bu/acre $/acre bu/acre $/acre
50% 89 0.51 94.5 0.69
55% 97.9 0.78 104 1.00
60% 106.8 1.22 113.4 1.82
65% 115.7 2.01 122.9 2.97
70% 124.6 3.26 132.3 4.61
75% 133.5 5.74 141.8 8.16
80% 142.4 11.61 151.2 15.26
85% 151.3 22.82 160.7 29.08
APH Yield = 178.0 TA APH Yield = 189.9
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TA-APH Q/A and Summary
• Ongoing efforts by RMA to reflect actual yield within insurance contracts
• Intended to create incentive for accurate data/reporting.
• No impact on premium structure, only on amount of insurance
• Applies to actuals in added land, not to SA-T. PTY not trended.
• No limit on age of records.
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TA-APH Q/A and Summary
• Each database treated separately.
• Max TA does not force lower than APH in cases where T-yields are higher than actual.
• 2012 yields are included in estimation of 2014 trends. Weather adjustment mitigated influence on trend.
• Trend ≠ E(level of APH). Trend rates can be high where yields are lower.
• Always room to add Good ideas.
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Questions?
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Acres Covered by Crop:
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Growing Program: Total Premium
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Total Liability (amount of insurance)
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Total Payments by crop through time
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Total Payments by crop through time
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Ratings System Explained in a Nutshell
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• Based on a Loss Cost Ratio (LCR) system initiated in 1980s for a single product (65% yield) fixed indemnity-price policy.
• Modified for product types, extended to several dimensions, numerous internal controls, tied to exceptionally complex data through time, but still…
• Idea – each yeart : Losses/liability = ratetthen ave(rates) ×liability = premiums. Over time, premiumsshould equal losses. Loss ratio target =1
• Main components used as rate components: farmer risk relative to county, reference yield, exponent, coverage level differential, and loads for CAT, PP, RP, and QA; and price level, vol. & deviates (correlation) for RP related.
Rating System (Overly)Simplified
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Ratings system - “so how are we doing”?
• Recall Basic Idea:
n
• Loss Ratio Should be equal to 1.0 if rates are correct, rates correct if losses correctly converted to rates.
• Should have no discernible patterns across geography or crops
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