Production Reporting and Crop Insurance

Production reporting is a key step in the crop insurance cycle, where a producers production history is gathered to build what is called an Actual Production History (APH) record. So what exactly is an Actual Production History record, and how does it affect your operation’s crop insurance?

For most Multi-Peril Crop Insurance (MPCI) plans, the Approved Insurance Provider, or AIP relies on accurate production data from the producer to establish coverage, calculate guarantees, and administer the policy correctly. As such, timely submission of production reports to the crop insurance agent is critical to ensuring reporting deadlines are met, and so that the policy can be processed accurately. This deadline is different depending on the crop, state, and county, so it is important to check in with your agent, or review the RMA actuarials to determine the reporting deadline dates for each county.

The production reporting “season” takes place directly after sales closing. However, this does not mean that production reports must be filled out during this specific time frame. Production reports can be completed as soon as all the production numbers are in from harvest. Producers still must remember to turn in their production reports before the final reporting deadline though. Late production reports typically result in a producer being required to use an assigned yield instead of their actual production for that year. The assigned yield is 75% of the previous year’s approved yield, which typically results in a lower number. Failing to submit a production report at all results in additional more severe penalties on top of being required to use the assigned yield for that year. As such, while submitting a production report late may be inconvenient, it is still much better than not submitting one at all.

Production reporting information is used to develop a producer APH, or actual production history. This history, once filled out, is used to calculate an approved yield by averaging production from each year together, and then applying exceptions, elections, and adjustments, if elected before sales closing. This approved yield is utilized for several calculations in yield based insurance plans, including the formula that determines how much coverage you receive, how much premium needs to be paid, and at what point you will receive an indemnity. Incorrect data in your APH can lead to policies not triggering at expected levels, or over-paying on premiums. Intentionally manipulating production information for your APH can also lead to fraud charges, fines, and other penalties.

Production reports are required for each insurance unit. An operation can be insured as a basic, enterprise, or optional unit. A Unit is the fundamental classification of acreage used to group fields for crop insurance purposes. How a producer structures their fields into units can heavily impact how their crop insurance functions, and what it costs. We will dive more into units in a later article.

Once the information is gathered, it is sent to the AIP who is underwriting the policy. From there, the AIP will take into account all listed exceptions, elections, and adjustments. For the approved yield to be established however, an APH database must contain at least four years of verified production records in it. If a producer doesnt have complete production records, the AIP will substitute a percentage of the transitional yield (T-Yield) for any missing records. While four years is the minimum required, an APH can contain a total of the last ten years of production history which is averaged together to find a producer’s approved yield.

When it comes to an APH, it is expected to encounter scenarios that can cause an APH to have odd or unexpected entries. That is why there are exceptions, elections, and adjustments that are utilized when building an APH to help make sure it is as accurate as possible.

A producer can qualify as a new producer for a crop if they have not produced the insured crop in the county for more than two APH crop years prior to the current crop year. As such, an experienced producer who has grown corn for twenty years may qualify as a new producer for wheat when they plant it for the first time. If they do not qualify, they will receive 65% of the T-yield if they have no records, 80% with one year, 90% with two years, and 100% with three years of records. Once a producer has the required four years, they will no longer have to utilize the T-yield as long as they continue to maintain records.

Additionally, for beginning farmers or ranchers, they may also use a previous producer’s production record with that producer’s consent. This requires the beginning farmer or rancher to have been involved in the decision making or labor on the previous producers farm. Additionally, in order for BFRs to use another producers history, they must also either be receiving acreage from the previous farmer, or be farming within the same section, township, and range as the land associated with the previous production history.

There are plenty of scenarios that can cause unusual or unexpected discrepancies in a producer’s APH. For this reason, the RMA has different types of exceptions and producer elections designed to assist producers in improving their APH. We will discuss some of these options and situations here, but always make sure to meet with your crop insurance agent for a more detailed review of all your available options.

A common exception example is uninsurable damage such as a fire, or third-party damage. When reported and verified by an adjuster, an exception can be put into place to allow the producer to exclude the damaged acreage to keep it from hurting their APH. However, the important thing to note, is that while your crop insurance may not cover such damages, it is still extremely important to report a notice of loss. Otherwise, the yield damage may impact your APH for the next year.

Elections are allowed by the RMA for specific crops, states, counties, and years. To see if one of these elections is available for your operation, make sure to  connect with your crop insurance agent, or review the information provided by the RMA Actuarials.

Yield Exclusion (YE) is an election that allows a producer to exclude a crop year with a significantly low yield caused by a natural disaster, such as a hurricane. The yield must be at least 50% below the county’s 10 year average to qualify for the YE election, and the RMA makes the final determination on which years qualify.

Another election is the Yield Adjustment (YA). this election allows 60% of the T-yield, (80% for any beginning farmer and ranchers!) to replace the actual yield. This is helpful if the producer has a yield that falls far below the T-yield.

The Trend-Adjustment Yield Endorsement (TA) is another election for improving a producer’s APH. This allows farmers to add specified trend factors to their actual yield. These factors are published by the RMA for specific counties where the option is available. You can read this article from The FarmdocDaily, a publication of the University of Illinois Urbana Champaign, for more information. Do make sure to discuss your elections with your crop insurance agent to determine which choices best fit your operation.

Once the APH is calculated and an approved yield is established, what are these numbers and averages used for? An approved yield is used to determine a farmers coverage level, guarantee, and premium rates. It also will be utilized to calculate any loss payments should a claim occur.

For an example of how some of these calculations can play out, lets take a look at an example revenue protection plan.

Revenue protection is a crop insurance program that triggers when yield or revenue falls below the trigger percent, which is anywhere from 50% to 85% depending on the producer’s election. A producer’s approved yield is factored in to determine what the guarantee will be using the formula below.

Spring Price  X Coverage Level  X Approved Yield = Guarantee

* NOTE: replace Spring Price with Harvest Price if Harvest Price is higher. *

Lets put some numbers to this. Farmer Jeffery has an approved yield of 185 for his main enterprise corn unit after his APH is calculated, and his elections are taken into account. Lets say that the Spring Price of corn was 4.70$, followed by a Harvest Price of 4.10$ that fall. Lets also say that Jeffery had an 85% RP (Revenue Protection) policy on his corn. To calculate what his insurance guarantee would be, lets add the numbers to the formula:

4.70$ * .85 * 185 =739.08$

This means that Farmer Jeffery is guaranteed 739.08$ an acre within this corn unit. Next, we need to find the Harvest Revenue

Actual Yield X Harvest Price = Harvest Revenue

If Jeffery had a rougher year, and only reached a production of 150, this is what his harvest revenue would have been in our example year.

150 * 4.10$ = 615$

To determine how much Jeffery’s Revenue Protection plan would pay out, we can compare our guarantee with the harvest revenue. If the guarantee is higher, Jeffery would receive the difference as an indemnity.

Guarantee: 739.08$ – Harvest Revenue: 615$ = 124.08$ per acre.

The important thing to note here, is that farmer Jeffery’s approved yield is multiplied by the coverage level, and Spring or Harvest price. Therefore, the higher his approved yield, the higher his potential guarantee. This is why its important to keep an accurate and up to date APH, as each under-reported or un-reported issue that could lower the APH will lower the next year’s insurance guarantee.

For production reports, it is vitally important that these reports be submitted accurately, and timely. To make sure they get submitted on time, many producers find it helpful to complete their production reports soon after finishing harvest to avoid delays.  In addition to precise and punctual  reporting, it is also important to maintain records and documents in case the RMA decides that an audit is necessary to verify the production reports are accurate.

Utilizing precision agriculture tools can also be a way to quickly and effectively produce hyper-accurate production reporting information. However, the precision tools must be calibrated correctly for RMA standards, and a producer must be vigilant to make sure the tools are reporting correctly, (for example, mixing up which field is being worked as the data is recorded) as messed up precision data can cause production reports to be incorrect. For more information about precision, make sure to contact your Silveus crop insurance agent.

While it may seem pointless to take the time to submit a notice of loss on an issue that is most likely non-insurable, you should still submit the notice! Without an adjuster verified report, you may not be able to exclude a damaged yield, and will be required to accept the lower yield on your APH, which can negatively impact your crop insurance strategies the following year. Also, make sure to submit your notice in a timely manner,  as your insurance agent must be notified within 72 hours of the initial discovery of damage or loss of production.

Comingling production can hurt your APH and damage your unit structure.  Comingling occurs when production from two or more units are loaded, stored, or sold together with no designation. For example, harvesting two corn units back-to-back without recording the individual yields, making it impossible to verify how much each unit produced.

Comingling like this forces the AIP to calculate all the comingled fields as one basic unit, instead of whatever other distinctions it might have. This can potentially pull a field out of a claim that it might have otherwise received.

At Silveus Insurance, we have decades of production reporting experience and understand how vital the process is to our farmers.  Our agents and team members are experts and will happily assist our clients with filling out and understanding the production reporting requirements.  Additionally, we can help our producers integrate their precision technology into the production reporting process, making the task more accurate and efficient.

To speak with one of our experienced agents, fill out the form on the right!