ANKENY, Iowa (DTN) -- Midwest farmers are giving their seal of approval to the new Trend-Adjusted APH Yield Option meant to correct for yield drag in federal crop insurance coverage.

"It's hard to imagine why I wouldn't want to do this," says Chad Hafkey, a Grinnell, Iowa, farmer who just received a 13-bushel boost to his insurable corn yields and a 4-bushel lift to soybeans. "After the weather we had last year, this will help. I'm not seeing where the drawback is."

Hafkey describes his county as "ground zero" for Iowa hail damage -- on top of occasional straight-line winds that decimated much of his 2011 corn crop. So anything that beefs up his crop insurance Actual Production History (APH) increases his odds of compensation in the event of a future loss.

"On 190 bu. corn, this effectively lets me insure at an 80% level but with the same yields an 85% policy would provide," he says. "I'm getting more for the money. It's really a no-brainer."

CLOSING THE YIELD GAP

As corn appreciated from $2 to $6/bu. the past five years, growers boosted yield with stacked traits, fungicides and well-timed fertilizing. But because federal crop insurance required 10 years of actual production history (APH), some growers with corn-soybean rotations carried yields as far back as 1992 in their insured averages.

Federal crop insurance is finally recognizing that such past yields do not reflect today's reality.

Beginning in 2012, the Risk Management Agency (RMA) has announced that corn and soybean growers in more than 800 counties in 14 states will be able to elect a Trend-Adjusted APH Yield Option insurance plan. In effect, it will adjust their APH yields based on their county's historical yield trend. It plans to expand to other crops and geographies in subsequent years.

"This could be the most important change in crop insurance since the advent of revenue coverage," says Eric Sorensen, a crop insurance agent and vice president of Agribusiness Insurance Services in West Des Moines, Iowa. "It comes at a good time because with higher rents and seed costs, margins won't be there in 2012 like they were in 2011. A lot of people bought higher coverage last year because they could. This year it will be because they have to."

Final premiums won't be set until February, when futures prices and volatility factors are complete. But on average, RMA estimates the change could drop Iowa's Revenue Protection soybean insurance rates on the yield portion of their policies by 9% and corn by 13%. Savings may be somewhat negated for those who already used the biotech yield endorsement since it will be discontinued this year, cautions Terry Jones, a Williamsburg, Iowa, farmer. Overall, however, Jones thinks the change is just one of the amendments making crop insurance a better risk management tool.

GRIP CONVERTS

Enthusiasts like farmer Wayne Fredericks of Osage, Iowa, agrees the new option "could be a game changer" for insurance coverage. He expects to gain more revenue/acre protection with an 85% Revenue Protection (RP) policy than the 90% GRIP (Group Revenue Income Protection) plan he's carried since 2004. Better yet, switching to an 85% RP policy with enterprise coverage could save him about $50 per acre compared to GRIP. (Last year he spent about $86 per acre for GRIP, vs. an estimated $35 per acre for an 85% RP policy with enterprise coverage.)

Other crop insurance professionals agree and believe there will be more GRIP converts like Fredericks. "Payouts from GRIP -- especially in 2004 and 2008 -- made it an easy buying decision in the past," Fredericks says. Some years his indemnities ran about $200 an acre, more than paying the policy's steep premiums. However, GRIP didn't cover individual hazards like wind damage or even quality risks like aflatoxin.

How much benefit you receive from the Trend Adjusted APH Yield Option depends on your actual records. Someone in a corn-soybean rotation could have corn yield records dating back to 1992, Sorensen points out. In that example, a grower might boost his current 190-bushel corn APH by 24 bushels an acre, since RMA's formula compensates older yields more favorably.

"Until now, GRIP was the best insurance there was for protecting revenue -- if you farmed above-average ground in your county and if you were spread out enough for weather risk. Now RP is going to be much more viable," Fredericks says.

Marcia Zarley Taylor can be reached at marcia.taylor@telventdtn.com

(CZ/AG)

© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.