1. By: Cody Darius Shay Alix Carmen Revenue Protection

2. Overview History Basic Mechanics ◦ Role of Futures Market ◦ Computation of trigger and indemnity payments Stereotypical producer to use RP ◦ Risk adverse

3. The Problem Solver Risk management tool for when income from crop production is low when the yields are not Covers what multi peril contracts can and price risk Gives you the best price ◦ Projected Price ◦ Harvest Price

4. Basics Crop Insurance began in 1938 ◦ The Great Depression ◦ AAA (Agricultural Adjustment Act) 80’s and 90’s came a new era of insurance coverage Yield coverage is much like traditional Yield Protection ◦ Based on Actual Production History

5. Price Coverage Uses CBOT Futures and APH yields Corn Example ◦ Projected Price  Computed by average of Dec. CBOT futures contract during Feb. ◦ Harvest Price  Computed by average of Dec. CBOT futures contract during October

6. Corn Example Ctd.- The Trigger Revenue Guarantee ◦ Higher of projected price or harvest price X APH yield X coverage level chosen Actual Revenue ◦ Actual harvest yield X Harvest price Indemnity Payment ◦ Amt by which the revenue guarantee exceeds the actual revenue, if any

7. Numerical Example Given Three Examples of RP Feb. Futures Price$4.00 APH Yield160 Chosen Coverage Yield0.75 Revenue Guarantee$480.00 Low Price/Low YieldLow Price/ Normal YieldHigher Price/Low Yield Harvest Futures Price$3.20$2.50$5.00 Revenue Guarantee$480.00 $600.00 Acutal Yield130160110 Actual Revenue$416.00$400.00$550.00 Indemnity Payment$64.00$80.00$50.00

8. RP with Harvest Price Exclusion RP-HPE Written so that the level of the revenue guarantee solely based by the February futures Price Does not increase even if the futures price rises by harvest Why? ◦ Carries lower premium than only RP Policy

9. Coverage Units and Discounts Enterprise Unit Coverage ◦ All acres of a crop in a county are insured as a single unit ◦ Average must fail to claim indemnity Whole Farm Coverage ◦ At least 2 crops with each over 10% of acres planted ◦ Weighted by number of acres planted of each

10. Farm Coverage Example Indemnity Pmt made when the combined per acre corn and soybean revenue falls below the whole farm guarantee RP and RP-HPE Adjusted in the same manner as APH losses Based on Projected Price in Feb. even if the harvest price is higher Replanting

11. The Insured Risk Averse Available: ◦ Soybeans ◦ Corn ◦ Wheat ◦ Grain Sorghum Want to reduce Price Risk ◦ Barley ◦ Canola/Rapeseed ◦ Rice ◦ Sunflowers ◦ Cotton

12. Summary Protects from combined effects ◦ Yield Coverage ◦ Price Risk Reduces year-to-year income variability Variety of options and coverage levels are available Design the protection you want for your operation

13. Questions?