Disclaimer: This web page is designed to aid farmers with their marketing and risk management decisions. The risk of loss in trading futures, options, forward contracts, and hedge-to-arrive can be substantial and no warranty is given or implied by the author or any other party. Each farmer must consider whether such marketing strategies are appropriate for his or her situation. This web page does not represent the views of Kansas State University. 

District 80, East Central KS, GRIP\GRP County Wheat Yield Analysis[1]

Below are GRIP\GRP county yield analyses.  The Kansas Counties are listed by crop reporting district, so if your county is not on this list it is on one of the other list posted on AgManager.info.  There are 6 Kansas counties that do not have a GRIP/GRP wheat offer.

The analysis counts the historical observed yield, adjusted for trend yield, against the RMA 2007, expected county yield.  All observed yields adjusted for tend were restricted to positive values only, i.e. no negative county trends were included.  Because of improved technology, calculating payments based a 30 year old observed yield will likely over state future indemnity payments therefore the historical observed yields were adjusted for trend.  The negative trends were rejected because that would require negative technology.  More likely any calculated negative trend yield was caused by recent weather disasters.

The historical prices were used with no adjustments to calculate indemnity payments.  The assumption is future market prices will follow the same pattern and the market is efficient.  The annual premiums were calculated based on the 2007 expected yields, volatility, and historical prices.

 Kansas wheat growers should think about the following issues before purchasing GRIP or GRP:

1. In years when your yields are low are the county yields also low? If your yields do not tract with the county then you will not transfer risk.
2. Can you afford to wait on any indemnity payment until about 10 months after harvest?
3. Can you afford the yield basis risk?
4. Will your lender accept the GRIP/GRP contract for insurance?
5. Is the expected farmer paid loss ratio less than 1.00 in the analysis shown below?  If it is below 1.00 then farmers over the long run would expect their premiums paid to exceed their indemnity payments, clearly not a good buy without transferring risk.
6. Is the expected Industry loss ratio less than 1.00 in the analysis below?  If this loss ratio is less than 1.00 then farmers over the long-run would not expect to collect all of the premium subsidies in the GRIP/GRP contract but their expected indemnities will exceed their farmer paid premiums.

If your APH yield is “reasonable” then it may not pay to switch to GRIP\GRP even if the county is projecting an underwriting loss.