## [answered] AAE 320 Problem Set #8 Due December 14, 2016 Name__________

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AAE 320 Problem Set #8

Due December 14, 2016

Name___________________

Below are several questions that will ask you to demonstrate your understanding of how crop

insurance works. You will likely have to use the class overheads and/or the materials posted on

the class web page to answer some of them.

A. Yield Insurance

Suppose a farm has 250 acres of corn in one insured basic unit with an actual production history

(APH) average yield of 170 bu/ac.

1. If the farmer buys 65% Yield Protection (YP) crop insurance, what would be the per acre

yield guarantee? What would be the yield guarantee for the 250 acre unit? 2. If the farmer actually harvested 26,250 bushels from the unit (an average of 105 bu/ac), what

would be the YP indemnity, assuming a 100% price election of \$3.86/bu? 3. How would the indemnity for question 2 change if the farmer actually sold the corn for

\$4.00/bu? 4. If instead the farmer actually harvested 28,000 bushels from the unit (an average of 112

bu/ac), what would be the YP indemnity, assuming a 100% price election of \$3.86/bu? Suppose the farmer instead bought a corn Area Yield Protection (AYP) policy in a county with

an average yield of 155 bu/ac. The farmer buys a AYP policy with a 90% coverage level, so the

county yield guarantee is 90% x 155 bu/ac = 139.5 bu/ac. The farmer enrolls all 250 corn acres.

5. If the county average yield is 135 bu/ac and the farmer chose a \$3.86/bu price election, what

would be the AYP indemnity? 6. How would the AYP indemnity change if the farmer?s actual yield was 110 bu/ac? How

would the AYP indemnity change if the farmer actually sold the corn for \$4.00/bu? B. Revenue Insurance

Suppose a farm has 250 acres of corn in one insured basic unit with an actual production history

(APH) average yield of 170 bu/ac and the Revenue Protection (RP) base price is \$3.86/bu.

1. If the farm buys 80% Revenue Protection crop insurance, what would be the initial per acre

revenue guarantee? What would be the initial revenue guarantee for the 250 acre unit? 2. If the officially announced harvest price is \$4.12/bu, what is the final per acre revenue

guarantee and unit guarantee? What if the officially announced harvest price is \$3.71/bu? Suppose the farm actually harvests 28,000 bushels from the unit (an average of 112 bu/ac).

3. If the officially announced harvest price is \$3.71/bu, what would be the RP indemnity? 4. Suppose the farm has a futures contract and actually sells the corn for \$4.15/bu in March,

how does the RP indemnity change? Suppose the farm instead bought a corn Area Revenue Protection (ARP) policy in a county with

an approved average yield of 155 bu/ac and the farmer chose a 90% coverage level. If the base

price is \$3.86/bu, then the initial county revenue guarantee is 90% x 155 bu/ac x \$3.86/bu =

\$538.47/ac. The farmer enrolls all 250 corn acres.

5. If the county average yield is 140 bu/ac and the officially announced ARP harvest price is

\$3.71/bu, what would be the ARP indemnity? 6. How would the ARP indemnity change if the farm?s actual yield was 180 bu/ac and it sold its

grain for \$4.10/bu? How would the ARP indemnity change if the farm?s actual yield was

115 bu/ac and it sold its grain for \$3.50/bu?

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