By Mark Allison, Senior Vice President of Operations
Revenue Protection (RP) is one of the most comprehensive crop insurance products available to producers today. While other products like Yield Protection primarily protect against production losses, Revenue Protection safeguards a farm's income by accounting for both yield losses and changes in commodity prices. This combination helps producers manage risk in an increasingly unpredictable agricultural marketplace.
How does Revenue Protection work?
Revenue Protection provides insurance coverage against revenue losses caused by:
Low yields
Falling market prices
A combination of yield and price fluctuations
The policy establishes a revenue guarantee based on a producer's Actual Production History (APH) yield and the greater of either the projected price or the harvest price. If actual revenue falls below the guaranteed amount, an indemnity payment is triggered.
Unlike policies that focus solely on production, Revenue Protection recognizes that farm profitability depends on both the number of bushels produced and the price received for those bushels.
How is Revenue Protection different from Yield Protection?
Yield Protection (YP) and Revenue Protection both provide valuable risk management tools, but they address different types of risk.
Yield Protection focuses exclusively on production losses. Coverage is based on a producer's historical yield, and claims are triggered when actual production falls below the insured yield guarantee.
Revenue Protection goes a step further by protecting the overall value of the crop. It considers both yield and market price when calculating potential losses. This means a producer may qualify for an indemnity not only because of reduced production, but also because of changes in commodity prices that affect crop revenue. Additionally, RP allows the revenue guarantee to increase if the harvest price exceeds the projected price, offering protection against rising market conditions that can increase financial obligations tied to forward contracts or hedging activities.
How is the yield guarantee calculated?
Revenue Protection relies on a producer's Actual Production History (APH) yield, which serves as the foundation for the policy's yield guarantee. The APH is calculated using the unit's actual production records and/or assigned yields over four to ten consecutive crop years.
The yield guarantee is calculated by multiplying the APH yield by the selected coverage level, which producers can choose between 50% and 85% in 5% increments.
When insufficient production records are available to calculate the APH, Transitional Yields (T-yields) may be used to fill missing years. These county-based averages are incorporated according to USDA guidelines:
One missing year: 100% of T-yield
Two missing years: 90% of T-yield
Three missing years: 80% of T-yield
Four missing years: 65% of T-yield
How is the price guarantee calculated?
Standard Revenue Protection calculates the guaranteed revenue using the higher of the projected price or harvest price.
Projected price
The projected price is established before the growing season begins and is used to calculate the minimum revenue guarantee.
Harvest price
The harvest price is determined later in the season and reflects market conditions at harvest. Under a standard RP policy, if the harvest price is higher than the projected price, the revenue guarantee may be increased accordingly.
Both projected and harvest prices are established according to the crop's applicable commodity board of trade or exchange as defined in the Commodity Exchange Price Provisions (CEPP).
This ability to use the harvest price when calculating guaranteed revenue can be especially valuable for producers who hedge or forward contract grain, helping offset financial obligations that may arise if yields fall short during a year of higher commodity prices.
What Is RP-HPE?
Revenue Protection with Harvest Price Exclusion (RP-HPE) is an alternative version of Revenue Protection that excludes coverage for harvest price increases.
Under a standard RP policy, the revenue guarantee can increase when harvest prices rise above projected prices. RP-HPE does not offer this benefit. Instead, the guarantee remains based solely on the projected price established before the season begins.
As a result, RP-HPE may have a lower premium than standard RP, but it does not provide protection against the additional financial risk created when commodity prices increase after producers have committed grain through forward contracts or hedging strategies.
Who would benefit from Revenue Protection?
Revenue Protection can be a strong fit for producers who want protection against both production risk and price volatility. It may be particularly beneficial for:
Operations that depend heavily on crop revenue for cash flow and debt obligations.
Producers seeking protection against unpredictable market conditions.
Producers who market grain through forward contracts.
Farmers who use hedging strategies to manage commodity price risk.
Because RP protects both yield and revenue, it is often considered one of the most effective and popular crop insurance solutions available, helping producers navigate weather challenges, market fluctuations and the financial uncertainty that can accompany both.
Want to learn more?
Your AgriSompo representative is always ready to answer your questions about crop insurance policies and help you decide which products are the right fit for your producers. Call them today or click here to get connected.