Systemic Risk in Wheat Yields

In 2011 and 2012 severe droughts caused extensive damage in crops throughout the Midwest. These conditions combined with concerns for climate change have led to a growing focus on risk management in agriculture. The increasing emphasis on risk management is reflected in the 2014 Farm Bill, which replaces direct payments with shallow loss programs. For this paper we turn our attention to winter wheat production in Kansas and explore the ratings of the crop insurance policies as well as predicted payouts from the new Agricultural Risk Coverage program established under the 2014 Farm Bill. Using spatial models we simulate yields of non-irrigated winter wheat and irrigated winter wheat to estimate crop insurance premium rates as well as payouts from the Agricultural Risk Coverage program.