Policy Implications of Crop Yield and Revenue Variability at Differing Levels of Disaggregation

Revenue variability at different levels of aggregation has been the focus of several proposals to reform U.S. commodity programs with the 2007 farm bill. In this paper, we estimate revenue variabilityyear-to-year deviations from expected revenue for corn, soybeans, and cotton at four levels of aggregation: national, state, county and farm. We examine the factors that cause revenue variability and how differences across crops and regions would affect producers risks. We find that national-level revenue variability is nearly double national-level yield variability. Spatial disaggregation increases price and yield variability, but yield variability increases more rapidly than price and revenue variability. A hypothetical national-level revenue program would reduce risk at the average farm-level by slightly more than 8 percent for corn, about 7 percent for soybeans and about 21 percent for cotton. If one integrates farm-level revenue coverage with the national-level program the percent risk reduction more than doubles for both corn and soybeans. Although the increase in risk reduction between the simple national and the integrated program is proportionately less for cotton, the total risk reduction for cotton is the greatest among the three crops.