Yield variability is clearly an important risk factor in agriculture and a key factor in determining payments made by crop insurance. Yield variability in turn is related to the variability of the agro-climate in which the crop is grown. Almost all rice is irrigated, reducing yield variability. Corn and soybeans are largely grown in the Midwest. The Midwest is less subject to drought and other growing season stress factors than the Plains and South. The latter are the principal growing areas for cotton, sorghum and wheat.

To examine yield variability by state, Figure 3 presents a measure of the variability of yield in the 10 states over the 2001-2012 crop years. Yield variability is measured as the standard deviation of the percent change in yield per planted acre from the previous year. This measure of yield variability is calculated for corn, soybeans, and wheat. Each of these three crops was grown in each of the 10 states in each of the 12 years in this period. Yield variability is averaged across the three crops.

 

 

This measure of yield variability ranged from 14% for Nebraska to 63% for Texas. Nebraska's yield variability is lowest probably because of the widespread use of irrigation, particularly of corn. Iowa and Illinois, both Corn Belt states, had the second and third lowest yield variability. The three states next highest to Texas in yield variability were South Dakota, Kansas and North Dakota. All four of these states are generally not considered to be Corn Belt states. The correlation between the ratio of net insurance payments to insured liability and the measure of yield variability is +0.92. A perfect correlation would be +1, implying that, as expected, yield variability is likely the major factor determining net payments to farms by crop insurance.