Measuring Price and Yield Risk

Y variability for a given crop differs geographically and depends on soil type and quality, climate, and the use of irrigation. Yield variability is often measured by an indicator known as the “coefficient of variation,” which measures randomness relative to the mean (or average) value in the yield series. Using this measure, variability in corn yields, for example, ranges from about 0.2 to about 0.4 across U.S. farms (fig. 1). These estimates were obtained by combining 10 years of individual farmlevel yield observations (obtained from USDA’s Risk Management Agency (RMA) records) with longer series of county yield observations from USDA’s National Agricultural Statistics Service (NASS).2 As can be seen from the map, yield variability tends to be lowest in irrigated areas and in the central Corn Belt, where soils are deep and rainfall is dependable. Much corn production in Nebraska, for example, is irrigated, and yield variability is, as a result, quite low. Yield variability is also quite low in Iowa, Illinois, and other Corn Belt States, where the climate and soils provide a nearly ideal location for corn production. In areas where corn acreage tends to be fairly low and in areas far removed from the central Corn Belt, yield variability is generally higher.