AG RISK MANAGEMENT PROJECTOR ™ Helping You Get the Most From Your Insurance Risk Management Strategy

There are many issues to consider when determining the appropriate annual insurance risk management strategy for your farm. The weather, markets, production loss factors, fixed costs, production expenses, cash flow, balance sheet strength and banking requirements, to name a few.

If crops and prices were always good, it would make your life a lot easier. But with so many risks to consider and multiple insurance programs available to cover them (AgriStability, AgriInsurance, private sector), how do you make an effective decision?

To complicate matters, there are three significant trends in the marketplace that have made your decisions even more difficult:

1. Significant changes in 2013 to 2017 AgriStability program parameters, which reduce government benefits.

2. Evolution of AgriInsurance to include new types of coverage.

3. Increasing availability of private sector risk management tools.

As a result of these changes, producers have more questions than ever about which insurance program(s) to include in their risk management strategy. That’s where MNP can help. MNP has developed a new program, Ag Risk Management Projector™, designed to answer all your questions more effectively.

DISCOVERING WHAT IS RIGHT FOR YOU AND YOUR OPERATION

The Ag Risk Management Projector™ uses the following data from your own farming operation to provide assistance, in the form of graphs, to determine which insurance program(s) you should include in your risk management strategy for the upcoming year:

• Planned acres, estimated yields and estimated prices for each crop.• Estimated production costs (fertilizer, seed, chemical, hail insurance and other).• Overall estimated livestock margin information (if any).• Previous year’s AgriStability margin information.• Current year quotes for AgriInsurance and / or private sector risk management products.

The resulting bar graphs model a complete income statement in dollars per crop acre, with dark green bars representing income per crop acre and brown and tan bars representing different types of expenses per crop acre.

In any scenario where the dark green bar is higher than the stacked brown and tan bars, your farm will be making a profit. In scenarios where the dark green bar is less than the stacked brown and tan bars, your farm will sustain losses, as represented by red bars.

The far left hand set of bars in each graph represent the planned or most probable set of circumstances and the other bars represent declines in income (due to price or production losses, which can be selected as options) in 10% increments down to zero – a total of 11 scenarios in each graph. The graphs allow for the choice of various insurance risk management products (depending on current year quotes that were provided and prior year AgriStability margin information) along with various sensitivities for price, yield, input costs and unseedable acres.

Each page of Ag Risk Management Projector™ output shows two printable graphs side by side so various insurance risk management products can be compared, to arrive at an optimal strategy given the specific risks facing your farm.

OTHER KEY CONSIDERATIONS IN DETERMINING YOUR RISK STRATEGY

Knowing about the three types of insurance risk management tools is not enough. There are also some overall factors you need to consider when determining an appropriate insurance risk management strategy:

• Strength of your balance sheet and ability to withstand a significant loss.

• Where your farming business is in its life cycle and whether you want to take on significant risks in light of upcoming retirement or transition issues.

• What type of insurance risk management strategy may be required by your banker.

• Your cash flow and how the various programs would contribute to that cash flow, with some being more responsive than others.

Ag Risk Management Projector™

ABOUT MNP

MNP is a leading national accounting, tax and business consulting firm for Canada’s agriculture industry. We have invested more time and resources into understanding agriculture than any other firm. With more than 15,000 agriculture clients and a team of over 600 agriculture specialists, MNP delivers a diverse suite of services to protect farmers and maximize results.

Praxity AISBL is a global alliance of independent firms. Organised as an international not-for-profit entity under Belgium law, Praxity has its executive office in Epsom. Praxity – Global Alliance Limited is a not-for-profit company registered in England and Wales, limited by guarantee, and has its registered office in England. As an Alliance, Praxity does not practice the profession of public accountancy or provide audit, tax, consulting or other professional services of any type to third parties. The Alliance does not constitute a joint venture, partnership or network between participating firms. Because the Alliance firms are independent, Praxity does not guarantee the services or the quality of services provided by participating firms.

AN INSURANCE RISK MANAGEMENT STRATEGY TAILORED TO YOUR NEEDS

The Ag Risk Management Projector™ offers a highly visual and interactive approach to give you a better understanding of the costs and benefits of the various insurance risk management programs and how they can be tailored to work specifically for your farming operation. The focus on modelling an income statement with the graphs also lends itself well to early diagnosis of potential areas of weakness in the farming operation. Working closely with you, we offer a cost-effective, independent tool that takes the guesswork out of a very important and increasingly complex area of farm decision making.

For more information on this exciting new service, contact your local MNP Business Advisor or Farm Management Consultant today, or visit MNP.ca

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