western center for risk management education

Risk Management – AGR-Lite Workshop for the

Florida Association of

Extension

ProfessionalsSeptember 26, 2007

Washington State University Extension

John G. Nelson, Risk Management Coordinator

Western Center for Risk Management Education

Disclaimer

For Illustration Purposes Only

This material does not change the content or the meaning of current policy provisions, filed actuarial documents, or approved procedures

Refer to the Appropriate Basic Provisions, Crop Provisions, Policy Provisions, Manager Bulletins and the Loss Adjustment Manual

www.rma.usda.gov

Production Risk Marketing Risk

Human Resource Risk

Financial Risk

Legal Risk

Five Major Areas of Risk

Risk Management ToolsSoutheast

ProductionProduction RevenueRevenue Group Risk

DollarPlan

Income Protection

(IP)

Income Protection

(IP)

Crop Revenue Coverage

(CRC)

Crop Revenue Coverage

(CRC)

AGR

AGR-Lite

AGR

AGR-Lite

Group Risk PlanGroup Risk Income Plan

RevenueAssurance

(RA)Idaho only

RevenueAssurance

(RA)Idaho only

ActualProduction

History

FSA Uninsured

NAP Program

Revenue Protection

Introducing a new and exciting

risk management tool

for

Southeastern Producers

Adjusted Gross Revenue-Lite

Where is AGR-Lite Available?

XX

X - Excluding the North Slope and Northwest Artic boroughs

ALASKA

IDAHO, OREGON, WASHINGTON

All counties

What does AGR Cover?

Risk Management Plans:

revenue based, non-traditional, whole farm risk management tool;

uses a producer’s historic Schedule F tax form information as a base to provide a level of guaranteed revenue for the insurance year.

Exceptions include:

Timber, Forest or Forest Products Animals for sport, show or pets

What am I insured for?

Loss of revenue from the sale of agriculture commodities produced during the insurance year due to:

Unavoidable natural disasters Market fluctuations during insurance year

What is an Insurance Year?

Insurance Year = Producer’s Tax Year

Either:

Calendar Year Tax Filer or Fiscal Year Tax Filer

Either:Cash or Accrual Accounting Method

Coverage Options:Coverage Levels 65%, 75%, 80%*

* 3 commodities required for 80% coverage

Payment Rates 75% or 90%

Subsidy Portion of Total Premium Paid by USDA

Coverage Level Premium Subsidy

65 Percent 59 Percent



Coverage Options

HowHowAGRAGR

WorksWorks

Determine 5 - year average farm revenue

Project 2008 expected crop

revenue

Decide what percentage of

AGR to guarantee

Taxes filed / possible claim

calculated

AGR revenue guarantee minus

actual crop revenue = loss paid

Harvest: Actual crop revenue determinedDetermine Approved

AGR




revenue

Determine “adjusted gross revenue” (AGR)

Decide what percentage of AGR

to guarantee

Actual revenue determined


calculated

Loss paid

How AGRHow AGRWorksWorks

2002 = 596,0002003 = 594,0002004 = 597,0002005 = 596,0002006 = 595,000

5 Year History Avg= 595,600$

Project 2008 expected crop revenue

Determine 5 - year average farm

revenue


revenue



to guarantee



calculated

Loss paid


Commodity Amt Unit Yield ValueExpectedRevenue

Alfalfa 150 ac 9 ton $125 168,750$

Cattle: Cow/Calf 575 hd 650 lbs 1.15$ $429,813

598,563$



revenue


revenue



to guarantee



calculated

Loss paid

Compare:• 5 year farm average farm revenue

• $ 595,600

• Intended commodity report for coming crop year

• $598,563

adjusted gross revenue (AGR) is the “lesser” of the two above numbers

= $595,600


http://images.google.com/imgres?imgurl=http://www.wga.hu/art/b/bassano/jacopo/sheep_la.jpg&imgrefurl=http://www.wga.hu/html/b/bassano/jacopo/sheep_la.html&h=604&w=844&sz=69&tbnid=ogw4Ec-9V6sBCM:&tbnh=103&tbnw=144&hl=en&start=9&prev=/images%3Fq%3Dsheep%26svnum%3D10%26hl%3Den%26lr%3D%26sa%3DG

Decide what percentage of AGR to guarantee


revenue


revenue


Decide what percentage of

AGR to guarantee



calculated

Loss paid


$595,600 Approved AGR

75% Coverage level (deductible)

$446,700 Trigger point - where loss

payment begins

90% Payment rate (deductible)

$402,030 Asset Protection

(maximum amount of loss payable)

Actual 2006 revenue determined


revenue


revenue



to guarantee



calculated

Loss paid


Commodity Amt Unit Yield ValueActual

Revenue

Alfalfa 150 ac 8.5 ton $95.00 121,125

Cattle: Cow/Calf 575 hd 615 lbs $0.75 265,219

$386,344

Major changes from projected revenue to actual revenue:Alfalfa: production loss due to 3 out of 4 cuttings rained onCalves: excessive heat slowed gain and market decline

Taxes filed / possible claim calculated


revenue


revenue



to guarantee



calculated

Loss paid




446,700 Trigger point

-386,344 2008 crop revenue

60,356 Revenue shortfall

Loss Paid


revenue


revenue



to guarantee



calculated

Loss paid




446,700 Trigger point

-386,344 2008 crop revenue

60,356 Revenue shortfall

90% Payment rate (deductible)

$54,320 Loss paid

FARM COSTS:

Crop expenses from budget 90,000 Non-crop expenses from budget 50,000 Debt payments 20,000 Living expenses 30,000

TOTAL FARM COSTS 190,000 Less:

Non-farm income available 10,000 Liquid assets available 20,000

TOTAL COSTS TO BE COVERED 160,000

How do you decide?

How do you decide?

FARM EQUITY:

Liquid assets 80,000 Long-term assets 350,000 Short-term debt (120,000) Long-term debt (200,000)

Total Farm equity 110,000

TOTAL PERSONAL EQUITY

Liquid assets 5,000 Long-term assets 350,000 Farm Equity 110,000 Debt (150,000)

Total Personal equity 315,000

AGR-Lite MPCI

Your Farm risks:Frost FrostPrice

Risks covered by policy:Frost FrostPrice

Loss paid per crop No YesLoss paid per block No Yes

Claim paid Post-Crop DuringYear Year

How do you decide?

How do you decide?

AGR-Lite MPCIRevenue/Production 170,000 200,000 Coverage level 75% 50%

Loss Inception Point 127,500 100,000 Payment Rate 75% 100%

Insurance liability 95,625 100,000 Total costs (160,000) (160,000)

Range of shortfallBest (32,500) (60,000)

Worst (64,375) (60,000)

Uncovered loss (160,000) (160,000)

Premium Cost 2,000 5,500

No Crop InsuranceRevenue Expenses Gain/Loss

Year 1 230,000 160,000 70,000 Year 2 210,000 160,000 50,000 Year 3 200,000 160,000 40,000 Year 4 210,000 160,000 50,000 Year 5 40,000 160,000 (120,000) Year 6 140,000 160,000 (20,000) Year 7 60,000 160,000 (100,000) Year 8 190,000 160,000 30,000

Average 160,000 160,000 -

How do you decide?

With Crop InsuranceRevenue Expenses Gain/Loss

Year 1 230,000 160,000 70,000 Year 2 210,000 160,000 50,000 Year 3 200,000 160,000 40,000 Year 4 210,000 160,000 50,000 Year 5 115,000 160,000 (45,000) Year 6 140,000 160,000 (20,000) Year 7 95,000 160,000 (65,000) Year 8 200,000 160,000 40,000

Average 175,000 160,000 12,000

How do you decide?

What does is cost? -- Depends:

-- County

-- Number and diversity of crops

-- Types of crops Insured

Where do I get more information? -- RMA Program Delivery-- Crop & Livestock Insurance Agents

-- Programs & Policies

-- Premium Calculations

Log on to: www.rma.usda.gov

Cost & Obtaining Coverage?

http://www.rma.usda.gov/

Important Dates to Remember:

Sales closing date: March 15 for new applicants. Policy change and cancellation

dates for all policies is January 31.

28

THANK YOU

Darel L. Thompsen, CPA of LeMaster and Daniels, PLLC for the farm example in How do you decide?

Special Thank You To

Jo Lynne SeuferRisk Management Specialist

112 N. University Road, Suite 205Spokane, WA 99206

509-353-2147

www.rma.usda.gov

western center for risk management education

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