Western Center for Risk Management Education
description
Transcript of 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
75 Percent 55 Percent
80 Percent 48 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
Determine 5 - year average farm revenue
Determine 5 - year average farm revenue
Project 2008 expected crop
revenue
Determine “adjusted gross revenue” (AGR)
Decide what percentage of AGR
to guarantee
Actual revenue determined
Taxes filed / possible claim
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
Project 2008 expected crop
revenue
Determine “adjusted gross revenue” (AGR)
Decide what percentage of AGR
to guarantee
Actual revenue determined
Taxes filed / possible claim
calculated
Loss paid
How AGRHow AGRWorksWorks
Commodity Amt Unit Yield ValueExpectedRevenue
Alfalfa 150 ac 9 ton $125 168,750$
Cattle: Cow/Calf 575 hd 650 lbs 1.15$ $429,813
598,563$
Determine “adjusted gross revenue” (AGR)
Determine 5 - year average farm
revenue
Project 2008 expected crop
revenue
Determine “adjusted gross revenue” (AGR)
Decide what percentage of AGR
to guarantee
Actual revenue determined
Taxes filed / possible claim
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
How AGRHow AGRWorksWorks
Decide what percentage of AGR to guarantee
Determine 5 - year average farm
revenue
Project 2008 expected crop
revenue
Determine “adjusted gross revenue” (AGR)
Decide what percentage of
AGR to guarantee
Actual revenue determined
Taxes filed / possible claim
calculated
Loss paid
How AGRHow AGRWorksWorks
$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
Determine 5 - year average farm
revenue
Project 2008 expected crop
revenue
Determine “adjusted gross revenue” (AGR)
Decide what percentage of AGR
to guarantee
Actual revenue determined
Taxes filed / possible claim
calculated
Loss paid
How AGRHow AGRWorksWorks
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
Determine 5 - year average farm
revenue
Project 2008 expected crop
revenue
Determine “adjusted gross revenue” (AGR)
Decide what percentage of AGR
to guarantee
Actual revenue determined
Taxes filed / possible claim
calculated
Loss paid
How AGRHow AGRWorksWorks
$595,600 Approved AGR
75% Coverage level (deductible)
446,700 Trigger point
-386,344 2008 crop revenue
60,356 Revenue shortfall
Loss Paid
Determine 5 - year average farm
revenue
Project 2008 expected crop
revenue
Determine “adjusted gross revenue” (AGR)
Decide what percentage of AGR
to guarantee
Actual revenue determined
Taxes filed / possible claim
calculated
Loss paid
How AGRHow AGRWorksWorks
$595,600 Approved AGR
75% Coverage level (deductible)
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?
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