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Western Center for Risk Management Education

Western Center for Risk Management Education. Risk Management – AGR-Lite Workshop for the Florida Association of Extension Professionals September 26, 2007 Washington State University Extension John G. Nelson, Risk Management Coordinator. Disclaimer. For Illustration Purposes Only

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Western Center for Risk Management Education

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  1. Western Center for Risk Management Education Risk Management – AGR-Lite Workshop for theFlorida Association of Extension ProfessionalsSeptember 26, 2007Washington State University ExtensionJohn G. Nelson, Risk Management Coordinator

  2. 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

  3. Five Major Areas of Risk Marketing Risk Production Risk Legal Risk Human Resource Risk Financial Risk

  4. FSA Uninsured NAP Program

  5. Revenue Protection Introducing a new and exciting risk management tool for Southeastern Producers Adjusted Gross Revenue-Lite

  6. X X Where is AGR-Lite Available? ALASKA IDAHO, OREGON, WASHINGTON X - Excluding the North Slope and Northwest Artic boroughs All counties

  7. 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

  8. 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

  9. What is an Insurance Year? Insurance Year = Producer’s Tax Year Either: Calendar Year Tax Filer orFiscal Year Tax Filer Either: Cash or Accrual Accounting Method

  10. Coverage Options • Coverage Options: • Coverage Levels 65%, 75%, 80%* • * 3 commodities required for 80% coveragePayment Rates 75% or 90% Subsidy Portion of Total Premium Paid by USDA Coverage LevelPremium Subsidy 65 Percent 59 Percent 75 Percent 55 Percent 80 Percent 48 Percent

  11. Determine 5 - year average farm revenue AGR revenue guarantee minus actual crop revenue = loss paid HowAGRWorks Taxes filed / possible claim calculated Project 2008 expected crop revenue Harvest: Actual crop revenue determined Determine Approved AGR Decide what percentage of AGR to guarantee

  12. How AGRWorks Determine 5 - year average farm revenue Project 2008 expected crop revenue Determine 5 - year average farm revenue Determine “adjusted gross revenue” (AGR) Decide what percentage of AGR to guarantee Actual revenuedetermined Taxes filed / possible claim calculated Loss paid

  13. How AGRWorks Determine 5 - year average farm revenue Project 2008 expected crop 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

  14. How AGRWorks Determine 5 - year average farm revenue Project 2008 expected crop revenue Determine “adjusted gross revenue” (AGR) Determine “adjusted gross revenue” (AGR) 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 Decide what percentage of AGR to guarantee Actual revenue determined Taxes filed / possible claim calculated Loss paid

  15. How AGR Works Determine 5 - year average farm revenue Project 2008 expected crop revenue Decide what percentage of AGR to guarantee Determine “adjusted gross revenue” (AGR) Decide what percentage of AGR to guarantee Actual revenue determined Taxes filed / possible claim calculated Loss paid

  16. How AGRWorks Determine 5 - year average farm revenue Project 2008 expected crop revenue Actual 2006 revenue determined Determine “adjusted gross revenue” (AGR) Decide what percentage of AGR to guarantee Actual revenue determined Taxes filed / possible claim calculated Major changes from projected revenue to actual revenue: Alfalfa: production loss due to 3 out of 4 cuttings rained on Calves: excessive heat slowed gain and market decline Loss paid

  17. How AGRWorks Determine 5 - year average farm revenue Project 2008 expected crop revenue Taxes filed / possible claim calculated Determine “adjusted gross revenue” (AGR) Decide what percentage of AGR to guarantee Actual revenue determined Taxes filed / possible claim calculated Loss paid

  18. How AGRWorks Determine 5 - year average farm revenue Project 2008 expected crop revenue Loss Paid Determine “adjusted gross revenue” (AGR) Decide what percentage of AGR to guarantee Actual revenue determined Taxes filed / possible claim calculated Loss paid

  19. How do you decide? 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

  20. 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

  21. How do you decide? AGR-Lite MPCI Your Farm risks: Frost Frost Price Risks covered by policy: Frost Frost Price Loss paid per crop No Yes Loss paid per block No Yes Claim paid Post-Crop During Year Year

  22. How do you decide? AGR-Lite MPCI Revenue/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 shortfall Best (32,500) (60,000) Worst (64,375) (60,000) Uncovered loss (160,000) (160,000) Premium Cost 2,000 5,500

  23. How do you decide? No Crop Insurance Revenue 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 -

  24. How do you decide? With Crop Insurance Revenue 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

  25. Cost & Obtaining Coverage? 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

  26. Important Dates to Remember:Sales closing date: March 15 for new applicants. Policy change and cancellation dates for all policies is January 31.

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

  28. Special Thank You To Jo Lynne Seufer Risk Management Specialist 112 N. University Road, Suite 205 Spokane, WA 99206 509-353-2147 www.rma.usda.gov

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