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 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

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

Risk Management Tools Southeast Production Dollar Plan Actual Production History Revenue Income Protection (IP) Crop Revenue Coverage (CRC) Revenue Assurance (RA) Idaho only AGR AGR-Lite Group Risk Group Risk Plan Group Risk Income Plan 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? X X 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 Levels65%, 75%, 80%* * 3 commodities required for 80% coverage Payment 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 Coverage Options

How AGR Works 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 determined Determine Approved 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 How AGR Works

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 AGR Works

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 AGR Works

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 AGR Works

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 AGR Works 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

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 AGR Works

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 AGR Works

FARM COSTS: Crop expenses from budget90,000 Non-crop expenses from budget50,000 Debt payments20,000 Living expenses30,000 TOTAL FARM COSTS190,000 Less: Non-farm income available10,000 Liquid assets available20,000 TOTAL COSTS TO BE COVERED160,000 How do you decide?

FARM EQUITY: Liquid assets80,000 Long-term assets350,000 Short-term debt(120,000) Long-term debt(200,000) Total Farm equity110,000 TOTAL PERSONAL EQUITY Liquid assets5,000 Long-term assets350,000 Farm Equity110,000 Debt(150,000) Total Personal equity315,000

AGR-LiteMPCI Your Farm risks: Frost Price Risks covered by policy: Frost Price Loss paid per cropNoYes Loss paid per blockNoYes Claim paidPost-CropDuring Year How do you decide?

AGR-LiteMPCI Revenue/Production170, ,000 Coverage level75%50% Loss Inception Point 127, ,000 Payment Rate75%100% Insurance liability95, ,000 Total costs(160,000) Range of shortfall Best(32,500) (60,000) Worst(64,375) (60,000) Uncovered loss(160,000) Premium Cost 2,000 5,500

No Crop Insurance RevenueExpensesGain/Loss Year 1230, ,000 70,000 Year 2210, ,000 50,000 Year 3200, ,000 40,000 Year 4210, ,000 50,000 Year 540, ,000 (120,000) Year 6140, ,000 (20,000) Year 760, ,000 (100,000) Year 8190, ,000 30,000 Average160,000 - How do you decide?

With Crop Insurance RevenueExpensesGain/Loss Year 1230, ,000 70,000 Year 2210, ,000 50,000 Year 3200, ,000 40,000 Year 4210, ,000 50,000 Year 5115, ,000 (45,000) Year 6140, ,000 (20,000) Year 795, ,000 (65,000) Year 8200, ,000 40,000 Average175, ,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: 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 Seufer Risk Management Specialist 112 N. University Road, Suite 205 Spokane, WA