1. Forage Risk Management
J. Shannon Neibergs and Jon Paul Driver
Western Center For Risk Management Education
Disclaimer: This information is provided for training only. Any discrepancy between the training material and the policy is not intended. The information provided in this training does not supersede policy and procedure.
USDA RMA Risk Management Education Partnership

2. Presentation overview
Forage producers often become complacent when they hear the term risk management
Misunderstanding the terms risk and uncertainty
Complacency in evaluating risk outlook
Thinking that risk management is limited to futures, options and forward contracting and that there are limited management actions for forage producers
Thinking crop insurance isn’t available for forage production
Lack of trust in programs
Risk management contains a number of levels
Sources of risk
Risk bearing ability and attitudes
Tools for managing risk

3. Risk and Uncertainty Risk Uncertainty
Risk is present when future evens occur with measurable probability
For example your individual farm/field forage yield
Price
Car insurance
The larger the error of measurement the larger the risk
The larger the impact on farm revenue the greater the risk
Management actions can be made to mitigate risk
Uncertainty
Indefinite, indeterminate, and occurs so infrequently that an numeric estimate of its occurrence can not be made so there is no specific management tools that can be implemented.
Uncertainty
Risk

4. The difference between risk and uncertainty is not just semantics
Guard Dog
On Duty
Source: Kauffman, N. When Uncertainty Turns to Risk in Ag. Finance

5. The degree of risk also matters
Uncertainty
Risk
Guard Dog
On Duty
Source: Kauffman, N. When Uncertainty Turns to Risk in Ag. Finance

6. The risk in U.S. agriculture has increased
Source: Kauffman, N. When Uncertainty Turns to Risk in Ag. Finance

7. Washington Alfalfa Price - Monthly

8. U.S. $ Exchange Rate

9. Farm debt is increasing
Source: Kauffman, N. Agricultural Finance Databook Federal Reserve Bank of Kansas City

10. Two alternatives to manage risk
Attitude toward risk
Two alternatives to manage risk
Self Insure
Adequate financial capacity
Operating loan
“Hedge” risk
Implement management action
Purchase insurance

11. Two alternatives to manage risk
Attitude toward risk
Two alternatives to manage risk
Self Insure
Adequate financial capacity
Operating loan
“Hedge” risk
Implement management action
Purchase insurance
What’s available
Will it work on my operation
What is the expected net cash flow

12. Agencies USDA RMA – Risk Management Agency
Operates and manages the Federal Crop Insurance Corporation
Insurance sold by 15 private-sector insurance companies
FSA – Farm Service Agency
Local Administration of Federal Farm Programs

13. New and Expanded Coverage
Forage Production Insurance (Expanded)(RMA)
Whole Farm Revenue Protection Pilot (New)(RMA)
Pasture, Rangeland and Forage Pilot – Rainfall Index (Expanded)(RMA)
NAP Buy-up (New) (Farm Service Agency)

14. Forage Production Insurance
What is it:
Yield insurance at a specified price
Where is it available:
Select counties ID, OR, WA
WA: Pend Oreille, Spokane, Stevens or by requesting coverage by written agreement
When do you have to purchase by:
For 2016 sales closing September 30, 2015

15. Forage Production Insurance
What yield:
Actual Production History
Yield established by farm records
Certified scale weights with descriptive records
Pre-harvest appraisal with descriptive records
What price:
Specified prior to sales closing (Sept. 30)

16. Forage Production Insurance
Coverage level (of APH):
Insurance premium (cost):
Depends on coverage level and the percent of the specified price you elect to insure
Ask crop insurance agent

17. RMA Premium Calculator

18. Forage Production Insurance
Loss Example
Assume a 75% coverage level, a 100 percent price election of $230/ton, a APH yield of 4 tons per acre and an actual yield of 2.5 tons per acre.

19. Causes of Loss Adverse Weather
Hail, Frost, Freeze, Drought, Excess Moisture
Failure of Irrigation Water Supply
If Caused by Insured Peril That Occurs During the Insurance Period
Volcanic Eruption
Insects and Disease
Must Have Used Proper and Sufficient Control Measures

20. Historical Analysis

21. WHAT ABOUT QUALITY ?!?!?
Whole Farm Revenue !!!!

22. Whole Farm Revenue Protection
What is it:
Revenue insurance
Insure Schedule F farm revenue (historic 5 years)
Exemptions for beginning farmers
Where is it available:
All counties in all 50 states
When do you have to purchase by:
County specific - multiple closing dates
Talk to your crop insurance agent

23. Whole Farm Revenue Protection
Covered losses:
Revenue loss
Replanting coverage loss
Coverage levels:
50 to 85% of revenue

24. Whole Farm Revenue Protection
Premium cost:
Elect to cover 50 to 85% of revenue
Depends on number of qualifying crops grown

25. RMA Premium Calculator

26. Record Keeping 5 Years of Schedule F (Or Equivalent tax records)
Written Farm Plan
Historical Records
Inventories, Accounts Receivable or Accounts Payable
Summaries of Coverage for Other Insurance Policies

27. Program Restrictions Livestock Or Nursery
Over $1 Million in Annual Sales, 35% of revenue
Potatoes
Must Have at least 2 Crops Based on Commodity Count Calculation
Note - the Qualifying Crops are quite diverse
Over $17 Million in Total Revenue or $8.5 Million in Coverage

28. Historical Analysis Different For EVERY Farm
Note Insuring Revenue Not Net Income
Subsidy and overall farm coverage makes this program attractive

29. Pasture, Rangeland and Forage Pilot (PRF)
What is it:
Updated RMA Insurance Program Against Drought
Hedge on precipitation measured by National Oceanic and Atmospheric Administration (NOAA) grid rainfall index
“Insurance protection for losses of forage produced for grazing or harvested for hay” – qualifies you to purchase the insurance product
Insuring the rainfall index in a grid
No Record Keeping Requirements
Available in 48 states

30. Pasture, Rangeland and Forage Pilot (PRF)
What is a grid:
About 17x17 miles (0.25 degrees Lat. and Long.)
Grid locator tool

32. Pasture, Rangeland and Forage Pilot (PRF)
What am I insuring:
Payment trigger is precipitation below the elected coverage level of your grid rainfall index
Insure only the acres you choose
Select a productivity factor to establish a value between 60% to 150% of the county base value
Match mount of protection to the value of forage of your specific hay operation

33. Pasture, Rangeland and Forage Pilot (PRF)
Coverage Periods:
Must insure TWO bi-monthly periods
January – February
February - March
March – April
April – May
May - June
June – July
July – August
August – September
September – October
October – November
November - December

34. Noninsured Crop Disaster Assistance Program (NAP)
What is it:
The NAP was reauthorized by the 2014 Farm Bill
Administered by USDA FSA
Covers crops that do NOT have a USDA RMA insurance program
Hay growers have USDA RMA forage production insurance and PRF but some forage crops may be eligible

35. Noninsured Crop Disaster Assistance Program (NAP)
What does it cover:
Loss from natural disaster
Drought, hail, freeze, wind, etc.
NAP provides catastrophic coverage of loss that exceeds 50% of expected production at 55% of average market price
Additional coverage buy up is available ranging from 50% to 65% of production at 100% of market price

36. Noninsured Crop Disaster Assistance Program (NAP)
What does it cost:
Service fee + premium
Fees capped at maximums
Beginning, limited resource and traditionally underserved farmes are eligible for a waiver of the service fee and a 50% premium reduction
Potential for eligible crops to get natural disaster coverage at low cost

37. Review - When to Buy Sales Closing Dates Forage Production Insurance
September 30th
Whole Farm Revenue Protection Pilot
March 15th
Pasture, Rangeland, and Forage
November 15th
NAP
Refer to FSA office for application closing date

38. Review - Where to Buy – Get more information
Your Existing Insurance Agent
Ask Your Neighbor

39. Thank you sneibergs@wsu.edu 509 335 6360