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
 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
Five Major Areas of Risk
Marketing Risk
Production Risk
Legal Risk
Human
Resource
Risk
Financial Risk
FSA
Uninsured
NAP
Program
Risk Management Tools
Southeast
Production
Actual
Production
History
Revenue
Group Risk Plan
Group Risk Income Plan
Dollar
Plan
Income
Protection
(IP)
Group Risk
Revenue
Assurance
(RA)
Idaho only
Crop Revenue
AGR
Coverage
(CRC)
AGR-Lite
Revenue Protection
Introducing a new and exciting
risk management tool
for
Southeastern Producers
Adjusted Gross Revenue-Lite
Where is AGR-Lite Available?
X
X
ALASKA
IDAHO, OREGON, WASHINGTON
All counties
X - Excluding the North Slope and
Northwest Artic boroughs
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 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
Determine 5 year average
farm revenue
Project 2008
expected crop
revenue
Determine Approved
AGR
AGR revenue
guarantee minus
actual crop revenue =
loss paid
How
AGR
Works
Decide what
percentage of
AGR to
guarantee
Taxes filed /
possible claim
calculated
Harvest: Actual
crop 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
Determine 5 - year average farm
revenue
2002
2003
2004
2005
2006
=
=
=
=
=
596,000
594,000
597,000
596,000
595,000
5 Year History Avg
= $ 595,600
Determine 5 - year
average farm
revenue
Project 2008
expected crop
revenue
How AGR
Works
Project 2008 expected crop revenue
Determine
“adjusted gross
revenue” (AGR)
Commodity
Decide what
percentage of AGR
to guarantee
Actual revenue
determined
Taxes filed /
possible claim
calculated
Loss paid
Alfalfa
Amt Unit Yield
150
ac
Cattle: Cow/Calf 575 hd
Value
9 ton
650
Expected
Revenue
$125
$ 168,750
lbs $ 1.15
$429,813
$ 598,563
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)
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
Determine 5 - year
average farm
revenue
Project 2008
expected crop
revenue
Determine
“adjusted gross
revenue” (AGR)
Decide what
percentage of
AGR to guarantee
How AGR
Works
Decide what percentage of AGR to
guarantee
$595,600
75%
$446,700
Actual revenue
determined
Taxes filed /
possible claim
calculated
Loss paid
90%
$402,030
Approved AGR
Coverage level (deductible)
Trigger point - where loss
payment begins
Payment rate (deductible)
Asset Protection
(m axim um am ount of loss payable)
Determine 5 - year
average farm
revenue
Project 2008
expected crop
revenue
How AGR
Works
Actual 2006 revenue determined
Determine
“adjusted gross
revenue” (AGR)
Commodity
Decide what
percentage of AGR
to guarantee
Actual revenue
determined
Taxes filed /
possible claim
calculated
Loss paid
Amt Unit Yield
Alfalfa
150 ac 8.5 ton
Cattle: Cow/Calf 575 hd 615 lbs
Value
Actual
Revenue
$95.00
121,125
$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 on
Calves:
excessive heat slowed gain and market decline
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
Taxes filed / possible claim
calculated
$595,600
75%
Approved AGR
Coverage level (deductible)
446,700
Trigger point
-386,344
2008 crop revenue
60,356
Revenue shortfall
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
$595,600
75%
Approved AGR
Coverage level (deductible)
446,700
Trigger point
-386,344
2008 crop revenue
60,356
Revenue shortfall
90%
$54,320
Payment rate (deductible)
Loss paid
How do you decide?
FARM COSTS:
Crop expenses from budget
Non-crop expenses from budget
Debt payments
Living expenses
TOTAL FARM COSTS
Less:
Non-farm income available
Liquid assets available
TOTAL COSTS TO BE COVERED
90,000
50,000
20,000
30,000
190,000
10,000
20,000
160,000
How do you decide?
FARM EQUITY:
Liquid assets
Long-term assets
Short-term debt
Long-term debt
Total Farm equity
80,000
350,000
(120,000)
(200,000)
110,000
TOTAL PERSONAL EQUITY
Liquid assets
Long-term assets
Farm Equity
Debt
Total Personal equity
5,000
350,000
110,000
(150,000)
315,000
How do you decide?
AGR-Lite
MPCI
Your Farm risks:
Frost
Price
Frost
Frost
Price
Frost
Risks covered by policy:
Loss paid per crop
Loss paid per block
No
No
Yes
Yes
Claim paid
Post-Crop During
Year
Year
How do you decide?
Revenue/Production
Coverage level
AGR-Lite
170,000
75%
MPCI
200,000
50%
Loss Inception Point
Payment Rate
127,500
75%
100,000
100%
Insurance liability
Total costs
95,625
(160,000)
100,000
(160,000)
Range of shortfall
Best
(32,500)
(60,000)
(64,375)
(60,000)
(160,000)
(160,000)
2,000
5,500
Worst
Uncovered loss
Premium Cost
How do you decide?
No Crop Insurance
Revenue
Expenses Gain/Loss
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
230,000
210,000
200,000
210,000
40,000
140,000
60,000
190,000
160,000
160,000
160,000
160,000
160,000
160,000
160,000
160,000
Average
160,000
160,000
70,000
50,000
40,000
50,000
(120,000)
(20,000)
(100,000)
30,000
-
How do you decide?
With Crop Insurance
Revenue Expenses Gain/Loss
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
230,000
210,000
200,000
210,000
115,000
140,000
95,000
200,000
160,000
160,000
160,000
160,000
160,000
160,000
160,000
160,000
70,000
50,000
40,000
50,000
(45,000)
(20,000)
(65,000)
40,000
Average
175,000
160,000
12,000
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
Important Dates to Remember:
Sales closing date: March 15 for new
applicants. Policy change and cancellation
dates for all policies is January 31.
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