1 1 Copyright 2008, All Rights Reserved Dr. Norm Dalsted - Colorado State University Dr. G. A. Art Barnaby, Jr - Kansas State University and Risk Management

1Copyright 2008, All Rights Reserved

Dr. Norm Dalsted - Colorado State UniversityDr. Norm Dalsted - Colorado State University

Dr. G. A. “Art” Barnaby, Jr - Kansas State Dr. G. A. “Art” Barnaby, Jr - Kansas State University University

and and

Risk Management Agency, USDARisk Management Agency, USDA

Phone (Norm) (970) 491-5627Phone (Norm) (970) 491-5627Email: Email: [email protected]@colostate.edu

Phone (Art): (785) 532-1515Phone (Art): (785) 532-1515Email: Email: [email protected]@ksu.edu

Check out our WEB at: Check out our WEB at:

AgManager.infoAgManager.info

Adjusted Gross Revenue-Lite (AGR-Adjusted Gross Revenue-Lite (AGR-Lite)Lite)


A Whole Farm Revenue Protection Plan A Whole Farm Revenue Protection Plan Provides protection against loss of revenue Provides protection against loss of revenue from natural and named disasters and/or from natural and named disasters and/or

market fluctuations market fluctuations Approved for Producers in States of:Approved for Producers in States of:

AK, CT, DE, ID, MA, MD, ME, NC, NH, NJ, AK, CT, DE, ID, MA, MD, ME, NC, NH, NJ, NY, OR, PA, RI, VA, VT, WA, WVNY, OR, PA, RI, VA, VT, WA, WV States approved to proceed with rating:States approved to proceed with rating: AZ, AZ, COCO, HI, , HI, KSKS, MN, MT, NM, NV, UT, WI, , MN, MT, NM, NV, UT, WI, WYWY

Adjusted Gross Revenue-Lite Adjusted Gross Revenue-Lite (AGR-Lite)(AGR-Lite)


KS - First Great Plains State

States Approved for Sales of AGR-Lite


Developed by PA Dept. of Agriculture (under Developed by PA Dept. of Agriculture (under section 508h of the crop insurance law) to make section 508h of the crop insurance law) to make protection available to almost all producers.protection available to almost all producers.

Expanded to other states through respective Expanded to other states through respective State Depts. of Agriculture.State Depts. of Agriculture.

Colorado is working with Farm Credit of Colorado is working with Farm Credit of Southern Colorado, Premier Farm Credit, Southern Colorado, Premier Farm Credit, Topeka RMA, and Kansas State University.Topeka RMA, and Kansas State University.

Approved and backed by USDA.Approved and backed by USDA.




STAND-ALONE POLICY: covering the whole STAND-ALONE POLICY: covering the whole farming operationfarming operation

OROR UMBRELLA TYPE POLICY: selected crops can UMBRELLA TYPE POLICY: selected crops can

also be protected by Multiple Peril or also be protected by Multiple Peril or revenue crop policies. revenue crop policies.

Note: Loss payments from other Note: Loss payments from other

insurance count towards AGR-Lite insurance count towards AGR-Lite revenue guaranteerevenue guarantee..


What is covered under AGR-LiteWhat is covered under AGR-Lite

Eligible Commodities Include:Eligible Commodities Include: Most CropsMost Crops Animal Production (includes Animal Production (includes

aquaculture)aquaculture) Animal Products (milk, honey, wool, Animal Products (milk, honey, wool,

etc.)etc.) Greenhouse ProductionGreenhouse Production Organic ProductionOrganic Production


Colorado Insurance ProfileColorado Insurance Profile

Colorado produced $4.53 billion in Colorado produced $4.53 billion in agricultural products in 2002.agricultural products in 2002.

94.4% ($4.277 billion) derived from 94.4% ($4.277 billion) derived from Cattle and calves - $2.63 billionCattle and calves - $2.63 billion Grains - $490 millionGrains - $490 million Hogs - $179 millionHogs - $179 million Milk and other dairy - $247 millionMilk and other dairy - $247 million Hay and other production - $193millionHay and other production - $193million Nursery and greenhouse - $261 millionNursery and greenhouse - $261 million Vegetable and fruit - $277 million Vegetable and fruit - $277 million

74 % of agricultural production currently 74 % of agricultural production currently without risk protection.without risk protection.


Top Uninsurable Commodities with Top Uninsurable Commodities with AcreageAcreage

GrassGrass 5,621,6725,621,672 AlfalfaAlfalfa 908,218 908,218 RyeRye 53,175 53,175 TriticaleTriticale 37,64137,641 MilletMillet 25,512 25,512 CloverClover 23,97723,977 LespedezaLespedeza 23,30323,303 Mixed ForageMixed Forage 6,5466,546 PecansPecans 2,9532,953 PeasPeas 2,5972,597

Cattle/CalvesCattle/Calves 6,650,000 6,650,000

(Head) (Head) Hogs & PigsHogs & Pigs

1,780,000(Head1,780,000(Head))

DairyDairy 111,000(Head)111,000(Head)

SheepSheep 106,000 (Head)106,000 (Head)


What is covered under AGR-What is covered under AGR-LiteLite

Insurable Causes of Loss: Insurable Causes of Loss: unavoidable natural disasters, that unavoidable natural disasters, that

occurs during the current or previous occurs during the current or previous insurance yearinsurance year including but not limited to, adverse including but not limited to, adverse

weather, fire, insects, disease, wildlife, weather, fire, insects, disease, wildlife, earthquakes, volcanic eruption, or earthquakes, volcanic eruption, or failure of irrigation water supply, if failure of irrigation water supply, if applicable, applicable,

market fluctuationmarket fluctuation (annual price change) (annual price change) that causes a loss in revenue during the that causes a loss in revenue during the current insurance yearcurrent insurance year


AGR-Lite Does Not Cover:AGR-Lite Does Not Cover: Negligence, mismanagement, Negligence, mismanagement,

wrongdoingwrongdoing Failure to follow good management Failure to follow good management

and irrigation practicesand irrigation practices Water contained by any government, Water contained by any government,

public, private dam or reservoirpublic, private dam or reservoir Failure or breakdown of irrigation Failure or breakdown of irrigation

equipment or facilitiesequipment or facilities Theft and VandalismTheft and Vandalism Inability to market the commodities Inability to market the commodities

due to quarantine, boycott or refusal of due to quarantine, boycott or refusal of anyone to accept commoditiesanyone to accept commodities

Lack of laborLack of labor Failure of buyer to pay for commoditiesFailure of buyer to pay for commodities


Coverage Choices & LimitsCoverage Choices & Limits

Gov’tGov’t

SubsiSubsidydy

CoverageCoverage

PaymentPaymentMinimum # Minimum #

of of CommoditiCommoditi

es*es*

Maximum Annual Maximum Annual IncomeIncome****

LevelLevel RateRate

59%59% 6565 7575 11 $2,051,282$2,051,282

59%59% 6565 9090 11 $1,709,401$1,709,401

55%55% 7575 7575 11 $1,777,777$1,777,777

55%55% 7575 9090 11 $1,481,481$1,481,481

48%48% 8080 7575 33 $1,666,666$1,666,666

48%48% 8080 9090 33 $1,388,888$1,388,888*Must meet minimum income requirements. Commodity Grouping is available for the 80-percent coverage level.

**The Maximum Annual Income represents the maximum approved farm revenue at each coverage level and payment rate to be eligible for AGR-Lite due to the $1,000,000 maximum liability allowed.


AGR-Lite Protection ExampleAGR-Lite Protection Example( With 1 or more commodity ( With 1 or more commodity

producing revenue)producing revenue)

* 5 year avg. revenue = $300,000 * 5 year avg. revenue = $300,000

* * 75%75% coverage level = $225,000 coverage level = $225,000 loss triggerloss trigger

* Revenue produced =* Revenue produced = $100,000 $100,000 * Revenue loss* Revenue loss = $125,000 = $125,000 * * 90%90% payment = payment =

$112,500 $112,500 loss paymentloss payment


COMPARISON AGR Pilot AGR-LiteMaximum Coverage $6,500,000 $1,000,000 *Animal or Animal Product Limit

35 % of Allowable

Income

None

MPCI Required Yes Optional

Coverage Level ** 65, 75, 80 65, 75, 80

Payment Rate 75, 90 75, 90Sales Closing Date 1/31 3/15***

* Increased from $250,000

** 3 Commodity Requirement for 80 % Coverage

*** For AGR Lite only – Cancellation/Termination dates 1/31

AGR Pilot vs AGR-LiteAGR Pilot vs AGR-Lite


How is Coverage Established?How is Coverage Established?

Federal Income Tax RecordsFederal Income Tax Records Usually Schedule FUsually Schedule F

Current Year’s Farm PlanCurrent Year’s Farm Plan ““Cash Flow Budget” Cash Flow Budget”


Files 5 Consecutive Years of Schedule F or equivalent – Tax Forms


When does insurance attach?When does insurance attach?

Insurance begins 10 days after Insurance begins 10 days after properly completed application is properly completed application is received. received.

If a commodity is damaged prior to If a commodity is damaged prior to

purchasing insurance, no coverage is purchasing insurance, no coverage is provided. provided.

If commodity is damaged after If commodity is damaged after insurance is purchased, but before insurance is purchased, but before insurance year begins, coverage may insurance year begins, coverage may be provided be provided


How are Claims Calculated?How are Claims Calculated?

Federal Income Tax Records reflect salesFederal Income Tax Records reflect sales

Beginning and End of year inventories are Beginning and End of year inventories are used to determine change in value used to determine change in value

allocated to current year.allocated to current year.


Where AGR-Lite makes senseWhere AGR-Lite makes sense

Otherwise Otherwise uninsurableuninsurable commodities are covered commodities are covered OrganicOrganic production is protected at realistic prices production is protected at realistic prices Direct MarketedDirect Marketed production is protected at realistic production is protected at realistic

pricesprices UmbrellaUmbrella over selected individual crop coverages over selected individual crop coverages Bottom lineBottom line for operation from severe economic for operation from severe economic

lossloss Individual protectionIndividual protection based on personal yield, based on personal yield,

quality and price history plus quality and price history plus low pricelow price protection, protection, Provide an alternative for farmers with reduced Provide an alternative for farmers with reduced

APH caused by multiple years of drought.APH caused by multiple years of drought.


Things to Consider with AGR-LiteThings to Consider with AGR-Lite

AGR-Lite does not include indemnity AGR-Lite does not include indemnity payments when calculating 5 years payments when calculating 5 years average Gross Income that will set average Gross Income that will set future guarantees. future guarantees. This has no impact on current year’s This has no impact on current year’s

indemnity payment but it lowers indemnity payment but it lowers future guarantees.future guarantees.



AGR-Lite does not adjust for feed or product AGR-Lite does not adjust for feed or product purchased.purchased.

IfIf farmers must buy fruit/vegetables/ product to farmers must buy fruit/vegetables/ product to meet their market commitments,meet their market commitments, this will lower this will lower Net Income but not Gross.Net Income but not Gross.

If it turns dry, and producers purchase hay to If it turns dry, and producers purchase hay to cover lost forage this loss may not be covered. cover lost forage this loss may not be covered. This will lower Net Income but not Gross.This will lower Net Income but not Gross.

If producers normally sell excess hay, then it is If producers normally sell excess hay, then it is

covered because there will be reduced hay covered because there will be reduced hay sales.sales.


Example AGR-LiteExample AGR-Lite11

11Prepared by Andrew Saffert (Graduate Student), Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby, Jr., and Dr. Prepared by Andrew Saffert (Graduate Student), Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby, Jr., and Dr. Michael R. Langemeier, Professors, Department of Agricultural Economics, K-State Research and Extension, Michael R. Langemeier, Professors, Department of Agricultural Economics, K-State Research and Extension, Kansas State University, Manhattan, KS 66502, Risk & Profit August 17 & 18, 2006, Phone 785-532-1515, e-mail Kansas State University, Manhattan, KS 66502, Risk & Profit August 17 & 18, 2006, Phone 785-532-1515, e-mail – [email protected], or Andrew Saffert [email protected].– [email protected], or Andrew Saffert [email protected].

22The expected income is generated from the annual “farm plan” similar to a cash flow budget for the upcoming The expected income is generated from the annual “farm plan” similar to a cash flow budget for the upcoming year.year.

Tax Return 1 Trend

Indexed Revenue

Expected

Income2

YearHistorical Year 1 265,000Historical Year 2 250,000 0.943Historical Year 3 260,000 1.040Historical Year 4 287,000 1.104Historical Year 5 271,330 0.945Historical Year 6

Income Trend Factor 1.0335-year Average, Contract 1 266,666Expected Income for Insurance Year (IACR)

Total 275,478 290,0005-year Average Indexed, Contract 1Lesser of Indexed AGR or Expected Income 275,4785-year Average, Contract 2Coverage Level 75%Payment Rate 90%AGR-Lite Loss Inception Point 206,609AGR-Lite Liability ($ of Coverage) 185,948


Example AGR-LiteExample AGR-Lite

Livestock and other items bought for resale Count (Line 3) IncludedRaised Crop and Livestock Sales Count (Line 4) IncludedNet Gains from Commodity Hedging Count IncludedAPH, CRC, RA Indemnity Payments (Gross) Count (Line 8b) NoGRP, GRIP Indemnity Payments (Gross) Count (Line 8b) NoLRP and LGM Indemnity Payments (Gross) Count (Line 8b) NoPrivate Hail and Mortality Payments (Gross) Count (Line 8b) NoNoninsured Crop Disaster Assistance Program Payments (NAP) Count (Line 8b) NoAd Hoc Disaster Payments No (Line 8b) NoFSA Loans (Including Emergency Loans) No (Line 8b) NoLoan Deficiency Payment (LDP) No (Line 8b) No

Commodity Loans - Commodity Credit Corporation (CCC) Count Line (7a) IncludedProduction Flexibility Contracts Agricultural Market Transaction Act (AMTA) No (Line 8b) NoMarket Loss Assistance Program (MLA) No (Line 8b) NoDirect Counter-Cyclical Payments (DCP) (Replaces Production Flexibility Contracts and MLA) No (Line 8b) NoConservation Reserve Program (CRP) No (Line 8b) NoConservation Reserve Enhancement Program (CREP) No (Line 8b) NoSale of non-cull cows & other Capital Assets No NoCull Cows, intended for sale Count IncludedCustom Harvest for a paid fee No (Line 9) NoRefund payments for over payments No (Line 10) NoSurgarbeet - Payment in Kind Count IncludedMarketing Orders - Cranberry, Tart, Cherries Count IncludedChange in Accounts Recoverable Count No

Net Change in Crop Inventory3 Count No

Net Change in Livestock Inventory3 Count No

3Beginning inventory is valued at the selling price during the year not the price on January 1. The ending inventory is valued at the selling price if sold before the claim is settled or at the current terminal market price adjusted for transportation at time of claim settlement and not the December 31 value.

Revenue Included in 5 Yr AvgRevenue To Count Against AGR Guarantee

2The expected income is generated from the annual “farm plan” similar to a cash flow budget for the upcoming year.



Tax Return 1

Year

Historical Year 1 265,000







Tax Return 1 Trend

Year


Historical Year 2 250,000 0.943






Tax Return 1 Trend

Year






Income Trend Factor 1.033Average Trend raised to 4th power



Tax Return 1 Trend

Year






Income Trend Factor 1.033

5-year Average, Contract 1 266,666



Tax Return 1 Trend

Indexed Revenue

Year








Expected Income for Insurance Year (IACR)

Total 275,478

Average Revenue Times Trend



Tax Return 1 Trend

Indexed Revenue

Expected

Income2

Year






Historical Year 6




Total 275,478 290,000

Lesser of Average Trend and Expected Revenue



5-year Average Indexed, Contract 1

Lesser of Indexed AGR or Expected Income 275,478

Coverage Level 75%

Payment Rate 90%

AGR-Lite Loss Inception Point 206,609

AGR-Lite Liability ($ of Coverage) 185,948



Livestock and other items bought for resale Count (Line 3) Included

Raised Crop and Livestock Sales Count (Line 4) Included

Net Gains from Commodity Hedging Count Included

APH, CRC, RA Indemnity Payments (Gross) Count (Line 8b) No

GRP, GRIP Indemnity Payments (Gross) Count (Line 8b) No

LRP and LGM Indemnity Payments (Gross) Count (Line 8b) No

Private Hail and Mortality Payments (Gross) Count (Line 8b) NoNoninsured Crop Disaster Assistance Program Payments (NAP) Count (Line 8b) No

Ad Hoc Disaster Payments No (Line 8b) No

Revenue To Count Against AGR GuaranteeRevenue Included in 5 Yr Avg



FSA Loans (Including Emergency Loans) No (Line 8b) No

Loan Deficiency Payment (LDP) No (Line 8b) NoCommodity Loans - Commodity Credit Corporation (CCC) Count Line (7a) IncludedProduction Flexibility Contracts Agricultural Market Transaction Act (AMTA) No (Line 8b) No

Market Loss Assistance Program (MLA) No (Line 8b) NoDirect Counter-Cyclical Payments (DCP) (Replaces Production Flexibility Contracts and MLA) No (Line 8b) No

Conservation Reserve Program (CRP) No (Line 8b) NoConservation Reserve Enhancement Program (CREP) No (Line 8b) No

Revenue To Count Against AGR GuaranteeRevenue Included in 5 Yr Avg



Sale of non-cull cows & other Capital Assets No No

Cull Cows, intended for sale Count Included

Custom Harvest for a paid fee No (Line 9) No

Refund payments for over payments No (Line 10) No

Surgarbeet - Payment in Kind Count Included

Marketing Orders - Cranberry, Tart, Cherries Count Included

Change in Accounts Recoverable Count No

Net Change in Crop Inventory3

Count No

Net Change in Livestock Inventory3

Count No



Commodity Loans - Commodity Credit Corporation (CCC) Count Line (7a) IncludedProduction Flexibility Contracts Agricultural Market Transaction Act (AMTA) No (Line 8b) No

Market Loss Assistance Program (MLA) No (Line 8b) NoDirect Counter-Cyclical Payments (DCP) (Replaces Production Flexibility Contracts and MLA) No (Line 8b) No

Sale of non-cull cows & other Capital Assets No No

Cull Cows, intended for sale Count Included

Custom Harvest for a paid fee No (Line 9) No

Refund payments for over payments No (Line 10) No

Surgarbeet - Payment in Kind Count Included

Marketing Orders - Cranberry, Tart, Cherries Count Included

Change in Accounts Recoverable Count No

Net Change in Crop Inventory3

Count No




Revenue to count 150,000

Net Insurable Loss 56,609

90% Payment rate 90%

AGR-Lite Indemnity Payment 50,948

Revenue To Count Against AGR Guarantee



Tax Return 1 Trend

Indexed Revenue

Expected

Income2

Tax Return 2

Indexed Revenue

Year

Historical Year 2 250,000 0.943 250,000

Historical Year 3 260,000 1.040 260,000 1.040

Historical Year 4 287,000 1.104 287,000 1.104

Historical Year 5 271,330 0.945 271,330 0.945


Revenue to count 150,000

Revenue to used for the next 5 year average 100,000

Net Insurable Loss 56,609

90% Payment rate 90%

AGR-Lite Indemnity Payment 50,948



Tax Return 2

Indexed Revenue

Year







5-year Average, Contract 1


Total

5-year Average Indexed, Contract 1

Lesser of Indexed AGR or Expected Income


Coverage Level

Payment Rate



Example AGR-Lite PremiumExample AGR-Lite Premium

AGR Liability minus MPCI Liability = AGR Premium Liability e.g. ($248,400 - 34,375 (MPCI) = $214,025)

W/O MPCI With MPCI

AGR Liability 248,400 248,400

Minus MPCI Liability 0 34,375

Premium Liability 248,400 214,025

Premium 7,651 6,596



Market loan gains count against the Market loan gains count against the AGR-Lite indemnity and are included AGR-Lite indemnity and are included in the 5 year average tax return in the 5 year average tax return revenue. This is a consistent policy. revenue. This is a consistent policy.

However, LDP payments are not However, LDP payments are not included in the 5 year average nor do included in the 5 year average nor do they count against the guarantee. they count against the guarantee.



Currently “cull cows” are counted in the Currently “cull cows” are counted in the sales to count against the AGR-Lite sales to count against the AGR-Lite guarantees and the 5 year average tax guarantees and the 5 year average tax return revenue. return revenue.

If the cows are sold as part of a herd If the cows are sold as part of a herd reduction then the sales do not count reduction then the sales do not count against the guarantee. against the guarantee.



Currently the counter cyclical payment Currently the counter cyclical payment does not count against the AGR-Lite does not count against the AGR-Lite guarantee nor does it count in the 5 guarantee nor does it count in the 5 year average tax return revenue. year average tax return revenue.

This works in the favor of farmers This works in the favor of farmers because it does not reduce AGR-Lite because it does not reduce AGR-Lite payments in a loss year caused by payments in a loss year caused by lower prices.lower prices.


Adjusted Gross Revenue-Lite (AGR-Lite)Adjusted Gross Revenue-Lite (AGR-Lite)

AGR Lite is whole farm revenue coverage based AGR Lite is whole farm revenue coverage based on tax returnson tax returns

Receives full subsidyReceives full subsidy

Can be purchased in addition to MPCI/RA/CRCCan be purchased in addition to MPCI/RA/CRC

Insures livestock, hay, specialty crops, & other Insures livestock, hay, specialty crops, & other uninsurable cropsuninsurable crops

Available in Kansas for 2007 with March 15 Available in Kansas for 2007 with March 15 signupsignup

All day risk workshopsAll day risk workshops



This presentation does not provide full details This presentation does not provide full details of policy provisions or approved procedures.of policy provisions or approved procedures.

Producers should consult with a local agent for Producers should consult with a local agent for specific details and program requirementspecific details and program requirement

Farmers interested in AGR-Lite should talk to Farmers interested in AGR-Lite should talk to an agent ASAP because it will require time to an agent ASAP because it will require time to gather all of the information for an application.gather all of the information for an application.

DO NOT WAIT UNTIL MARCH 15!DO NOT WAIT UNTIL MARCH 15!


Thank YouDR. NORM DALSTED – COLORADO STATE

UNIVERSITYPHONE: 970-491-5627EMAIL: [email protected]

DR. G.A. “ART” BARNABY, JR-KANSAS STATE UNIVERSITY

PHONE: 785-532-1515EMAIL: [email protected]

Check out our WEB page at: http://www.AgManager.info

Copyright 2008, All Rights Reserved

Details on data that farmers will Details on data that farmers will need to apply for AGR-Lite!need to apply for AGR-Lite!

Dr. Norm Dalsted - Colorado State UniversityDr. Norm Dalsted - Colorado State University

Dr. G. A. “Art” Barnaby, Jr - Kansas State Dr. G. A. “Art” Barnaby, Jr - Kansas State University University

and and

Risk Management Agency, USDARisk Management Agency, USDA

Phone (Norm) (970) 491-5627Phone (Norm) (970) 491-5627Email: Email: [email protected]@colostate.edu

Phone (Art): (785) 532-1515Phone (Art): (785) 532-1515Email: Email: [email protected]@ksu.edu

Check out our WEB at: Check out our WEB at: www.AgManager.infowww.AgManager.info


Steps in the Process

Step 1 – Application

Step 2 - Determine Approved AGR and Underwriting

Step 3 - Claim


Forms Required At Time Of Application

AGR-Lite uses AGR forms (or similar forms)AGR-Lite uses AGR forms (or similar forms)

1. Application (FCI-12 AGR)1. Application (FCI-12 AGR)

2. AGR-Lite Histories Calculation 2. AGR-Lite Histories Calculation WorksheetWorksheet

3. Complete Annual Farm Report (FCI 821 3. Complete Annual Farm Report (FCI 821 AGR)AGR)

4. A beginning Inventory Report (FCI 822 4. A beginning Inventory Report (FCI 822 AGR or FCI 824 AGR) AGR or FCI 824 AGR)

5. Agricultural Commodity Profile for 5. Agricultural Commodity Profile for 75% or 80% coverage level for the last 75% or 80% coverage level for the last two crop years and the Actual two crop years and the Actual Commodity Report at claim time.Commodity Report at claim time.


Application


Step 1 - Determine Approved AGR

The Approved AGR is used as a whole farm revenue basis upon which coverage is provided



AGR-Lite uses AGR forms (or similar forms)

1. Application (FCI-12 AGR) 2. AGR-Lite Histories Calculation

Worksheet 3. Complete Annual Farm Report

(FCI 821 AGR) 4. A beginning Inventory Report

(FCI 822 AGR or FCI 824 AGR) 5. Agricultural Commodity Profile

for 75% or 85% coverage level for the last two crop years and the Actual Commodity Report at claim time


AGR-Lite Histories Calculation Worksheet

The AGR-Lite Histories Calculation Worksheet is used to calculate allowable income and expenses for the Farm Report


Excluded income applies to:

5 Year History – Income and Expenses

Intended Commodities

Inventory Adjustments

Accounts Receivable Adjustments

Income and Expenses for Claims


AGR-Lite – Allowable Expenses

Allowable expenses - Farm expenses that are reported to the IRS for the production of agricultural commodities, including only those specifically listed…


AGR-Lite Histories Calculation Worksheet – Income and Expenses

Producer2000 2001

340,000 345,000

7,000 10,000

2000 2001310,000 319,000



AGR-Lite uses AGR forms (or similar forms)

1. Application (FCI-12 AGR) 2. AGR-Lite Histories Calculation

Worksheet 3. Complete Annual Farm Report (FCI 821

AGR) 4. A beginning Inventory Report (FCI 822

AGR or FCI 824 AGR) 5. Agricultural Commodity Profile for 75%

or 80% coverage level for the last two crop years and the Actual Commodity Report at claim time


Annual Farm Report

The Approved AGR is determined using the Annual Farm Report

The Farm Report includes 5 Years Allowable Income and Expense History - From Histories Calculation Worksheet

Intended Commodity Report Report of Changes Adjustments to Approved AGR


Annual Farm Report –Allowable Income / Expenses

1,725,000 1,368,000

345,000 273,600

273,600

20002001

20032004

347,000355,000

338,000337,000

266,000265,000

273,000289,000

2002 348,000 275,000


Annual Farm Report

Includes

5 Years Allowable Income and Expense History - From Histories Calculation Worksheet

Intended Commodity Report

Report of Changes

Adjustments to Approved AGR


Intended Commodities

The commodities to be produced during the insurance year (see definitions)

Commodity name No. Years Produced Intended Amount (acres, bu, etc) Expected Value Total Number Commodities Total Expected Income


Annual Farm Report

Includes



Report of Changes



Annual Farm Report: Changes Must report any changes that affect the Approved AGR

Farm changes may include:

Tax Entities or Accounting Methods

Ownership / Business Structure

Crops/Crop Mix / Marketing Plans

Size of Operation / Farming Practice / Type of Farming Activity


Annual Farm Report

Includes



Report of Changes



Possible Adjustments To Approved AGR For Expanding Operations

Income may be indexed if:

At least one of the last two years of allowable income is greater than the average of the 5 years of allowable income, and

Expected income for current year is higher than the 5 year average of allowable income.


Annual Farm Report

20002001200220032004

347,000355,000348,000338,000337,000

Producer Individual

XXXXX

XXXXX

WA

Franklin

266,000265,000275,000273,000289,000

Cattle: Cow/Calf 0800

Alfalfa (Irr) 0850

Wheat (Irr) 0948

Dry Beans (Irr) 0047

Sweet Cherries 0099

6

63

36

92 head

200 ac

100 ac

55 ac

2.5 ac

685 lbs

9T/ac

120 bu/ac26 cwt/ac

4/T/ac

63,020 lbs

1,800 T

12,000 bu1,430 cwt

10T

$1.00

$110

$3.35$23

$1,200

$63,020

$198,000

$40,200$32,890

$12,000

1,725,000 1,368,000

345,000 273,600

273,600 345,000 345,000

None

X

x

2006

$346,110


Program Vulnerability Protection

Allowable ExpensesIf expenses for the insurance year fall below 70% of the average, the approved AGR (coverage) is reduced before the claim is settled.

ExampleApproved AGR $100,000Approved expenses 80,000

70% Approved Expenses 56,000Actual Expenses 50,000Adj. Approved AGR 94,000










For Accrual Adjustment of Claims

Beginning Inventory and Accounts Receivable Reports are required at the start of the insurance year*

A beginning inventory of the amount - commodities not sold or otherwise disposed of

A beginning accounts receivable report - income earned but not received

* Jan 31 for a calendar year, last day of the first month of a fiscal year


(Beginning) Inventory & Accounts Receivable Report

X

Producer

Alfalfa (Irr)

Wheat (Irr) 2005

2005 On Farm

On Farm

200 T

5,000 bu

WA

Franklin

2006X


(Beginning) Animal Inventory/Accounting Worksheet

68

Producer XXX 2006

Fall 05 heifers 22 300 .9/270 5,940 n/a 5,940

Fall 05 steers 25 300 1.1/330 8,250 n/a 8,250










Commodity Profile Report

For 75 and 80 percent coverage

For last two years include:CommodityAcresMarket percent by open vs. contracted


Minimum Commodity Income Qualification

For 80% coverage level determination only

Formula: Divide 1.0 by the number of commodities on Farm

Report x 0.333 x total expected allowable income

Example: 5 commodities on farm report

$346,110 expected income

(1/5 x 0.333 x $346,110) = $23,050


AGR Coverage - for our example

Approved AGR x Coverage Level x Payment Rate

$345,000 x 0.80 x .90

= $248,400 (total asset protections for this insured)

80 % Coverage Level

90 % Payment Rate


AGR-Lite Premium Calculation

AGR Liability = $248,400AGR Liability = $248,400

AGR-Lite Gross PremiumAGR-Lite Gross Premium $248,400 x .059 (AGR rate)* = $14,656$248,400 x .059 (AGR rate)* = $14,656

AGR LiteAGR Lite Producer PremiumProducer Premium USDA Subsidy Removed plus Administrative USDA Subsidy Removed plus Administrative FeeFee($14,656 - $7,035) + $30 = $7,651 ($14,656 - $7,035) + $30 = $7,651 (3.1% premium rate)(3.1% premium rate)

* Rates based on 2006 AGR Franklin County. Rates vary by farm operation, * Rates based on 2006 AGR Franklin County. Rates vary by farm operation, commodity mix and county.commodity mix and county.


If MPCI is Purchased, the AGR-Lite premium is reduced (optional)

AGR Liability AGR Liability minusminus MPCI Liability = AGR Premium Liability MPCI Liability = AGR Premium Liability e.g. ($248,400 - 34,375 (MPCI) = $214,025)e.g. ($248,400 - 34,375 (MPCI) = $214,025)

W/O MPCIW/O MPCI With MPCIWith MPCIAGR Liability AGR Liability 248,400 248,400 248,400 248,400Minus MPCI Liability Minus MPCI Liability 0 0 34,37534,375 Premium LiabilityPremium Liability 248,400 248,400 214,025 214,025PremiumPremium 7,651 7,651 6,5966,596

Note: MPCI Liability is not used in our exampleNote: MPCI Liability is not used in our example


Claim Processing

Claim Cannot be Settled Until:Claim Cannot be Settled Until:

Taxes filed for insurance yearTaxes filed for insurance year

Other insurance claims covering insured Other insurance claims covering insured commodities finalizedcommodities finalized

If an indemnity is to be paid, copies of If an indemnity is to be paid, copies of the tax forms (IRS Schedule F 1040 or the tax forms (IRS Schedule F 1040 or equivalent) used to calculate the 5-year equivalent) used to calculate the 5-year histories and the year of the claim must histories and the year of the claim must be submittedbe submitted


AGR-Lite Claim

Prepare actual commodity report Prepare actual commodity report

Review the Approved AGR – adjust for any farm Review the Approved AGR – adjust for any farm

changes (only downward adjustments allowed)changes (only downward adjustments allowed)

Apply expense adjustments if anyApply expense adjustments if any

Determine allowable income from insurance year tax Determine allowable income from insurance year tax

formform

Adjust for uninsured causes, indemnities paid and Adjust for uninsured causes, indemnities paid and

disaster paymentsdisaster payments

Adjust commodities purchased for resaleAdjust commodities purchased for resale

Make adjustments for inventory and accounts Make adjustments for inventory and accounts

receivablereceivable


AGR-Lite Claim - An Actual Commodity Report must be filled out

The Actual Commodity Report is used to verify actual intended commodities and production as a checkpoint on the claim.


AGR-Lite ClaimRevenue to Count for the Insurance Year

(Line 26 Claim Form)

Determine allowable income from tax form

Adjust commodities purchased for resale

Adjust for uninsured causes, indemnities paid and disaster payment


Excluded Revenue Income for Claim Purposes

Additional income from value added items Additional income from value added items

Cooperative dividends (not related to commodity Cooperative dividends (not related to commodity

production)production)

Processing of insured commodities Processing of insured commodities

Custom hire (machine work)Custom hire (machine work)

Agricultural program paymentsAgricultural program payments

Commodities not coveredCommodities not covered

Ad Hoc disaster paymentsAd Hoc disaster payments


AGR-Lite ClaimAdjustments to Revenue to Count

Make inventory adjustments (line 27 claim form) Subtract beginning inventory (price received/value) Add ending inventory (value first of month claim settled)

Make accounts receivable adjustments (line 28 claim form) Ending accounts receivable (adjusted for costs) - beginning accounts receivable (adjusted for costs)


Inventory Market Value

The value of ending inventories will be the actual price received if the inventory is sold prior to the time the claim is finalized,

Or

The local market value on the first day of the month in which the claim is finalized if the inventory is not sold at the time the claim is finalized


Inventory Local Market ValueInventory Local Market ValuePolicy DefinitionPolicy Definition

Value as reported by Ag Market News Service, if Value as reported by Ag Market News Service, if

available, otherwiseavailable, otherwise

Agreed-upon average price by two commercial Agreed-upon average price by two commercial

buyers (buyers (one from insured one from insurance one from insured one from insurance

provider)provider)

Value of animals will not exceed local market value Value of animals will not exceed local market value

for same breed and type being valuedfor same breed and type being valued


Inventories (Claims)Inventories (Claims)

Post–production Adjustments

If post-production operations …. will result in a more accurate determination of the quantity and/or the local market value of inventoried commodities,

such claims may be suspended and submitted for payment later than 60 days after insureds have filed their income tax forms. (see Policy 10(a)(4))

However, the latest date that claims (including suspended claims) may be submitted for payment remains 60 days after the first day of the seventh month after the end of the

insurance year, unless an IRS filing extension is approved.


(Ending) Inventory & Accounts Receivable Report

2006

Alfalfa (Irr) 2005

2005Wheat (Irr)

200 T

5,000 bu

Producer

X Franklin

WA

Alfalfa (Irr) 2006 00

0

0

X

0

0

0

Wheat (Irr) 2006

Dry Beans 2006

Sweet Cherries 2006

4,000 bu0

0

200T

5,000 bu

4,000 bu

S

S

C/O

$100/T

$3.60bu

$3.60bu

0

0

[18,000]

[20,000]

0

14.400

[23,600]

(+) if revenue to count for tax year

(-) if revenue not to count for tax year

Individual


(Ending) Animal Inventory/Accounting

Producer

Fall 05 heifers

Fall 05 steers

Fall 06 steers

Fall 06 heifers

22

25

24

21

300

300

.9/270

1.1/330

n/a

n/a

300

240 1.00

1.10

5,760

6,930

5,760

6,930n/a

n/a

14,190 12,690

14,19012,690 [1,500]

XXX 2006

5,940 5,940

8,250 8,250


AGR-Lite Claim For IndemnityAGR-Lite Claim For Indemnity

53 021

XXXXXX Individual

Producer

2006

80% coverage level 90% payment rate

289,000 273,600 1.056 0 345,000 0 345,000 80% 276,000 248,675

[25,100] 0 223,575 52,425 90% 47,182 7,651 39,531

2006 Added to Revenue to count: 14,400 ’06 wheat (c/o 2007); 5,760 ’06 heifers (c/o to 2007); 6,930 ’06 steers (c/o to 2007)

+ 27,0902005 Removed from Revenue to count: [20,000] ’05 alfalfa; [18,000] ’05 wheat; [5940] ’05 heifers; [8,250] ’05 steers- 52,190[25,100]

Adjustments to Revenue to Count


CLAIM DEADLINES

Initial Notice(s) of Loss Within 72 hours

Notice of loss after filing taxes Within 15 days

File taxes By 1st day of 7th month after Insurance Year *

Submit claim for payment Within 60 days after filing taxes (Policy a(4))

Claim suspension May submitted for payment later than 60 days after filing taxes…

Pay Indemnity Within 30 days after….

Tax Deadline *

60 Days

Insurance Year End

* unless an IRS filing extension is approved


AGR- Lite Date SummaryAGR- Lite Date Summary

Sales Closing Date March 15

Cancellation / Termination Date January 31

Billing Date December 1

Claim Settlement After tax forms are filed and other crop

insurance indemnities are finalized


AGR-LITE SUMMARYAGR-LITE SUMMARY

Maximum coverage (liability) per policy is $1 Million Maximum coverage (liability) per policy is $1 Million

5-years tax records must be available for inspection at the time 5-years tax records must be available for inspection at the time

of applicationof application

Requires AGR-Lite Histories Calculation WorksheetRequires AGR-Lite Histories Calculation Worksheet

2-years required for Commodity Profile report (75 and 80% 2-years required for Commodity Profile report (75 and 80%

coverage)coverage)

Commodity grouping for increased coverageCommodity grouping for increased coverage

MPCI is optionalMPCI is optional

No animal/animal product limitNo animal/animal product limit

5-year tax records must be submitted for claim purposes5-year tax records must be submitted for claim purposes

Requires Actual Commodity Report at claim timeRequires Actual Commodity Report at claim time



This presentation does not provide full details This presentation does not provide full details of policy provisions or approved procedures.of policy provisions or approved procedures.

Producers should consult with a local agent for Producers should consult with a local agent for specific details and program requirementspecific details and program requirement

Farmers interested in AGR-Lite should talk to Farmers interested in AGR-Lite should talk to an agent ASAP because it will require time to an agent ASAP because it will require time to gather all of the information for an application.gather all of the information for an application.

DO NOT WAIT UNTIL MARCH 15!DO NOT WAIT UNTIL MARCH 15!


Thank YouDR. NORM DALSTED – COLORADO STATE

UNIVERSITYPHONE: 970-491-5627EMAIL: [email protected]

DR. G.A. “ART” BARNABY, JR-KANSAS STATE UNIVERSITY

PHONE: 785-532-1515EMAIL: [email protected]

Check out our WEB page at: http://www.AgManager.info

Copyright 2008, All Rights Reserved

Documents

1 1 Copyright 2008, All Rights Reserved Dr. Norm Dalsted - Colorado State University Dr. G. A. Art Barnaby, Jr - Kansas State University and Risk Management