Risk Management Education

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(No Transcript)
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DISCLAIMER The purpose of the following material
is to promote the awareness of risk management
concepts and to highlight USDAs risk management
products, features, benefits and availability.
This material does not change the content or the
meaning of current policy provisions, filed
actuarial documents or approved procedures.
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Todays Objectives

• Sources of Production Risk when Alternative
  Actions/Plans are Taken
• Various Production Risks Management Strategies
• Specific Focus Crop Insurance Programs

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Review and Answer the Questions to
Consider Blocks at the end of each section.
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Sources of Production Risk

• Technology Crop Production Practices
• Sustainable Agriculture
• Elements of Sustainability
• Integrated Pest Management
• Soil Water Conservation
• Field/Landscape Diversity
• Seed Selection
• Precision Agriculture
• Biotechnology
• Organically Grown Crops

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Sources of Production Risk

• Enterprise Diversification
• Capital Investments
• Irrigation
• Drainage
• Machinery
• Landlord / Tenant Relationship
• Contract Production

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Production Risk Strategy Programs

• CROP INSURANCE
• USDA subsidized insurance programs provide farm
  producers and owners various methods to lower
  production yield and revenue risks.

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USDA's RISK MANAGEMENT PROGRAMS/PRODUCTS
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Insurance Availability by State

• IDAHO
• Apples, Barley, Canola, Corn, Dry Beans, Dry
  Peas, Grapes, Green Peas, Nursery, Oats, Onions,
  Potatoes, Safflower, Sugar Beets, Processing
  Beans, Processing Sweet Corn and Wheat
• (Program availability varies by county and is
  subject to change)

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Insurance Availability by State

• OREGON
• Apples, Barley, Cabbage, Canola, Cherries, Corn,
  Cranberries, Dry Beans, Dry Peas, Forage, Grapes,
  Green Peas, Nursery, Oats, Onions, Pears,
  Potatoes, Sugar Beets, Processing Beans,
  Processing Sweet Corn and Wheat
• (Program availability varies by county and is
  subject to change)

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Insurance Availability by State

• WASHINGTON
• Apples, Barley, Cabbage, Canola, Cherries, Corn,
  Cranberries, Dry Beans, Dry Peas, Grapes, Green
  Peas, Mint, Nursery, Oats, Onions, Pears,
  Potatoes, Sugar Beets, Processing Beans,
  Processing Sweet Corn and Wheat
• (Program availability varies by county and is
  subject to change)

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YIELD / PRODUCTION RISK CROP INSURANCE COVERAGE
PROGRAMS
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Multi-Peril Crop Insurance (MPCI)

• Yield Guarantee
• Units
• Contract Changes
• Reporting of Insured Acreage
• Reporting Crop Damage
• Reporting of Production Records

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Proving Yields

• Actual Production History (APH) is a simple
  average of 4-10 years of actual yields, based on
  a producers records.
• If a producer does not have records for four (4)
  years
• A transition yield is used to complete the four
  (4) year minimum base.
• T yields are based on a countys average yield
  determined by USDAs National Agricultural
  Statistics Service (NASS).

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The Reason to Prove Yields

• When using T yields, a significant loss would
  have to occur before an indemnity would be paid.

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Providing Production Evidence

• YEAR YIELD YIELD
• 90 No records No records
• 91 No records No records
• 92 No records No records
• 93 No records 80 Bu. Actual Yld
• 94 No records 72 Bu. Actual Yld
• 95 48 Bu. T Yld 81 Bu. Actual Yld
• 96 48 Bu. T Yld 76 Bu. Actual Yld
• 97 48 Bu. T Yld 78 Bu. Actual Yld
• 98 80 Bu. Actual Yld 80 Bu. Actual Yld
• 224 Total Bu. Divided by 4 years 56 Bu.
• 467 Total Bu. Divided by 6 years 78 Bu.

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Assume 80 BU Average Wheat Yield 60 BU 'T'
Yield 3.30 Expected Market Price (MPCI
PE)Yields Not Provided/Certified 65 'T' 39
BU75 LEVEL 75 X 39 BU 29 BU 29 BU X
3.30 96.53/ac Yields Provided/Certified75
LEVEL 75 X 80 BU 60 BU 60 BU X 3.30
198/acProving Your Yields PAYS DIVIDENDS !!
Benefits of Actual/Certified Yields
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Multi-Peril Crop Insurance (MPCI)

• COVERAGE LEVEL PRICES
• Coverage Options - Choice of variable percentages
  of the APH, from 50 up to 75, in 5 increments
  (85 for Wheat and IP Barley in some areas).
• Price Elections - Price at which you are
  compensated in the event of a loss. Choice of 60
  to 100 of the expected market price or market
  price election.

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Multi-Peril Crop Insurance (MPCI)

• CATASTROPHIC CROP INSURANCE (CAT)
• CAT Coverage is available at the 50 coverage
  level and 55 maximum price election (this is a
  change from previous years 60).

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Multi-Peril Crop Insurance (MPCI)

• Insurance Coverage Endorsements
• Wheat Insurance Policy Endorsements
• Winter Wheat Option A
• Winter Wheat Option B
• Malting Barley Price and Quality Endorsements
• Option A
• Option B

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Additional Production Risk Tools

• Group Risk Plan (GRP)
• Named-Peril Protection Program (Hail, Fire,
  Flood)
• Non-Insured Assistance Program (NAP)

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YIELD / PRODUCTION and REVENUE RISK CROP
INSURANCE COVERAGE PROGRAMS
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INCOME PROTECTION (IP)

• Enterprise Unit (County)
• CAT is Available
• Projected / Harvest Price derived from Portland
  Grain Exchange
• Late Planting/Replant Payment
• IP Barley with Malt Barley Option (Price derived
  from Corn Futures)

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INCOME PROTECTION (IP)

• IP protects against reductions in gross income
  when yields or prices fall.

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Crop Revenue Coverage (CRC)

• Guarantees a stated amount of revenue - final
  guarantee.
• Covers revenue losses due to low price, low
  yield, or any combination of the two.

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Crop Revenue Coverage (CRC)

• Basic / Optional / Enterprise
• Enterprise - Premium Discount
• CAT Not Available
• Base / Harvest Price derived from Portland Grain
  Exchange
• Late Planting/Replant Payment
• Winter Coverage Endorsement
• Replacement Coverage Level

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CROP INSURANCE COMPARISON CHART

• Side-by-Side WHEAT Insurance Program
  Comparisons
• MPCI
• Income Protection
• Crop Revenue Coverage

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ADMINISTRATIVE FEES

• Catastrophic Coverage - 60, per crop, per county
• Limited Coverage - 50 per crop, per county, not
  to exceed 200/county, 600 total
• Additional Coverage - 20 per crop
• Small-Limited Resource Farmer Fee Waiver is
  Available on Some Programs / Coverage Levels

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• Crop Insurance
• Premium
• Calculation Loss
• Indemnity
• Scenarios Examples
• Pacific Northwest Wheat Crop

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Multi-Peril Crop Insurance (MPCI) Calculation

• Eastern Washington Wheat Farm

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MPCI Premium Calculation
Assume MPCI Insurance Policy - Non-Irrigated
Winter Wheat - WITHOUT Winter Wheat Option -
Basic Unit Discount - 75 Coverage Level

• APH Yield is 62 Bushel 46.5 Bushel/Acre
  Guarantee
• Price Election is 3.30
• 153.45 Insurance Coverage per Acre
• 4.33 Producers Premium Per Acre

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MPCI Premium Calculation
Assume MPCI Insurance Policy - Non-Irrigated
Winter Wheat - WITH Winter Wheat Option B Basic
Unit Discount - 75Coverage Level

• APH Yield is 62 Bushel 46.5 Bushel/Acre
  Guarantee
• Price Election is 3.30
• 153.45 Insurance Coverage per Acre Winter
  Damage Coverage
• 7.08 Producers Premium Per Acre

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MPCI Indemnity

• Assume All Acres Harvested/Winter Wheat -
  Endorsement Not Exercised

• 62 Bu APH X 75 Coverage Level 46.5 Bu/Acre
  Guarantee
• 46.5 Bu Guarantee - 35 Bu Production Harvested
  11.5 Bu Loss/Acre
• 11.5 Bu Loss X 3.30 Price Election 37.95
  Indemnity/Acre

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Crop Revenue Coverage (CRC) Insurance Calculation

• Eastern Washington Wheat Farm

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Crop Revenue Coverage (CRC) Insurance Calculation

• Assume Crop Revenue Protection Insurance Policy
  - Non-Irrigated Winter Wheat -WITHOUT Winter
  Wheat Option A or B - Basic Unit Discount - 75
  Coverage Level

• APH Yield is 62 Bushel 46.5 Bushel/Acre
  Guarantee
• Base Price is 3.40
• 158.10 Insurance Coverage per Acre
• 8.35 Producers Premium Per Acre

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Crop Revenue Coverage Insurance Premium
Calculation

• Assume Crop Revenue Protection Insurance Policy
  - Non-Irrigated Winter Wheat -WITH Winter Wheat
  Option B - Basic Unit Discount 75 Coverage Level

• APH Yield is 62 Bushel 46.5
• Bushel/Acre Guarantee
• Base Price is 3.40
• 158.10 Insurance Coverage per Acre Winter
• Damage Coverage
• 13.63 Producers Premium Per Acre

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Crop Revenue Coverage Insurance Indemnity

• Assume All Acres Harvested - Winter Wheat -
  Endorsement Not Exercised -Harvest Price Lower
  than Base Price (With a Production Loss)

• Revenue Guarantee Approved APH yield of 62
  Bu/Acre X 75 Coverage Level X the higher of
  Base Price or Harvest Price is 3.40 Base Price
  158.10/Acre Guarantee
• Value of Production (Harvested) 35 Bu/Acre X
  3.00 Harvest Price 105/Acre Income
• Loss Payment 158.10 Guarantee - 105/Acre
  Income 53.10 Acre Indemnity

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Crop Revenue Coverage Insurance Indemnity

• Assume Harvest Price Higher than Base Price
  (With a Production Loss)

• Revenue Guarantee Approved APH yield of 62
  Bu/Acre X 75 Coverage Level X the higher of
  Base Price or Harvest Price of 3.70 Harvest
  Price 172.05/Acre Guarantee
• Value of Production (Harvested) 35 Bu/Acre X
  3.70 Harvest Price 129.50/Acre Income
• Loss Payment 172.05 Guarantee - 129.50/Acre
  Income 42.55 Acre Indemnity

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Income Protection (IP) Crop Insurance Calculation

• Eastern Washington Wheat Farm

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Income Protection Crop Insurance Premium
Calculation

• Assume Income Protection Insurance Policy - Non-
  Irrigated Winter Wheat WITHOUT Winter Wheat -Not
  Available under IP Basic Unit Discount 75 Percent
  Coverage Level

• APH Yield is 62 Bushel 46.5 Bushel/Acre
• Guarantee
• Projected Winter Wheat Price is 3.40
• 158.10 Insurance Coverage per Acre
• 4.83 Producers Premium Per Acre

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Income Protection Crop Insurance Indemnity
Assume Harvest Price Lower than Projected Price
(With a Production Loss) Dollar Guarantee 62
Bu/Acre X 75 Coverage Level X 3.40 Projected
Price 158.10/Acre Guarantee

• Value of Production (Harvested) 35 Bu/Acre X
  3.00 Harvest Price 105/Acre Income
• Loss Payment 158.10 Guarantee - 105/Acre
  Income
• 53.10 Acre Indemnity

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Income Protection Crop Insurance Indemnity
Assume Harvest Price Higher than Projected Price
(With a Production Loss) Dollar Guarantee 62
Bu/Acre X 75 Coverage Level X 3.40 Projected
Price 158.10/Acre Guarantee

• Value of Production (Harvested)
• 35 Bu/Acre X 3.70 Harvest Price 129.50/Acre
• Income Loss Payment
• 158.10 Guarantee - 129.50/Acre
• Income 28.60 Acre Indemnity

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Reference Materials

• Risk Management
• List of National Crop Insurance Companies
• Web sites
• Definitions
• Program FACT Sheets
• State County Data Tables
• Skill Quiz

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Adjusted Gross Revenue (AGR)

• Pilot Program
• AGR insurance plan is a non- traditional, whole
  farm risk management tool which uses a producers
  historic Schedule F tax form information as a
  base to provide a level of guaranteed revenue for
  the insurance period.

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Dairy Options Pilot Program (DOPP)

• Educational Program
• DOPP is an risk management education program
  designed to give dairy producers an opportunity
  to learn how futures and options markets work
  and, at the same time, give dairy producers
  first-hand experience in buying option contracts
  to insure a minimum price for their milk.

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PLAN AHEAD . . .

• . . .Take Steps Toward Managing Your Production
  Risks to Protect Agricultural Business! ! !

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Pacific Northwest Risk Management Education
Project

• Managing Production Risks Developed by
• USDA / Risk Management Agency
• Spokane Regional Office
• 112 North University, 205
• Spokane, Washington 99206
• [phone]
• [phone] FAX
• Web Site www.usda.gov.rma/rme