revenue protection how a new usda risk management tool can help diversified producers whole farm

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Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

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Presenters: Roxann Brixen, Great American Insurance Group James Robinson, Rural Advancement Fund Int’l Margaret Krome, Policy Director, MFAI Harriet Behar, Senior Organic Specialist, MOSES Hosts:

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Page 1: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Revenue ProtectionHow A New USDA Risk ManagementTool Can Help Diversified Producers

Whole Farm

Page 2: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Webinar, January, 11, 2016Presented by:

Michael Fields Agricultural Instituteand

Midwest Organic and Sustainable Education Services

This webinar is conducted with financial support from USDA’s Risk Management Agency. USDA Is an

equal opportunity provider.

Page 3: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Presenters:

• Roxann Brixen, Great American Insurance Group• James Robinson, Rural Advancement Fund Int’l

Margaret Krome, Policy Director, MFAIHarriet Behar, Senior Organic Specialist, MOSES

Hosts:

Page 4: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

What are we going to talk about?

1. What is crop insurance? How premiums and payments work and what’s available

2. What are the different types of crop insurance? Different policies and programs for organic and specialty producers, with a focus on USDA’s new Whole Farm Revenue Protection program

3. How do you get crop insurance? Record-keeping requirements, and decision tools for WFRP

Page 5: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Crop Insurance 101Have you had

experiences with crop insurance before?

What comes to mind when

you hear the words “crop insurance”?

Do your creditors need for you to carry

insurance?Does your Risk

Plan involve insurance coverage?

Page 6: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Crop Insurance 101

• Past records On average, you earn $1,000 in revenue on the farm, so expect to earn this in 2015

• You decide to buy a policy that insures 85% of your expected revenue: • $1,000 * 85% = $850

Hail hits a week before harvest, wiping out 50% of the crop and leaving you with only $500 in revenue for the year.

$1,000 expected revenue

$500 actual revenue

$350 Pa

$850 coverage level$350 indemnity

Page 7: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Crop Insurance 101

• Past records On average, you earn $1,000 in revenue on the farm, so expect to earn this in 2015

• You decide to buy a policy that insures 85% of your expected revenue: • $1,000 * 85% = $850

Minor flooding in a single field brings your revenue down to $900 in 2015.

$1,000 expected revenue

$900 actual revenue

$350 Pa

$850 coverage level

NO INDEMNITY

Page 8: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Crop Insurance 101: What crops are covered by different policies?There are 3 main options. The best fit depends

on your specific circumstances.

1. Multi-peril policies (MPCI) – A good deal if you grow one of the covered crops– Available only for certain crops– Actual revenue history (ARH) or actual production history

(APH)– Coverage level of up to 85%, depending on policy

Page 9: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Crop Insurance 101: What About Other Crops?

2. Noninsured Crop Disaster Assistance Program (NAP) - A good deal if you’re getting started with recordkeeping and/or beginning/underserved

– Covers all crops without their own MPCI as long as FSA can estimate average yield and price for your county

– Only covers loss of production– Coverage level of up to 65%– Premiums are relatively high unless you are beginning producer, limited resource

or underserved farmer (minorities, women)• FREE 27.5% catastrophic coverage for these groups

3. Whole Farm Revenue Protection (WFRP) – Often the best deal once you have the records

– Covers all revenue on your farm, no matter the crop or price point– Up to $1,000,000 in livestock revenue– Up to 85% coverage for diverse farms– Up to 80% subsidy on premiums

Page 10: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Why would someone want Whole Farm Revenue Protection (WFRP)?

• Multi peril - great risk management tool for many crops sold for normal markets

• NAP programs can cover crops not covered in MPCI• But WFRP covers ALL your revenue no matter the

crop or price point, supporting diversified farms• It is available EVERYWHERE in the U.S.• It uses records you are already providing for tax

purposes• The federal insurance subsidy may be larger

Page 11: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Who can benefit from WFRP?

Developed for the: – Diversified farm– Organic farm– Direct marketer– Specialty crop farm– Wholesaler

Page 12: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

What revenue does WFRP cover?

• the lower of: – this year’s expected revenue OR– the historic revenue adjusted for growth

• at the selected coverage level for all commodities produced on the farm including: – animals and animal products (up to $1 mil in livestock), – Nursery (up to $1 mil) – commodities purchased for resale(up to 50% of total)

and – possible replant costs

Page 13: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

What does Whole Farm Revenue Protection NOT cover?

Crops or Physical Products not covered by WFRP:–Animals for sport, show or pet– Timber – Forest or forest products

Page 14: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

What types of losses are NOT covered?

• Quarantine, boycott or refusal of anyone to accept commodities

• Deterioration of commodity in storage

• Measurable decline in local prices identified as resulting from man-made causes

• Yield loss due to negligence, mismanagement, wrongdoing

• Act of person rather than nature– Chemical mis-spray

• Breakdown of equipment not due to natural causes

• Theft and vandalism

Price Yield

Page 15: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Relevant WFRP Dates (in Wisconsin)

• Sales Deadline 03/15• Intended Farm Operations Report (03/15)• Revised Farm Operations Report (07/15)

• Oct 31 if you’re a late year fiscal filer

• Final Farm Operations Report (03/15 next year)• File Taxes • Claim is worked (after taxes are filed)– Notice of loss is still due within 72 hours of cause

Page 16: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

New WFRP Updates for 2016

Improvements made for 2016 Year:– Available everywhere – all 50 states– Fewer years of records required for newer farmers– If physically unable to farm one year, record-keeping

flexibility– Expanding operations allowed up to 35% of historic

revenue– Direct marketing sales now allow contemporaneous

records

Page 17: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Has WFRP Improved? There are a Few Ways to Measure It

Page 18: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Risk Management for Organic Crops - Pricing

Organic Price Elections • The 2014 Farm Bill directed

RMA to release organic price elections by the 2015 crop insurance year

• Currently, there are 38 organic price elections for the 2016 crop year

• These prices are higher than conventional prices used by crop insurance procedures

Page 19: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Organic Crops – Contract Price Addendum

What is it?• It’s another procedure insurance companies follow to

allow a certified organic or organic-transitional producer to insure certain crops at the contract price.

• For 2016, the Contract Price Addendum is available for 73 crops. In 2015, it was only available for 62 crops.

BUT ……..Price caps are still in place for each crop, making WFRP a better option for some producers.

Page 20: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

From Beginning to End

Page 21: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Application Requirements

All due by 03/15 (in Wisconsin):– WFRP Application– Initial Farm Operations Report– WFRP Inventory– Accounts Receivables and Payables report– Allowable Revenue Worksheet– Allowable Expenses Worksheet– 5 years of Schedule Fs

Page 22: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Requesting a WFRP Policy

Insured fills out application with all required information including the following:– ID number (SSN or EIN)– Coverage level– Substantial Business Interests– Calendar or fiscal year filer(early or late)+– The county where majority of revenue is earned– Any other insurance from any AIP or FSA– Vertically integrated? Or is there an interest in other

related tax entities? (specify)

Page 23: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Eligibility Requirements Include, but are not limited to the following:

• Must be U.S. citizen or resident• Must file schedule F or other tax forms that can be

converted to a schedule F• Schedule F must cover 100% or your operation. (If the

tax entity only reports a portion of farming activity by partnership, corporation or joint venture, then no WFRP)

• Must derive 50% or more allowable revenue from commodities OTHER THAN THOSE purchased for resale

• Insured revenue is less than $8.5 mil on SCD

Page 24: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Other Requirements• Expected animal and animal product revenue is less than $1 mil on

SCD• Expected nursery and greenhouse revenue is less than $1 mil on

SCD• You must not ONLY raise potatoes• Not eligible if you have only ONE commodity and there is a revenue

plan under MPCI (ex. corn)• You cannot have MPCI-CAT policy for any commodity• You may use another’s tax records if you purchase, inherit or lease

an operation• Cannot have a short tax year• Cannot be “pass-through” revenue

Page 25: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Required Documentation

• 5 consecutive years of tax records immediately before the insurance year

• Allowable revenues for all years• Allowable expenses for all years• Whole Farm History Report - Convert all years’

revenues and expenses to worksheet provided• Market Animal and Nursery Inventory Report• Farm Operations Report –Intended Quantity

Page 26: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Determining your Coverage Amount

Allowable revenue is insurable– And is from the production of commodities produced on

the farm operation or purchased for further growth– This includes

• Sales of animals or commodities purchased for resale, less the cost or other basis

• Sales of animals, produce, etc., you raised• Taxable amount of co-op distributions• Other revenue related to production of commodities

– Market-readiness operations(occurring in or near the field) that are required as the minimum needed to make it market ready, but do not increase value of product

Page 27: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Determining your Coverage Amount

Allowable Revenue does not include:– Post-production operations– A gain from hedging– Revenue from commodities you did not have an interest in – Any of your custom hire activities– Co-op payments not related to production of commodity– Wages, salaries, rent– Gov ag programs– Crop insurance indemnities– Etc.

Page 28: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Determining your Coverage Amount

Allowable Expenses include:– Cost or basis– Vehicle expenses, freight and

trucking– Chemicals, fertilizers, lime– Conservation expenses– Custom hire– Depreciation– Feed– Gas, fuel, oil– Farm and related insurance– Certain Labor hired

– Repairs and maintenance

– Seeds and plants– Storage– Supplies– Utilities– Veterinary, breeding,

medicine– Other -related

Page 29: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Determining your Coverage Amount

Use the Lower of:– Whole farm historic average revenue,

• Includes Indexing or farm expansion

– Or

– Your total expected revenue• This is determined on the Farm Operations Report

Page 30: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Commodity Count

• Subsidy increases with commodity count• Premium (and risk) decreases with commodity count

Your highest subsidy percentage comes with 2+ commodities, at the 50%-75% coverage levels.

Page 31: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

What kind of cost am I looking at?

Ex.1. You are a fresh market seller of a dozen different vegetables, 5 of which are individually a substantial part of your total revenue. The other 7 crops combined give you another substantial piece of revenue. - This would be a diversity of 6 crops - Your expected revenue is $100,000At 75% coverage level, you pay $855 for $75,000 in coverage, depending on specific crops covered.

Page 32: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

What kind of cost am I looking at?

Ex.2. You farm corn and soybeans conventionally and cover them under MPCI, but also put some acres into 2 different high-dollar crops. - You have a diversity of 4 crops- Your expected revenue is $120,000, but

you carry $60,000 (80% coverage) in MPCI corn and SB liability

At the 85% coverage level, you have $102,000 of coverage for $1661, depending on specific crops covered.But at claim time any MPCI payment is subtracted from WFRP payment.

Page 33: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Ex.3. You have $500,000 in cow-calf livestock revenue, $300,000 in feeder pig revenue, $400,000 in corn revenue, and $300,000 in soybean revenue. You are under $1 million in livestock- How does your additional corn for feed

affect the policy?- Revenue associated with livestock is covered,

as are expenses for planting, raising and harvesting the crop for feed.

What kind of cost am I looking at?

Page 34: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Where can I look up my cost?

• You can seek out a crop insurance agent, or

• You can go to RMA’s website, and use their Cost Estimator at this link:

http://webapp.rma.usda.gov/apps/actuarialinformationbrowser2016/CropCriteria.aspx

Page 35: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Where can I look up my cost?

Input revenue amounts from Farm History Report and any liability from an MPCI policy.

Add each commodity that counts as a separate commodity and expected revenue from each

Click the “Get Estimates” button

Page 36: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Where can I look up my cost?

You can choose to display your Producer Premium Amount, which is what the farmer pays, or you can see the premium before the subsidy is applied.

From here, there is a selection to view the calculations, or worksheets.

Page 37: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Revise your Farm Operations Report

• There are additional columns on the Farm Operations Report to show you met expectations or did not. – If certain liability limitations (livestock and

nursery) are exceeded at this time, just those excessive amounts are not covered.

– Due at ARD - 07/15 for calendar year or early year fiscal filers, or last day of the month in which your fiscal year begins (for late year fiscal files)

Page 38: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Notice of Claim

• You must still report any cause of loss within 72 hours if it is weather related.

• Claim must be filed no later than 60 days after the original date the farm tax forms are due to the IRS for the insurance year.

Page 39: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Required Documentation for a Claim

Page 40: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Indemnity• Determine allowable revenue

– Ending inventories minus beginning inventories– Ending accts receivables minus beginning accts receivables

• Determine allowable expenses (from tax forms)– If the insured uses a cash accounting method and prepay

expenses and supplies to a greater extent than they have in the past, or if losses in the insurance year prevent them from paying or prepaying for expenses and supplies to the extent they have in the past, the company will adjust the expenses using accrual accounting methods, including adjustments for beginning and ending accounts payable, if applicable.

Page 41: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Indemnity

• If there is a large difference from your approved expenses to your allowable expenses, your approved revenue may be reduced by an expense reduction factor.

• Calculate Revenue to Count– Add in any insurance payments from other MPCI or

FSA insurance (other than NAP)(for instance you have a corn policy on your grain corn and receive an indemnity from that policy)

– Add in any gain from commodity hedging

Page 42: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Indemnity

• Apply the expense reduction factor (if any) to the approved revenue and multiply by your coverage level

• Subtract the revenue-to-count, which includes– Revenue from tax forms that is approved– Excluding inventory from commodities sold, but

produced in prior years– Commodities produced, but not yet harvested or sold– Remove value lost from uninsured causes

Page 43: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Example:Using the Expense Reduction Factor

Page 44: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Replant PaymentsTo be eligible for a replant payment:

– The damaged commodity must be an annual plant; and, – Damage to the commodity must be due to an insured cause of loss;

and,– The company must agree it is practical to replant and give their

consent to replant the commodity; and– The acreage replanted must be at least 20 acres or 20 percent of the

insured planted acreage, applied separately to each commodity to be planted; and

– The producer must submit verifiable records showing their actual cost of replanting.

– The company may inspect the acreage prior to making the replant payment.

Page 45: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Replant Payments

• No replant payment will be made if the company is unable to determine the producer’s actual cost of replanting.

• No replant payment will be made on acreage on which one replant payment has already been made for the crop year.

• No replant payment will be made for any commodity on the farm operation that is also insured by another policy issued under the authority of the Act if replant payments are also available under the other policy.

Page 46: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Pros

• Revenue from normally uninsurable crops is insurable

• Encourages enterprise diversification• No higher rate on high-risk land • Can use prices significantly higher than what

RMA assigns• Possible higher government subsidies

Page 47: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Cons

• Any loss payment cannot be calculated until after tax time the next spring.

• Livestock limitations:– Selling culls is not an expected revenue– $1 million in revenue– If you didn’t purchase the WFRP prior to

December 31st, you must use the price you have already sold for

Page 48: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

How do I buy crop insurance?

• Purchase through a Crop Insurance Agent:– The agent locator tool on RMA’s website:http://www.rma.usda.gov/tools/agent.html

Page 49: Revenue Protection How A New USDA Risk Management Tool Can Help Diversified Producers Whole Farm

Thank you!

QUESTIONS?