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Ag Land ManagementCrop Insurance

• Crop Protection Options

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Ag Land ManagementCrop Insurance

• The explanations and examples in this
  presentation reflect the general concept of
  insuring crops.
• However, the information given does not cover
  every
• situation and is not intended to replace current
  professional advice.

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Causes of Insurable Losses
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Ag Land ManagementCrop Insurance

• 3 Elements of Crop Protection
• Federal Crop Insurance Program
• -Public/private partnership
• Crop Hail Insurance
• -Private sector
• Named Peril/APH Plan Add-ons
• -Private sector

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Ag Land ManagementCrop Insurance

• Crop hail insurance
• Fully private unsubsidized, no expense to
  taxpayers
• A risk management tool dating back to late 1800s
• Covers additional perils such as fire, vandalism
  and storage
• Variety of policy forms

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Ag Land ManagementCrop Insurance

• Federal Crop Insurance
• Created in 1938
• -Minor participation prior to 1981
• -Low coverage available
• -No direct government subsidy
• -No private sector involvement
• -Poor ag safety net
• -Producers relied on disaster assistance

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Ag Land ManagementCrop Insurance

• Crop Insurance Act of 1980
• Introduced public/private partnership
• Created foundation of program we have today
• Companies deliver program efficiently
• Multiple Peril Crop Insurance introduced (MPCI)
• Direct premium subsidy and higher coverage levels

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Ag Land ManagementCrop Insurance

• Crop Insurance Reform Act of 1994
• Mandatory participation in the crop insurance
  program
• Catastrophic (CAT) coverage was created.
  Compensated farmers for losses exceeding 50 of
  an average yield paid at 60 of the price
• Premium for CAT was completely subsidized
• Subsidies for higher coverage levels were
  increased

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Ag Land ManagementCrop Insurance

• Agricultural Risk Protection Act ARPA 2000
• Increased premium subsidy higher levels of
  coverage
• Significant increased participation

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Ag Land ManagementCrop Insurance

• Crop Insurance Program Models
• Yield Guarantee products
• a. Individual (APH, GYC, Peanuts, DOL-Citrus
  fruit)
• b. Group (GRP)
• c. Fixed Yield (Hybrid Corn Hybrid Sorghum
  Seed)
• Revenue Guarantee products
• a. Individual (AGR, CRC, IP, RA)
• b. Group (GRIP)
• c. Fixed Revenue( Individual Fresh market
  vegetables)

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Ag Land ManagementCrop Insurance

• Types of multiple peril crop insurance
• Farm Level
• APH Plan (includes CAT coverage)
• Crop Revenue Coverage (CRC)
• Income Protection (IP)
• Revenue Assurance (RA)
• County Level
• Group Risk Protection (GRP)
• Group Risk Income Protection (GRIP)

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Ag Land ManagementCrop Insurance

• Actual Production History (APH) Coverage
• Insurance yield is based on the farmers own
  yield history
• Provides coverage of 50,55,60,65,70 and 85 of
  the APH (only 75 in some cases)
• Allows up to 100 of the market price

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Ag Land ManagementCrop Insurance

• Actual Production History (APH) Coverage
• Losses Covered
• Adverse Weather (frost, heat, drought, hail,
  freeze, etc.)
• Fire, limited to natural causes
• Insects and Disease
• Wildlife
• Earthquake/Volcanic Eruption
• Failure of Irrigation Water Supply

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Ag Land ManagementCrop Insurance

• Actual Production History (APH) Coverage
• Not Covered
• Negligence, wrongdoing
• Poor management and farming practices
• Failure or breakdown of irrigation equipment or
  facilities
• Fire from man made causes, combines, trucks, etc

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Ag Land ManagementCrop Insurance

• Actual Production History (APH) Coverage
• Calculations
• Yield guarantee APH coverage level
• Premium/acre yield guarantee premium rate
  price election
• Note
• CAT program costs 100/crop/county for a 50
  yield guarantee and a 55 price election.
• APH Plan has a 30/crop administrative fee.

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Ag Land ManagementCrop Insurance

• Actual Production History (APH) Coverage
• If actual yield is less than the yield guarantee
• Indemnity payment
• (yield guarantee actual production) price
  election
• If actual yield is equal to or greater than the
  yield guarantee
• Indemnity payment 0

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Ag Land ManagementCrop Insurance

• Catastrophic Yield Coverage
• 50 yield coverage
• Losses are paid at 55 of MPCI indemnity price
• Optional units are not permitted
• 100 / crop / county

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Ag Land ManagementCrop Insurance

• How much coverage can I buy
• There are two decisions that determine the amount
  of protection obtained from APH Plan
• the level of yield coverage chosen (50-85)
• the level of price election chosen (55-100)

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Ag Land ManagementCrop Insurance

• Unit structure
• Unit structure is an insurance coverage election
  which enables the farmer to combine crops or
  coverage purpose and is determined by crop and by
  county.
• It is possible to be hailed out on one unit and
  receive a loss payment, while other units on the
  same farm produce a record crop

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Ag Land ManagementCrop Insurance

• Crop Revenue Coverage
• Guarantees a minimum revenue by providing
  protection from -low yield -low price -or any
  combination of yield and price with revenue below
  the
• insured level
• Protection automatically increases if market
  price increases between planting and harvest
  without any increase in premiums.

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Ag Land ManagementCrop Insurance

• CRC RA-HPO Terms
• APH yield same as APH Plan
• Final guarantee APH yield x coverage level
  percentage x the higher of either the projected
  harvest price or the actual harvest price
• Calculated revenue the producer's actual
  production value (harvested or appraised) times
  the actual harvest price (this is not the local
  market price)
• Indemnities due when the producer's calculated
  revenue is less than the final guarantee.

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Ag Land ManagementCrop Insurance

• CRC RA-HPO Features
• Harvest guarantee
• APH yield per acre x selected coverage
  percentage x actual harvest price
• Minimum guarantee
• APH yield x coverage percentage x projected
  harvest price
• Final guarantee
• higher of minimum guarantee or the harvest
  guarantee
• Indemnity payment
• Final guarantee less actual production value

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Ag Land ManagementCrop Insurance

• CRC RA-HPO Benefits
• Cash value protection allows for aggressive
  marketing strategies
• Provides upside and downside price protection
• Alternative to APH Plan
• Same subsidy as APH Plan

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Ag Land ManagementCrop Insurance

• CRC RA-HPO Benefits
• Base and Harvest Price established by using the
  national commodity exchanges
• Uses producers own Actual Production History in
  establishing guarantees on a unit basis
• Protects against perils of price and yield- no
  yield loss needed for indemnity

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Ag Land ManagementCrop Insurance

• Group Risk Plan (GRP)
• Coverage is based on expected county yields and
  actual county yields (Individuals yield not
  relevant)
• Trigger level based on of expected county
  yield
• Ranges from 70 to 90 of exp. yield

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Ag Land ManagementCrop Insurance

• Group Risk Plan (GRP) Indemnity
• Indemnity is paid only if county yield is below
  trigger yield
• Producer could have a disaster and county be near
  normal
• Producer could do well and get an indemnity if
  county is low

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Ag Land ManagementCrop Insurance

• Group Risk Plan (GRP)
• GRP might be your choice IF
• Your yields follow county yields
• You dont want to provide production records
• The cost of insuring your crops with APH exceeds
  perceived risks

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Ag Land ManagementCrop Insurance

• Group Risk Plan (GRP)
• Disadvantages
• Indemnity depends on NASS county average yield
• Your yields do not determine a loss
• Payment delayBased on NASS yields

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Ag Land ManagementCrop Insurance

• Group Risk Income Protection (GRIP)
• Based off the GRP concept
• Pays if actual county revenue drops below trigger
  revenue ( of projected county revenue)
• Projected and Actual County Revenue based on
  prices of Futures prior to Sales Closing and at
  harvest
• Harvest Revenue Option
• the higher of either the Projected or Actual
  County Revenue

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Ag Land ManagementCrop Insurance

• Insurance Protection Benefits
• Insures your assets
• Guaranteed income in the event of a crop loss
• Premium subsidized by government
• Uses your own farm yield history to establish
  guarantees
• Loan collateral improves borrowing power
• Protects your investment
• Preserves your savings
• Invests in the future of your farm
• Cash Flow Protection

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Ag Land ManagementCrop Insurance

• Insurance Protection Benefits
• Ensures a minimum level of cash flow
• Provides collateral for operating loans
• Allows more flexibility in marketing plans
• Adds confidence when following planned strategies
• Provides stability for long-term business plans
  and family security
• USDA shares in the premium costs

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Ag Land ManagementCrop Insurance

• Summary
• High input costs makes insurance protection
  essential
• Many and ever changing options
• Consult a professional advisor
• Compare options based on risk reward

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Production Risk

• Weather
• Disease
• Insects
• Weeds
• Genetics

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Production Risk

• Stable enterprises
• Diversification enterprises
• Diversification leases
• Input selection
• Scouting
• Crop insurance

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Price/Market Risk

• Commodity prices
• Market availability
• Input prices

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Price/Market Risk

• Marketing strategies contracts, hedging,
  options
• Timing
• Volume discounts
• Cash discounts
• Expand market

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Financial Risk

• Interest rates
• Ability to borrow capital
• Ability to repay debt

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Financial Risk

• Fixed interest rates
• Credit reserves
• Equity
• Record keeping
• Budgeting

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Legal/Regulatory Risk

• Liability
• Nuisance
• Use of hazardous/restrictive use materials

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Legal/Regulatory Risk

• Liability insurance
• Business structure
• Proper management practices

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Personal Risk

• Health/death/disability
• Loss of key employees
• Family disputes/divorce

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Personal Risk

• Health/life/disability insurance
• Backup management plans
• Communication