Neibergs and Jon Paul Driver Western Center For Risk Management Education Forage Risk Management Disclaimer This information is provided for training only Any discrepancy between the training material and the policy is not intended The information provided in this training does not superse ID: 479291
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J. Shannon Neibergs and Jon Paul DriverWestern Center For Risk Management Education
Forage Risk Management
Disclaimer: This information is provided for training only. Any discrepancy between the training material and the policy is not intended. The information provided in this training does not supersede policy and procedure.
USDA RMA Risk Management Education Partnership 53102-005Slide2
Presentation overview
Forage producers often become complacent when they hear the term risk managementMisunderstanding the terms risk and uncertainty
Complacency in evaluating risk outlookThinking that risk management is limited to futures, options and forward contracting and that there are limited management actions for forage producers
Thinking crop insurance isn’t available for forage productionLack of trust in programsRisk management contains a number of levelsSources of risk
Risk bearing ability and attitudesTools for managing riskSlide3
Risk and Uncertainty
RiskRisk is present when future evens occur with measurable probability
For example your individual farm/field forage yieldPriceCar insuranceThe larger the error of measurement the larger the risk
The larger the impact on farm revenue the greater the riskManagement actions can be made to mitigate riskUncertainty
Indefinite, indeterminate, and occurs so infrequently that an numeric estimate of its occurrence can not be made so there is no specific management tools that can be implemented.
Uncertainty
RiskSlide4
The difference between risk and uncertainty is not just semantics
Uncertainty
Risk
Guard Dog
On Duty
Source: Kauffman, N. When Uncertainty Turns to Risk in Ag. FinanceSlide5
The degree of risk also matters
Uncertainty
Risk
Guard Dog
On Duty
Source: Kauffman, N. When Uncertainty Turns to Risk in Ag. FinanceSlide6
The risk in U.S. agriculture has increased
Source: Kauffman, N. When Uncertainty Turns to Risk in Ag. FinanceSlide7
Washington Alfalfa Price - MonthlySlide8
U.S. $ Exchange RateSlide9
Farm debt is increasing
Source: Kauffman, N. Agricultural Finance Databook Federal
Reserve Bank of Kansas CitySlide10
Attitude toward risk
Two alternatives to manage risk
Self Insure
Adequate financial capacity
Operating loan
“Hedge” risk
Implement management action
Purchase insuranceSlide11
Attitude toward risk
Two alternatives to manage risk
Self Insure
Adequate financial capacity
Operating loan
“Hedge” risk
Implement management action
Purchase insurance
What’s available
Will it work on my operation
What is the expected net cash flowSlide12
Agencies USDA RMA – Risk Management Agency
Operates and manages the Federal Crop Insurance Corporation Insurance s
old by 15 private-sector insurance companiesFSA – Farm Service Agency Local
Administration of Federal Farm ProgramsSlide13
New and Expanded CoverageForage Production Insurance (Expanded)(RMA)
Whole Farm Revenue Protection Pilot (New
)(RMA)Pasture, Rangeland and Forage Pilot – Rainfall Index (Expanded)(RMA)NAP Buy-up (New) (Farm Service Agency)Slide14
Forage Production Insurance
What is it: Yield insurance at a specified price
Where is it available:Select counties ID, OR, WA
WA: Pend Oreille, Spokane, Stevens or by requesting coverage by written agreementWhen do you have to purchase by:
For 2016 sales closing September 30, 2015Slide15
Forage Production Insurance
What yield: Actual Production HistoryYield established by farm records
Certified scale weights with descriptive recordsPre-harvest appraisal with descriptive records
What price:Specified prior to sales closing (Sept. 30)Slide16
Forage Production Insurance
Coverage level (of APH):
Insurance premium (cost):
Depends on coverage level and the percent of the specified price you elect to insureAsk crop insurance agentSlide17
RMA Premium Calculator
https://ewebapp.rma.usda.gov/apps/costestimator/Estimates/QuickEstimate.aspxSlide18
Forage Production Insurance
Loss ExampleAssume a 75% coverage level, a 100 percent price election of $230/ton, a APH yield of 4 tons per acre and an actual yield of 2.5 tons per acre.Slide19
Causes of LossAdverse Weather
Hail, Frost, Freeze, Drought, Excess MoistureFailure of Irrigation Water SupplyIf Caused by Insured Peril That Occurs During the Insurance Period
Volcanic EruptionInsects and DiseaseMust Have Used Proper and Sufficient Control Measures Slide20
Historical AnalysisSlide21
WHAT ABOUT QUALITY ?!?!?
Whole Farm Revenue !!!!Slide22
Whole Farm Revenue Protection
What is it: Revenue insurance
Insure Schedule F farm revenue (historic 5 years)Exemptions for beginning farmers
Where is it available:All counties in all 50 states
When do you have to purchase by:County specific - multiple closing datesTalk to your crop insurance agentSlide23
Whole Farm Revenue Protection
Covered losses: Revenue loss
Replanting coverage lossCoverage levels:
50 to 85% of revenueSlide24
Whole Farm Revenue Protection
Premium cost:
Elect to cover 50 to 85% of revenueDepends on number of qualifying crops grownSlide25
RMA Premium Calculator
https://ewebapp.rma.usda.gov/apps/costestimator/Estimates/QuickEstimate.aspxSlide26
Record Keeping5 Years of Schedule F (Or Equivalent tax records)
Written Farm PlanHistorical Records
Inventories, Accounts Receivable or Accounts PayableSummaries of Coverage for Other Insurance PoliciesSlide27
Program Restrictions
Livestock Or NurseryOver $1 Million in Annual Sales, 35% of revenue
PotatoesMust Have at least 2 Crops Based on Commodity Count Calculation
Note - the Qualifying Crops are quite diverseOver $17 Million in Total Revenue or $8.5 Million in CoverageSlide28
Historical AnalysisDifferent For EVERY Farm
Note Insuring Revenue Not
Net IncomeSubsidy and overall farm coverage makes this program attractiveSlide29
Pasture, Rangeland and Forage Pilot (PRF)
What is it:
Updated RMA Insurance Program Against DroughtHedge on precipitation measured by National Oceanic and Atmospheric Administration (NOAA) grid rainfall index
“Insurance protection for losses of forage produced for grazing or harvested for hay” – qualifies you to purchase the insurance productInsuring the rainfall index in a grid
No Record Keeping Requirements
Available in 48 statesSlide30
Pasture, Rangeland and Forage Pilot (PRF)
What is
a grid: About 17x17 miles (0.25 degrees Lat. and Long.)Grid locator toolhttp://maps.agforceusa.com/prf/ri/Slide31Slide32
Pasture, Rangeland and Forage Pilot (PRF)
What
am I insuring: Payment trigger is precipitation below the elected coverage level of your grid rainfall indexInsure only the acres you choose
Select a productivity factor to establish a value between 60% to 150% of the county base valueMatch mount of protection to the value of forage of your specific hay operationSlide33
Pasture, Rangeland and Forage Pilot (PRF)
Coverage Periods:
Must insure TWO bi-monthly periods
January – February
February - March
March – April
April – MayMay - June
June – July
July – August
August – September
September – October
October
– November
November - DecemberSlide34
Noninsured Crop Disaster Assistance Program (NAP)
What is it:
The NAP was reauthorized by the 2014 Farm BillAdministered by USDA FSACovers crops that do NOT have a USDA RMA insurance programHay growers have USDA RMA forage production insurance and PRF but some forage crops may be eligibleSlide35
Noninsured Crop Disaster Assistance Program (NAP)
What does it cover:
Loss from natural disaster Drought, hail, freeze, wind,
etc.NAP provides catastrophic coverage of loss that exceeds 50% of expected production at 55% of average market priceAdditional coverage buy up is available ranging from 50% to 65% of production at 100% of market priceSlide36
Noninsured Crop Disaster Assistance Program (NAP)
What does it cost:
Service fee + premium Fees capped at maximums
Beginning, limited resource and traditionally underserved farmes are eligible for a waiver of the service fee and a 50% premium reduction
Potential for eligible crops to get natural disaster coverage at low costSlide37
Review - When to Buy
Sales Closing DatesForage Production Insurance
September 30thWhole Farm Revenue Protection PilotMarch 15
thPasture, Rangeland, and ForageNovember 15th
NAPRefer to FSA office for application closing date Slide38
Review - Where to Buy – Get more informationSlide39
Thank you
sneibergs@wsu.edu 509 335 6360http://ses.wsu.edu/extension/livestock_marketing
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