RMA Crop Production and Revenue Insurance Products Lesson Overview In this lesson, we will learn about: Wyoming acres of annually-planted crops, and acres insured Multiple Peril Crop Insurance Catastrophic Risk Protection (CAT) Crop Revenue Insurance (CRC) Group Risk Plan (GRP) Group Risk Income Protection (GRIP) Forage Insurance Seed and Specialty Crop Insurance Alfalfa Seed Protection Insurance Nursery Crop Insurance Adjusted Gross Revenue-Lite (AGR-Lite) Speaker Notes: Now let’s discuss Adjusted Gross Revenue-Lite, or AGR-Lite.

RMA Crop Production and Revenue Insurance Products Adjusted Gross Revenue-Lite Overview Purpose Underlying AGR-Lite Concept Geographic Coverage Losses of Revenue Covered How AGR-Lite May Be Used Some Basic Characteristics of AGR-Lite Speaker Notes: AGR-Lite is a federally-subsidized, whole-farm revenue insurance plan designed to protect against low revenue due to losses in production and declines in product quality and price. Purpose: Adjusted Gross Revenue-Lite, commonly referenced as “AGR-Lite,” is a federally-subsidized whole-farm revenue insurance plan. Its purpose is to protect against low revenue due to losses in production and declines in product quality and price. Specifically, the plan provides protection against low revenue due to production losses attributable to unavoidable natural disasters and market fluctuations that influence farm revenue during the insurance year. AGR-Lite covers gross revenues generated from most farm-raised crop commodities, animal commodities and (unaltered) animal products such as milk and wool. Underlying AGR-Lite Concept: This is an individual farm plan that uses a producer's five-year historical average farm adjusted gross income, as reported on IRS income tax forms and an Annual Farm Report to provide a revenue guarantee for the insurance year. The plan uses one insurance product to cover multiple agricultural commodities. Revenue is the common denominator for all insurable agricultural commodities. Geographic Coverage: AGR-Lite is available in all Wyoming counties excluding Yellowstone National Park and wilderness areas in the northwest counties. Wyoming has three risk regions. Region 3 includes Park, Big Horn, Hot Springs, Washakie, and Fremont counties. Region 6 includes Platte, Goshen, and Laramie counties. All other Wyoming counties are in Region 4. (There are no regions 1,2, and 5 in Wyoming). Producers may obtain a listing of insurable agricultural commodities in each of these regions for crop insurance agents. For more information, see: http://www.rma.usda.gov **Notes continued on next page

RMA Crop Production and Revenue Insurance Products Adjusted Gross Revenue-Lite Overview Purpose Underlying AGR-Lite Concept Geographic Coverage Losses of Revenue Covered How AGR-Lite May Be Used Some Basic Characteristics of AGR-Lite Speaker Notes: (notes continued from previous) Losses of Revenue Covered: AGR-Lite protects against loss of revenue due to most unavoidable natural occurrences, including but not limited to adverse weather, fire, insects, disease, wildlife, earthquakes, volcanic eruption or failure of irrigation supply that causes loss of production. The plan also compensates for revenue losses due to market fluctuations and discounts in commodity prices due to diminished quality attributable to insurable causes of loss. How AGR-Lite May be Used: AGR-Lite may be used as a stand alone policy. The insurance product may also be used as an umbrella plan over select other Risk Management Agency plans, especially multiple peril plans based on individual producers’ actual crop production histories and livestock insurance plans that address price risk. Some Basic Characteristics of AGR-Lite: This insurance plan is driven by a producer's Adjusted Gross Revenue established from historical IRS income tax forms, Schedule F or equivalent. Excluded from revenue reported for income tax purposes to derive the allowable income for specifying Adjusted Gross Revenue are: cooperative distributions not tied to commodities insured, agricultural program payments, crop insurance and federal disaster program payments, custom hire income and income attributable to post-harvest “value added” activities. Allowable expenses are also determined from a producer's historical IRS tax forms. Excluded from expenses reported for income tax purposes to derive allowable expenses are depreciation costs (except for animals), employee benefits including pensions and profit sharing, interest costs, rents paid, and post-harvest costs including those associated with “value added” production.

RMA Crop Production and Revenue Insurance Products Making Application for AGR-Lite Insurance year 2007 is the first year AGR-Lite is available to Wyoming producers Producers should work closely with their crop insurance agents to provide information to initiate coverage Speaker Notes: This is the first year AGR-Lite is available to Wyoming producers. Producers should work closely with insurance agents to provide information to initiate coverage.

RMA Crop Production and Revenue Insurance Products Summarizing Historical Revenue and Expense Information Producers will need to provide five years of income and expense information from their IRS tax returns and certify that such information is accurately reported Producers will work with their crop insurance agents to complete the AGR-Lite Histories Worksheet that summarizes allowable income and allowable expenses Speaker Notes: Producers will provide five years of income expense information from their IRS tax returns, Schedule F or equivalent, and “certify” that such information is accurately reported Producers will work with their crop insurance agents to complete the AGR-Lite Histories Worksheet that summarizes allowable income and allowable expenses by excluding from tax-reported information those revenue and expense items not allowed under AGR-Lite (by referencing excluded income and expense categories listed on the Basic Characteristics of AGR-Lite page).

RMA Crop Production and Revenue Insurance Products Insurance Year Expectations Producers will work with crop insurance agents to report for the insurance year the acres (head, etc.) of each commodity to be produced, expected production, expected price per unit of production and value of expected production for each commodity This information will be entered on the Annual Farm Report and values of expected production will be summed to provide total expected income When total expected income differs appreciably from the historical five-year adjusted gross income, producers will work with their crop insurance agents and make adjustments in gross income and index historical allowable expenses to make expenses commensurate with total income expectations Speaker Notes: Producers will report for the insurance year the acres (head, etc.) of each commodity to be produced, expected production, expected price per unit of production, and value of expected production for each commodity. This information will be entered on the Annual Farm Report and values of expected production will be summed to provide total expected income. Adjustments in gross income and allowable expenses may need to be made in some years where total expected income or expenses differ substantially from historical averages.

RMA Crop Production and Revenue Insurance Products Insurance Year Expectations (Contd.) Producers selecting higher levels of coverage will be expected to provide detailed commodity profiles for the two years prior to the insurance year denoting crop and livestock commodities produced, including field locations and yield, markets used and percent of sales by market type, and notes about production practices such as irrigated or certified organic, etc. These detailed profiles are summarized on an Agricultural Commodity Profile Speaker Notes: Producers selecting higher levels of coverage will be expected to provide detailed commodity profiles on an Agricultural Commodity Profile for the two years prior to the insurance year.

RMA Crop Production and Revenue Insurance Products Producer Decisions under AGR-Lite: The Loss Inception Point or Trigger Level, which determines when indemnity payments begin, is calculated as: Speaker Notes: Approved AGR is the adjusted gross revenue calculated from information submitted on the AGR Histories Calculation Worksheet, adjusted for any expected increase or reduction in allowable income. Producers may select the 65, 75, or 80% coverage level of their Approved AGR, partially contingent on the number of commodities included. For instance, a producer must have three commodities to select the 80% coverage level. The Loss Inception Point referred to as Trigger Level in premium calculations determines when insurance payments will be made and is calculated as: Approved AGR*coverage percentage level= Trigger Level Trigger Level = Approved AGR x coverage percent level

RMA Crop Production and Revenue Insurance Products Producers Decisions under AGR-Lite (Cont.) A producer must also select a payment rate, 75 to 90 percent The payment rate will determine how much the producer will be paid for each dollar of adjusted gross revenue lost under the loss inception point or trigger level The maximum dollar liability is referred to as AGR Liability or Coverage Specifically, Coverage = Approved AGR x coverage level percent x payment rate percent A producer selects one coverage level percent/payment rate percent combination to cover all commodities Coverage level percent and payment rate percent alternative for producers, available by number of commodities, are listed in the table to the right Speaker Notes: A producer must also select a 75 or 90% payment rate that determines how much the producer will be paid for each dollar of adjusted gross revenue lost under the loss inception point or trigger level. The insurance liability is the AGR Liability and is referred to as Coverage in premium calculations. It may be calculated as: Coverage= Approved AGR* coverage level percent* payment rate percent. A producer selects one coverage level percent/payment rate percent combination to cover all commodities included in the AGR-Lite coverage.

RMA Crop Production and Revenue Insurance Products AGR-Lite Example Let’s take a look at an example Speaker Notes: Let’s take a look at an example. John’s farm is located in Platte County where he produces one commodity- irrigated barley. Working with his crop insurance agent, John established an Approved AGR of $130,000. His approved expenses were $100,000. John selected a 65% coverage level and a 75% payment rate. His calculated Trigger Level is $84,500, which is $130,000 ties .65. In the AGR-Lite policy this value is referred to as the “Loss Inception Point.” His Coverage is $63,375 or $84,500 times .75. In the AGR-Lite policy, this value is referred to as the “AGR-Liability.” Note that under AGR-Lite insurance the maximum liability is limited to $1,000,000. * Under AGR-Lite insurance the maximum liability is limited to $1,000,000

RMA Crop Production and Revenue Insurance Products AGR-Lite Indemnity Process When producers realize that a shortfall is likely in allowable income below their Loss Inception Point or Trigger Level, they should notify their crop insurance agent. Guidance will be provided for documenting an actual loss. When an actual loss is incurred, a producer must submit an Actual Commodity Report. For each commodity covered the producer records acres (head) produced and harvested, total production of each commodity, price per unit of product, and the total value of each commodity. Total values are summed to provide Total Income. Additionally, the producer must submit income tax forms (Schedule F or equivalent) for each of the previous five years and for the current year when it become available. Speaker Notes: When producers realize that there is a likely shortfall in allowable income, they should notify their crop insurance agents for guidance in documenting an actual loss. When an actual loss occurs a producer must submit an Actual Commodity Report that records for each commodity acres (head) produced and harvested, total production of each commodity, price per unit of product, and the total values are summed to provide Total Income. At this point the producer must submit income tax forms for each of the previous five years and the current year when such becomes available.

RMA Crop Production and Revenue Insurance Products AGR-Lite Indemnity Process (Cont.) AGR-Lite Indemnity Process Actual expenses are determined from income tax forms If insurance year actual expenses are below 70 percent of their five-year average, the approved AGR will be reduced by 0.1 percent for each 0.1 percent the actual expenses are below 70 percent of allowable expenses With revenue and expense information for the insurance year considered, a Revenue Guarantee may be calculated as: Trigger Level = Adjusted AGR (for expense reductions) x coverage level percent Speaker Notes: Actual expenses are determined from income tax forms. If actual expenses fall below 70% of their five-year average, the Approved AGR is reduced by .1% for each .1% the actual expenses are below 70% of allowable expenses. A Revenue Guarantee is calculated as: Trigger Level= Adjusted AGR (for expense reductions)* coverage level percent. In the AGR-Lite policy this value, unadjusted, is referred to as the “Loss Inception Point.”

RMA Crop Production and Revenue Insurance Products AGR-Lite Indemnity Process (Cont.) Before any indemnity calculation is made the Trigger Level is reduced by Revenue to Count that includes allowable income from the sale of covered commodities, changes in inventory and accounts receivable balances plus crop insurance indemnities, NAP payments, any income lost due to non-insured causes, and net gains from commodity hedging Then the Revenue Deficiency may be calculated as: Revenue Deficiency = Trigger Level – Adjusted Revenue to Count Finally, the indemnity is calculated as: Indemnity = Revenue Deficiency x Payment Rate Percent Speaker Notes: Before an indemnity calculation is made the Trigger Level is reduced by Revenue to Count that includes allowable income from the sale of covered commodities, changes in inventory and accounts receivable balances plus crop insurance indemnities, NAP payments, any income lost due to non-insured causes, and net gains from commodity hedging. Then a Revenue Deficiency is calculated as: Revenue Deficiency= Trigger Level- Adjusted Revenue to Count. Then the indemnity is calculated as: Indemnity= Revenue Deficiency * payment rate percent.

RMA Crop Production and Revenue Insurance Products AGR-Lite: Exercise Due to adverse weather conditions mid-season, John realized only $25,000 in allowable income from the harvest and sale of the undamaged portion of his barely crop. He had no adjustments to make to revenue to count, so it remained at $25,000. Because John did not incur some of his usual production and harvest costs, his actual expenses were only $68,000. Will John receive an insurance indemnity for his loss in adjusted gross income? Speaker Notes: Due to an adverse weather conditions midseason, John realized only $25,000 in allowable income from the harvest and sale of the undamaged portion of his barley crop. He had no adjustments to make to revenue to count, so it remained at $25,000. Because John did not incur some of his usual production and harvest costs, his actual expenses were only $68,000. The question is will John receive an insurance indemnity for his loss in adjusted gross income. And the answer is yes because he as a revenue deficiency.

RMA Crop Production and Revenue Insurance Products Calculations: 1. Approved AGR = $130,000 2. Expense Adjustments: $68,000/$100,000 = 0.68 0.70 - 0.68 = 0.02 $130,000 x 0.02 = $2,600 Adjusted AGR = $130,000 - $2,600 = $127,400 3. Trigger Level = $127,400 x 0.65 = $82,810 4. Revenue Deficiency = $82,810 - $25,000 = $57,810 5. Indemnity = $57,810 x 0.75 = $43,358 Speaker Notes: Yes, John will receive an indemnity because there is a revenue deficiency. Looking at the calculations, the Approved AGR was $130,000. But because he had actual expenses of only $68,000, his Approved AGR was adjusted downward 2 percent to determine the Trigger Level. As the revenue to count was only $25,000, he had a Revenue Deficiency of $57,810 which was indemnified at 75 percent. Where John selected the 75 percent payment rate, this resulted in an indemnity payment of $43,358. Note that John would need to file his IRS income tax information for the insurance year and the previous five years before any payment can be made.

RMA Crop Production and Revenue Insurance Products AGR-Lite Premiums The premiums for AGR-Lite are based on a producer’s Coverage As previously explained Coverage = Approved AGR x coverage level percent x payment rate percent When a producer uses AGR-Lite as an umbrella policy, the multiple peril crop insurance liabilities associated with individual crops may be subtracted from the Coverage, up to a limit of 50 percent of Coverage The revised liability is considered the Premium Liability Speaker Notes: The premium for AGR-Lite is based on a producer’s Coverage. To reiterate, Coverage = Approved AGR* coverage level percent * payment rate percent. When a producer uses AGR-Lite as an umbrella policy, the multiple peril crop insurance liabilities associated with individual crops may be subtracted from the Coverage, up to a limit of 50% of Coverage. The revised liability is the Premium Liability.

RMA Crop Production and Revenue Insurance Products AGR-Lite Premiums The premium calculations are as follows: Total Premium = Premium Liability x AGR Rate Subsidy = Total Premium x Subsidy Factor Producer Premium = Total Premium – Subsidy The AGR Rate is calculated from diversification factors based on the number of commodities contributing to the Approved AGR and the individual commodity ratings weighted by their proportions of the Approved AGR Premiums for the same crop vary by rating region, by crop within the same rating region, and by number of crops within the same rating region Premium subsidy rates vary by coverage level percentages: Speaker Notes: Premium calculations are the following: Total Premium= Premium Liability * AGR Rate Subsidy =Total Premium * Subsidy Factor Producer Premium= Total Premium- Subsidy The AGR Rate is calculated from diversification factors based on the number of commodities contributing to the Approved AGR and the individual commodity ratings weighted by their proportions of the Approved AGR. Premiums for the same crop vary by rating region, by crop within the same rating region, and by number of crops within the same region. Premium subsidy rates are 59, 55, and 48% for the 65,75, and 80% coverage, respectively.

RMA Crop Production and Revenue Insurance Products AGR-Lite Premiums John, who farms in Platte County, had $130,000 Approved AGR which was all irrigated barley covered under AGR-Lite at the 65 percent coverage level and the 75 percent payment rate to provide a Premium Liability of $63,375 In other words, it has cost John $2,391 to assure a minimum adjusted gross revenue of $63,375 Speaker Notes: John, who farms in Platte County, had a $130,000 Approved AGR, all irrigated barley allowable income, insured at the 65% coverage level and the 75% payment rate to provide a Premium Liability of $63,375. At a 9.2% premium rate, the Total Premium was $5,831, the Subsidy was $3,440 and the Producer Premium was $2,391. John’s premium cost is $2,391 to assure a minimum gross revenue of $63,375. He also incurs a $30 administrative fee annually.

RMA Crop Production and Revenue Insurance Products AGR-Lite: Summary In this topic, you have learned: AGR-Lite provides for a guaranteed adjusted gross revenue for an entire farm or ranch AGR-Lite is available in all Wyoming counties by three risk regions AGR-Lite allows for the inclusion in adjusted gross revenue most farm and ranch grown crop and animal commodities and unaltered animal products such as milk and wool Specific commodities by risk region that may be included in adjusted gross revenue are available from crop insurance agents or from the Risk Management Agency web site at: http://www.rma.usda.gov Speaker Notes: In this topic, you have learned that AGR-Lite provides for a guaranteed adjusted gross revenue for an entire farm or ranch. AGR-Lite is available in all Wyoming counties by three risk regions. AGR-Lite allows for the inclusion in adjusted gross revenue most farm or ranch grown crop and animal commodities and unaltered animal products such as milk and wool. Specific commodities by risk region that may be included in adjusted gross revenue are available from crop insurance agents or from the RMA web site listed on the slide.