DISCLAIMER The purpose of the following material is to promote the awareness of risk management concepts and to highlight USDA’s 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.

Today’s Objectives  Sources of Production Risk when Alternative Actions/Plans are Taken  Various Production Risks Management Strategies  Specific Focus: Crop Insurance Programs

Review and Answer the ‘Questions to Consider’ Blocks at the end of each section.

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

 Enterprise Diversification  Capital Investments Irrigation Drainage Machinery  Landlord / Tenant Relationship  Contract Production Sources of Production Risk

Production Risk Strategy Programs  CROP INSURANCE USDA subsidized insurance programs provide farm producers and owners various methods to lower production yield and revenue risks.

USDA's RISK MANAGEMENT PROGRAMS/PRODUCTS

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)

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)

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)

YIELD / PRODUCTION RISK CROP INSURANCE COVERAGE PROGRAMS

Multi-Peril Crop Insurance (MPCI)  Yield Guarantee  Units  Contract Changes  Reporting of Insured Acreage  Reporting Crop Damage  Reporting of Production Records

Proving Yields Actual Production History (APH) is a simple average of 4-10 years of actual yields, based on a producer’s 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 county’s average yield determined by USDA’s National Agricultural Statistics Service (NASS).

The Reason to Prove Yields When using ‘T’ yields, a significant loss would have to occur before an indemnity would be paid.

Providing Production Evidence YEAR YIELD YIELD 90No recordsNo records 91No recordsNo records 92No recordsNo records 93No records80 Bu. Actual Yld 94No records72 Bu. Actual Yld 9548 Bu. T Yld81 Bu. Actual Yld 9648 Bu. T Yld76 Bu. Actual Yld 9748 Bu. T Yld78 Bu. Actual Yld 9880 Bu. Actual Yld80 Bu. Actual Yld 224 Total Bu. Divided by 4 years = 56 Bu. 467 Total Bu. Divided by 6 years = 78 Bu.

Assume:80 BU Average Wheat Yield 60 BU 'T' Yield 3.30 Expected Market Price (MPCI PE) Yields Not Provided/Certified:65% 'T' = 39 BU 75% LEVEL:75% X 39 BU = 29 BU 29 BU X $3.30 = $96.53/ac Yields Provided/Certified: 75% LEVEL:75 % X 80 BU = 60 BU 60 BU X $3.30 = $198/ac Proving Your Yields PAYS DIVIDENDS !! Benefits of Actual/Certified Yields

 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. 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 year’s 60%). 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 Multi-Peril Crop Insurance (MPCI)

Additional Production Risk Tools  Group Risk Plan (GRP)  Named-Peril Protection Program (Hail, Fire, Flood)  Non-Insured Assistance Program (NAP)

YIELD / PRODUCTION and REVENUE RISK CROP INSURANCE COVERAGE PROGRAMS

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)

IP protects against reductions in gross income when yields or prices fall. INCOME PROTECTION (IP)

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.

 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 Crop Revenue Coverage (CRC)

CROP INSURANCE COMPARISON CHART Side-by-Side WHEAT Insurance Program Comparisons: MPCI Income Protection Crop Revenue Coverage

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

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

Multi-Peril Crop Insurance (MPCI) Calculation Eastern Washington Wheat Farm

MPCI Premium Calculation APH Yield is 62 Bushel = 46.5 Bushel/Acre Guarantee Price Election is $3.30 $ Insurance Coverage per Acre $4.33 Producer’s Premium Per Acre 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 $ Insurance Coverage per Acre + Winter Damage Coverage $7.08 Producer’s Premium Per Acre MPCI Premium Calculation Assume:MPCI Insurance Policy - Non-Irrigated Winter Wheat - WITH Winter Wheat Option B Basic Unit Discount - 75%Coverage Level

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

Crop Revenue Coverage (CRC) Insurance Calculation Eastern Washington Wheat Farm

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 $ Insurance Coverage per Acre $8.35 Producer’s Premium Per Acre Crop Revenue Coverage (CRC) Insurance Calculation

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 $ Insurance Coverage per Acre + Winter Damage Coverage $13.63 Producer’s Premium Per Acre

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: $ Guarantee - $105/Acre Income = $53.10 Acre 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: $ Guarantee - $129.50/Acre Income = $42.55 Acre Indemnity Crop Revenue Coverage Insurance Indemnity

Income Protection (IP) Crop Insurance Calculation Eastern Washington Wheat Farm

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 $ Insurance Coverage per Acre $4.83 Producer’s Premium Per Acre

Income Protection Crop Insurance Indemnity Value of Production (Harvested) 35 Bu/Acre X $3.00 Harvest Price = $105/Acre Income Loss Payment: $ Guarantee - $105/Acre Income = $53.10 Acre 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

Income Protection Crop Insurance Indemnity Value of Production (Harvested) 35 Bu/Acre X $3.70 Harvest Price = $129.50/Acre Income Loss Payment: $ Guarantee - $129.50/Acre Income = $28.60 Acre 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

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

Adjusted Gross Revenue (AGR) Pilot Program AGR insurance plan is a non- traditional, whole farm risk management tool which uses a producer’s historic Schedule F tax form information as a base to provide a level of guaranteed revenue for the insurance period.

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.

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

Pacific Northwest Risk Management Education Project Managing Production Risks Developed by: USDA / Risk Management Agency Spokane Regional Office 112 North University, # 205 Spokane, Washington (509) (509) FAX Web Site: