2. 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)

3. 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

4. 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

5. 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

6. 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

7. Insurance Year Expectations RMA Crop Production and Revenue Insurance Products 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

8. Insurance Year Expectations (Contd.) RMA Crop Production and Revenue Insurance Products 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

9. Trigger Level = Approved AGR x coverage percent level 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:

10. 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

11. AGR-Lite Example Let’s take a look at an example * Under AGR-Lite insurance the maximum liability is limited to $1,000,000 RMA Crop Production and Revenue Insurance Products

12. 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.

13. 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

14. RMA Crop Production and Revenue Insurance Products AGR-Lite Indemnity Process (Contd) 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

15. 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?

16. 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

17. 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

18. 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:

19. 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

20. 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 http://www.rma.usda.gov