2015 Executive Women in Agriculture Maximize your … Executive Women in Agriculture Maximize your 2016 Crop Insurance Decisions December 3-4, 2015 Chicago, IL - Jamie Wasemiller 141

2015 Executive Women in Agriculture Maximize your 2016 Crop Insurance Decisions

December 3-4, 2015 Chicago, IL

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Jamie Wasemiller 141 W. Jackson Blvd Suite 1201A Chicago, IL 60604 Cell: 707-365-0601 web: www.gulkegroup.com e-mail: [email protected]

Education and Implementation are Important Keys to Legacy Farms

Highway Bill The House of Representatives voted on the Highway Bill that

included the crop insurance language reversing the $3 billion cut contained in the Budget Bill. The vote was 359 in favor and 65 opposed.

The Senate voted last night at the bill passed 83 to 16.

Farm Bill Programs ARC and PLC payments on your ground was originally to be

determined based on which county the FSA office was in that administered your land and not where you ground was physically located.

That has been changed and will be retroactive for 2014 until early February, 2016.

APH Yield Exclusion If the RMA determines your county or a contiguous counties yield

was at least 50% below the simple average of the per acre planted acre yield for the crop for the previous 10 consecutive crop years that yield may be removed from your APH determination.

Must be elected by the producer!

Whole Farm Revenue Protection Authorized in the 2014 Farm Bill

Provides producers with risk management protection for all commodities on the farm under one insurance policy.

Provides protection against loss of Gross revenue that a producer expects to earn, including animals and animal products, during the insurance period.

Two previous products have become one; AGR & AGR-Lite into Whole Farm Revenue Protection.

WFRP Pilot Area

2015

WFRP Pilot Area

2016

For 2016 available in every State and county in the US

WFRP – Coverage is based on (lesser of);

1. The 5-year average of the entity’s Schedule F (on-farm historic average gross revenue using five consecutive tax years information

2. 2016’s expected revenue (the commodities the producer expects to earn revenue from during the current insurance period as reported on the Farm Operation Report)

WFRP – Losses are based on:

Whether the Allowable Revenue, (farm revenue the IRS requires to be reported on the farm tax records) from the production of commodities produced during the insurance year, falls below the Insured Revenue (the amount of revenue the farm operation is expected to earn during the insurance year times the coverage level chosen).

WFRP – Qualifications: Be eligible for Federal benefits

US citizen or resident

File either a Schedule F tax form or other tax forms that can be converted to a Substitute Schedule F

Have 5 consecutive years of farm tax history (10-14)

No CAT coverage on any crops if you purchase MPCI coverage as well

WFRP – Qualifications:

Have no more than $8.5 million in insured revenue based on level of insurance selected PER ENTITY.

If you have commodities that have MPCI available you must have at least 2 commodities that count

Each commodity must generate about 10% of the farms gross revenue to qualify

WFRP – Growing Operations:

Operations that have grown over time can increase their approved revenue amount based on an indexing procedure

WFRP – Coverage Thresholds: The farm operation will be ineligible for insurance under this policy if: Insured revenue > $8.5 million * (on the sales closing date)

Coverage Level

Commodity Count (Min required)

Max Farm Approved Revenue

85 3 $10,000,000

80 3 $10,625.000

75 1 $11,333,333

70 1 $12,142,857

65 1 $13,067,923

60 1 $14,166,167

55 1 $15,454,545

50 1 $17,000,000

RP – Subsidy Rate

WFRP – Subsidy Rates:

Coverage Level 50% 55% 60% 65% 70% 75% 80% 85%

Commodity Count: 1

67% 64% 64% 59% 59% 55% N/A N/A

Commodity Count: 2

80% 80% 80% 80% 80% 80% N/A N/A

Commodity Count: 3+

80% 80% 80% 80% 80% 80% 71% 56%

Coverage Level 50% 55% 60% 65% 70% 75% 80% 85%

Enterprise Unit 80% 80% 80% 80% 80% 77% 68% 53%

Optional Unit 67% 64% 64% 59% 59% 55% 48% 38%

WFRP – Important to consider…

Utilizing Whole Farm Revenue Protection IN ADDITION TO any other crop insurance policies you normally buy.

Claims are settled after taxes are filed You may want individual crop coverage WFRP does not have Prevented Planting Coverage Some producers receive huge benefits from TA Yield,

Yield Exclusion and other insurance products Cost of WFPR is subsidized even more If you have any CAT coverage on any crop you are

ineligible for WFRP

$4.15

Indexed vs. Non Indexed Coverage

RP

Price Discovery

Feb

$3.80 RP

Price Discovery

Oct

$3.35

WFRP

Focuses on actual Gross Revenue and not the one

month windows

Jan Mar Apr May June July Aug Sep Nov Dec

Provides Extra Harvest Rev. Protection.

Coverage Example

1000 / 175 BU / $4 BU 1000 / 50 BU / $9.50 BU

350 / 5 Tons / $300 Ton 75 / 900 BU / $8 BU

Expected Revenue $2,240,000

80% Coverage ($1,792,000)

71% Subsidy Level

PREMIUM $16,370

$6.75 / ACRE

Rate of 0.91%

Cov Level Liability Tot. Premium Subsidy % Pro. Premium Rate/[$] Prem/Acre

85% $1,904,000 $67,592 56% $29,740 1.56% $12.26

80% $1,792,000 $56,448 71% $16,370 0.91% $6.75

75% $1,680,000 $48,720 80% $9,744 0.58% $4.02

70% $1,568,000 $39,984 80% $7,996 0.51% $3.30

65% $1,456,000 $32,760 80% $6,552 0.45% $2.70

60% $1,344,000 $27,552 80% $5,510 0.41% $2.27

55% $1,232,000 $22,792 80% $4,558 0.37% $1.88

50% $1,120,000 $19,040 80% $3,808 0.34% $1.57

WFRP Historic Avg $2,300,000

Total Expected $2,240,000

MPCI Liability Total $998,750

# of All Commodities 4

Qualifying Threshold $185,920

WFRP Example Quote

Coverage Example

Coverage Example 2

Expected Revenue $5.5 Million

75% Coverage

PREMIUM $45,000

Coverage Example 3

Expected Revenue $425,000

80% Coverage

PREMIUM $3,500

Loss Example: 100/ 195 APH/ $4 Irrigated

100/ 100 APH/ $4 Dryland

100/ 65 APH / $8.50 Irrigated

100/ 35 APH / $8.50 Dryland

100 Live Cattle @ 1000lb $1.50 100 Feeders @ 400lb $1.80

Expected Crop Rev. $203,000 Expected Cattle Rev. $222,000

Total: $425,000

MPCI @ 75% Coverage = $152,250 or only about 35% of Expected Farm Revenue

Corn sold @ $3.40 average / Beans sold @ $7.90 average and Yields down 10%

85% $361,250 80% $340,000

Crop Rev. 161,400 Cattle Market down 20% Cattle Rev. $177,600

Total Farm Revenue $339,000

Key Points

• Covering yearly Gross Revenue and not select windows of coverage

• Includes Livestock Revenue & 95 commodities • High Subsidy Rate • Will cover previous uninsured revenue streams, farm

related • Can be very beneficial for beginning or tough cash

marketing years • Unsold bushels priced the end of December • Could impact relationship with banker/lender • Can Lock in a gross revenue floor now • Many agents and some AIP’s uninformed and uninterested

In order to quote, you need the following;

Tax Forms – 5 consecutive years’ Schedule F (2009-2013) including any referenced supplemental forms

Farm Operation Report – Intended Farm Plan for 2015, by commodity. Must use “fair market price” as basis for revenue expectation for the commodity year (price subject to AIP determination).

Whole Farm Application – Identifies the State, County, and commodities being insured and at what level indicated on the policy. Also specifies tax filing type (required for policy approval).

Crop Insurance & Marketing

Financially may influence crop mix

Cover expenses – Land Costs, Taxes

Cost effective way to hedge your crops

Protects against bushel and price loss

Maximize the Revenue Guarantee

Increases flexibility in hedging effectively

Can Reduce the Risk/Cost of Hedging

80% vs 85% Revenue Protection

No Risk Management

85% Revenue Protection

90% Area Risk Protection

CBOT Only

Insurance/Futures/Cash Sales

Combine Insurance & Marketing

The combination of insurance and marketing is a powerful tool in creating a marketing plan that will help maximize the profitability of a farmer’s operation.

Monitoring your hedging together with crop insurance gives you a better understanding of your revenue/risk position throughout the year.

RPHPE – Insurance Put

$11.44/142 = $.08 (Corn) $9.30/40 = $.23 (Soybeans)

RP – Insurance Call RP call cost is the RP premium – RPHPE premium divided

by guaranteed bushels.

$22.52 - $11.44 = $11.08/142 = $.08/bu (Corn)

$15.21 - $9.30 = $5.91/40 = $.15/bu (Soybeans)

Cost of Insurance 80% Policy

Private Products

APC

APO

Enterprise Plus

HarvestMAX

HarvestPRO

HIP

HPA

MPD

PAR

PAR-flex

PARflex-PYO

PAR-PYO PRF O/U

PriceFlex

PriceFlex PRIME

Rainy Day

RAMP

SRC

Change Crop Insurance Spring Prices

MPD

MVP

PriceFlex PRIME

AMP

PriceFlex

HPO

Revenue NET

PFAC

HPA

Supplement your MPCI Loss

APCO

RAMP

HarvestMax

APO

Private Area Revenue Coverage

PAR

PAR-flex

PYA-flex

PYA

Private Insurance Products Early Pricing

• Creates opportunity for a higher Spring Price which will increase your Revenue Guarantee

• Provides a way to protect year to year price drop • Producers gets the “higher of” • Approved by the RMA • Products not provided by all Underwriters • Buy Now Pay Later

Another tool in the tool box

Price Flex

• Has $1 cap for corn; $2 cap for soybeans; $1.50 for wheat and $.20 for cotton.

• Available July through July

• Can buy daily, bi-monthly or monthly

• Can make changes to insurance policy

• Multi-month pricing discount

• Compare them to an ATM Put at the “strike price”

• PF Prime – Add .20 to corn, .30 to soybeans, .25 to wheat, .20 to grain sorghum, .07 to cotton

2015 Revenue Insurance Comparisons

Year/Coverage Level 2015/80 2015/80 PF 2015/85 2015/85 PF

Actual Production History 48 bu. 48 bu. 48 bu. 48 bu.

38 bu. 38 bu. 41 bu. 41 bu.

Price $9.73 $11.27 $9.73 $11.27

Revenue Guarantee $370 $428 $399 $462

Actual Production History 187 bu. 187 bu. 187 bu. 187 bu.

150 bu. 150 bu. 159 bu. 159 bu.

Price $4.15 $4.45 $4.15 $4.45

Revenue Guarantee $623 $668 $660 $ 708

Weather Contracts

Insufficient Cumulative Precipitation

Weather Station(s) PEORIA GTR PEORIA AP

Total Coverage $100,000 $100,000 $100,000

Start Date 6/1/2016 6/1/2016 6/1/2016

End Date 8/31/2016 8/31/2016 8/31/2016

Historical Minimum Precipitation 3.04 3.04 3.04

Average Precipitation 11.67 11.67 11.67

Payment Trigger 75% of Avg 65% of Avg 55% of Avg

Payment Begins Below 8.75 7.58 6.41

Total Coverage Paid At 3.04 3.04 3.04

Payout Per Inch $17,513 $22,026 $29,674

Rate 24.96% 17.90% 12.63%

Premium $24,958 $17,895 $12,633

Premium Recovery At 7.32 6.77 5.98

Payment triggers when cumulative precipitation is less than Payment Begins Below.

Buy Sooner & Save! Discount Discount Discount

Purchase by 3/31/2016 & save 2.5% $624 $447 $316

Purchase by 3/3/2016 & save 5% $1,248 $895 $632

Purchase by 2/2/2016 & save 7.5% $1,872 $1,342 $947

My thoughts for 2016

• Whole Farm Insurance if you qualify – Consider WFRP and low level MPCI – Get signed up asap to create revenue floor now

• Do not shy away from high level Insurance – Cover as much of your input costs as possible

• Utilize APH Exclusion, TA yield • Insurance will not be good enough for most!

– Be careful of buying options this year

• Look into Private Products but be selective

Jamie Wasemiller

707-365-0601

[email protected]

www.gulkegroup.com