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					    Adjusted Gross Revenue-Lite (AGR-Lite)


       Dr. G. A. “Art” Barnaby, Jr
        Kansas State University


          Phone: (785) 532-1515
          
   Email: abarnaby@agecon.ksu.edu

             Check out our WEB at:
                AgManager.info
                                        1
    Adjusted Gross Revenue-Lite (AGR-Lite)

  A Whole Farm Revenue Protection Plan
 Provides protection against loss of revenue from
natural and named disasters and/or market
fluctuations
 Approved for Producers in States of:
     AK, CT, DE, ID, MA, MD, ME, NC, NH, NJ,
    NY, OR, PA, RI, VA, VT, WA, WV
 States approved to proceed with rating:
     AZ, CO, HI, KS, MN, MT, NM, NV, UT, WI,
    WY


                                                     2
    Adjusted Gross Revenue-Lite (AGR-Lite)

   Developed by PA Dept. of Agriculture (under section
    508h of the crop insurance law) to make protection
    available to almost all producers.

   Expanded to other states through respective State
    Depts. of Agriculture.

   Kansas is working with Frontier Farm Credit (FFC),
    KS State Department of Agriculture, Topeka RMA,
    KFMA, and Kansas State University.

   Approved and backed by USDA.
                                                         3
    Adjusted Gross Revenue-Lite (AGR-Lite)

   STAND-ALONE POLICY: covering the whole
    farming operation
   OR
   UMBRELLA TYPE POLICY: selected crops can
    also be protected by Multiple Peril or revenue crop
    policies.

   Note: Loss payments from other insurance
    count towards AGR-Lite revenue guarantee.



                                                      4
       What is covered under AGR-Lite

   Eligible Commodities Include:
          Most Crops

          Animal Production (includes aquaculture)

          Animal Products (milk, honey, wool, etc.)

          Greenhouse Production

          Organic Production




                                                       5
          Kansas Insurance Profile

   Kansas produced $8.75 billion in agricultural
    products in 2002.
    98.8% ($8.65 billion) derived from
      Cattle and calves - $5.7 billion
      Grains - $2.1 billion
      Hogs - $297.5 million
      Milk and other dairy - $248.5 million
      Hay and other production - $225million
      Nursery and greenhouse - $55.5 million
   74 % of agricultural production currently without
    risk protection.
                                                        6
Top Uninsurable Commodities with Acreage
   Grass          5,621,672      Cattle/Calves
   Alfalfa          908,218         6,650,000 (Head)

   Rye               53,175      Hogs & Pigs
   Triticale         37,641         1,780,000(Head)

   Millet            25,512      Dairy
   Clover            23,977         111,000(Head)

   Lespedeza         23,303      Sheep
   Mixed Forage       6,546         106,000 (Head)

   Pecans             2,953
   Peas               2,597


                                                     7
    What is covered under AGR-Lite

   Insurable Causes of Loss:
      unavoidable natural disasters, that occurs
       during the current or previous insurance year
          including but not limited to, adverse
           weather, fire, insects, disease, wildlife,
           earthquakes, volcanic eruption, or failure of
           irrigation water supply, if applicable,
      market fluctuation (annual price change) that
       causes a loss in revenue during the current
       insurance year



                                                           8
                        Coverage Choices & Limits

 Gov’t            Coverage              Minimum # of          Maximum Annual Income**
Subsidy           Payment               Commodities*
             Level          Rate
 59%           65            75                 1                        $2,051,282
 59%           65            90                 1                        $1,709,401
 55%           75            75                 1                        $1,777,777
 55%           75            90                 1                        $1,481,481
 48%           80            75                 3                        $1,666,666
 48%           80            90                 3                        $1,388,888
 *Must meet minimum income requirements. Commodity Grouping is available for the 80-
 percent coverage level.
 **The Maximum Annual Income represents the maximum approved farm revenue at each
 coverage level and payment rate to be eligible for AGR-Lite due to the $1,000,000 maximum
 liability allowed.                                                                          9
         AGR-Lite Protection Example
    ( With 1 or more commodity producing
                   revenue)

      * 5 year avg. revenue =   $300,000
      * 75% coverage level =    $225,000
       loss trigger
      * Revenue produced =      $100,000
      * Revenue loss       =    $125,000
      * 90% payment         =   $112,500
       loss payment




                                            10
                    AGR Pilot vs AGR-Lite



 Comparison            AGR Pilot         AGR-Lite
Maximum Liability       $6,500,000       $1,000,000

Animal or Animal     35 % of Allowable     None
Product Limit            Income

MPCI Required              Yes            Optional

Coverage Level          65 ,75 , 80      65 ,75, 80
Payment Rate              75, 90           75, 90
                                                      11
        How is Coverage Established?



   Federal Income Tax Records
                 Usually Schedule F


   Current Year’s Farm Plan
                 “Cash Flow Budget”




                                       12
         How are Claims Calculated?



   Federal Income Tax Records reflect sales

   Beginning and End of year inventories are
    used to determine change in value allocated to
    current year.




                                                     13
      Where AGR-Lite makes sense

   Otherwise uninsurable commodities are covered
   Organic production is protected at realistic prices
   Direct Marketed production is protected at
    realistic prices
   Umbrella over selected individual crop coverages
   Bottom line for operation from severe economic
    loss
   Individual protection based on personal yield,
    quality and price history plus low price protection,
   Provide an alternative for farmers with reduced
    APH caused by multiple years of drought.

                                                           14
        Major Issues with AGR-Lite

   AGR-Lite does not adjust for feed purchased.
      If it turns dry, and producers purchase hay
       to cover lost forage this loss may not be
       covered. This will lower Net Income but
       not Gross.
      If producers normally sell excess hay, then
       it is covered because there will be reduced
       hay sales.




                                                     15
       Major Issues with AGR-Lite

   AGR-Lite does not include indemnity
    payments when calculating 5 years average
    Gross Income that will set future
    guarantees.
      This has no impact on current year’s
       indemnity payment but it lowers future
       guarantees reducing the effectiveness of
       AGR_Lite as a risk management tool for
       multiple year droughts.




                                                  16
        Major Issues with AGR-Lite

   Currently “cull cows” are counted in the sales
    to count against the AGR-Lite guarantees and
    the 5 year average tax return revenue. If the
    cows are sold as part of a herd reduction then
    the sales do not count against the guarantee.




                                                     17
     Major Issues with AGR-Lite

   Market loan gains count against the AGR-
    Lite indemnity and are included in the 5
    year average tax return revenue. This is a
    consistent policy. However, LDP payments
    are not included in the 5 year average nor
    do they count against the guarantee.




                                                 18
       Major Issues with AGR-Lite

   Currently the counter cyclical payment does
    not count against the AGR-Lite guarantee
    nor does it count in the 5 year average tax
    return revenue. This works in the favor of
    farmers because it does not reduce AGR-
    Lite payments in a loss year caused by lower
    prices.




                                                   19
       Major Issues with AGR-Lite

   Currently AGR-Lite liability and premium is
    reduced by the amount of the APH or similar
    products liability and premium. This is
    consistent because it reduces AGR-Lite
    claims. However, GRIP and GRP products do
    not have the same effect because all of the
    liability is likely not at risk.




                                                  20
        Major Issues with AGR-Lite

   Underwriting Rule. AGR-Lite should require
    submission of tax returns for all entities that
    buy, sell, or produce agricultural products that
    an insured has a financial interest.

   This would include entities that are not insured
    under an AGR-Lite policy in addition to the
    insured entity.




                                                       21
                                               Example AGR-Lite1
                                                                                    Tax Return                Indexed Expected
                                                                                        1          Trend      Revenue Income2
                                                                            Year
                                                                Historical Year 1       265,000
                                                                Historical Year 2       250,000       0.943
                                                                Historical Year 3       260,000       1.040
                                                                Historical Year 4       287,000       1.104
                                                                Historical Year 5       271,330       0.945
                                                                Historical Year 6
Income Trend Factor                                                                                   1.033
5-year Average, Contract 1                                                              266,666
Expected Income for Insurance Year (IACR)
        Total                                                                                                 275,478     290,000
5-year Average Indexed, Contract 1
Lesser of Indexed AGR or Expected Income                                                275,478
5-year Average, Contract 2
Coverage Level                                                                             75%
Payment Rate                                                                               90%
AGR-Lite Loss Inception Point                                                           206,609
AGR-Lite Liability ($ of Coverage)                                                      185,948
   1Preparedby Andrew Saffert (Graduate Student), Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby, Jr., and Dr. Michael R.
   Langemeier, Professors, Department of Agricultural Economics, K-State Research and Extension, Kansas State University,
   Manhattan, KS 66502, Risk & Profit August 17 & 18, 2006, Phone 785-532-1515, e-mail – Barnaby@ksu.edu, or Andrew Saffert
   asaffert@mail.agecon.ksu.edu.
   2The   expected income is generated from the annual “farm plan” similar to a cash flow budget for the upcoming year.
                                                                                                                          22
                                         Example AGR-Lite                                    Revenue Included
                                            Revenue To Count Against AGR Guarantee           in 5 Yr Avg
Livestock and other items bought for resale                               Count    (Line 3)            Included
Raised Crop and Livestock Sales                                           Count    (Line 4)            Included
Net Gains from Commodity Hedging                                          Count                        Included
APH, CRC, RA Indemnity Payments (Gross)                                   Count    (Line 8b)              No
GRP, GRIP Indemnity Payments (Gross)                                      Count    (Line 8b)              No
LRP and LGM Indemnity Payments (Gross)                                    Count    (Line 8b)              No
Private Hail and Mortality Payments (Gross)                               Count    (Line 8b)              No
Noninsured Crop Disaster Assistance Program Payments (NAP)                Count    (Line 8b)              No
Ad Hoc Disaster Payments                                                   No      (Line 8b)              No
FSA Loans (Including Emergency Loans)                                      No      (Line 8b)              No
Loan Deficiency Payment (LDP)                                              No      (Line 8b)              No
Commodity Loans - Commodity Credit Corporation (CCC)                           Count     Line (7a)            Included
Production Flexibility Contracts Agricultural Market Transaction Act
(AMTA)                                                                           No      (Line 8b)               No
Market Loss Assistance Program (MLA)                                             No      (Line 8b)               No
Direct Counter-Cyclical Payments (DCP) (Replaces Production Flexibility
Contracts and MLA)                                                              No       (Line 8b)               No
Conservation Reserve Program (CRP)                                              No       (Line 8b)               No
Conservation Reserve Enhancement Program (CREP)                                 No       (Line 8b)               No
Sale of non-cull cows & other Capital Assets                                    No                               No
Cull Cows, intended for sale                                                   Count                          Included
Custom Harvest for a paid fee                                                   No        (Line 9)               No
Refund payments for over payments                                               No       (Line 10)               No
Surgarbeet - Payment in Kind                                                   Count                          Included
Marketing Orders - Cranberry, Tart, Cherries                                   Count                          Included
Change in Accounts Recoverable                                                 Count                             No
Net Change in Crop Inventory3                                                  Count                             No
                                 3
Net Change in Livestock Inventory                                              Count                             No
2
  The expected income is generated from the annual “farm plan” similar to a cash flow budget for the upcoming
year.
3
  Beginning inventory is valued at the selling price during the year not the price on January 1. The ending
inventory is valued at the selling price if sold before the claim is settled or at the current terminal market price
adjusted for transportation at time of claim settlement and not the December 31 value.                             23
                                               Example AGR-Lite1



                                                                                                            Revenue Included
                                               Revenue To Count Against AGR Guarantee                       in 5 Yr Avg
Revenue to count                                                            150,000
Revenue to used for the next 5 year average                                                                               100,000
Net Insurable Loss                                                                       56,609
90% Payment rate                                                                           90%
AGR-Lite Indemnity Payment                                                               50,948




   1Preparedby Andrew Saffert (Graduate Student), Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby, Jr., and Dr. Michael R.
   Langemeier, Professors, Department of Agricultural Economics, K-State Research and Extension, Kansas State University,
   Manhattan, KS 66502, Risk & Profit August 17 & 18, 2006, Phone 785-532-1515, e-mail – Barnaby@ksu.edu, or Andrew Saffert
   asaffert@mail.agecon.ksu.edu.
   2The   expected income is generated from the annual “farm plan” similar to a cash flow budget for the upcoming year.
                                                                                                                           24
                                              Example AGR-Lite1
                                                                          Tax Return            Indexed Expected Tax    Indexed
                                                                                                               2
                                                                              1        Trend    Revenue Income Return 2 Revenue
                                                                  Year
                                                      Historical Year 1      265,000
                                                      Historical Year 2      250,000    0.943                       250,000
                                                      Historical Year 3      260,000    1.040                       260,000    1.040
                                                      Historical Year 4      287,000    1.104                       287,000    1.104
                                                      Historical Year 5      271,330    0.945                       271,330    0.945
                                                      Historical Year 6                                             100,000    0.369
Income Trend Factor                                                                     1.033                                  1.000
5-year Average, Contract 1                                                   266,666
Expected Income for Insurance Year (IACR)
        Total                                                                                   275,478   290,000
5-year Average Indexed, Contract 1
Lesser of Indexed AGR or Expected Income                                     275,478
5-year Average, Contract 2                                                                                          233,666
Coverage Level                                                                  75%
Payment Rate                                                                    90%
AGR-Lite Loss Inception Point                                                206,609                                175,250




  1Preparedby Andrew Saffert (Graduate Student), Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby, Jr., and Dr. Michael R.
  Langemeier, Professors, Department of Agricultural Economics, K-State Research and Extension, Kansas State University,
  Manhattan, KS 66502, Risk & Profit August 17 & 18, 2006, Phone 785-532-1515, e-mail – Barnaby@ksu.edu, or Andrew Saffert
  asaffert@mail.agecon.ksu.edu.
  2The   expected income is generated from the annual “farm plan” similar to a cash flow budget for the upcoming year.
                                                                                                                              25
             What is GRP & GRIP


   GRP is a “put option” on expected county
    yield

   GRIP is a “put option” on county revenue

   Farmer has the basis risk, difference
    between county yield % change and farm
    yield % change


                                               26
KS Counties without a Wheat GRP/GRIP
                Offer




                                   27
    Does GRP & GRIP Fit Great Plains
             Agriculture?

   GRP/GRIP Does Provide “Reasonable”
    Protection for:
       Drought
       Freeze
       Excess Moisture




                                         28
    Does GRP & GRIP Fit Great Plains
             Agriculture?


   GRP/GRIP Does NOT Provide
    “Reasonable” Protection for:
        Hail
        Flood
        No Prevented planting
        No Re-plant
        No Quality Loss adjustment
        Any “spot” Loss




                                       29
      Does GRP & GRIP Fit Great Plains
               Agriculture?
   If APH is low caused by multiple year crop
    losses

   Low APH causes low guarantees and higher
    premium costs

   If the APH is real low then there is very little
    protection. GRP is based on at least a 30
    year history, so coverage maybe much
    higher with lower premium.

   Trend yields that set expected county yield is
    the key.                                       30
                       Cheyenne Wheat
         NASS
         County RMA
         Planted Expected GRP                                    GRIP-HRO
 Year    Yield   County   RATE           Volatility    GRIP Rate Rate

  1997      27.4       43.2       7.50
  1998      44.2       43.8       7.50
  1999      51.9       44.4       7.50
  2000      24.8       40.6       6.50
  2001      31.5       40.9       6.50          0.20
  2002      19.6       41.3       6.50          0.18
  2003      30.9       39.1       6.50          0.22
  2004       7.8       39.4       6.50          0.19
  2005      17.6       35.5       6.83          0.19
  2006      23.7       32.0       7.95          0.18       16.23    17.83
  2007                 25.2       8.13          0.20       14.57    16.12
                   Maximum Yield from 1997-2007             44.4
                                       2007 Yield           25.2
Percent Reduction in Expected Yield from the              43.2%
Maximum
                                                                       31
                         Rawlins Wheat
         NASS
         County RMA
         Planted Expected GRP                                    GRIP-HRO
 Year    Yield   County   RATE           Volatility    GRIP Rate Rate

  1997      35.2       36.9       8.30
  1998      47.5       37.2       8.30
  1999      47.9       37.5       8.30
  2000      28.8       35.0       7.10
  2001      40.2       35.1       7.10          0.20
  2002      28.7       35.2       7.10          0.18
  2003      40.9       36.8       7.10          0.22
  2004       5.5       37.0       7.10          0.19
  2005      30.0       36.4       7.10          0.19
  2006      18.2       33.3       7.81          0.18        9.19    11.22
  2007                 31.0       8.48          0.20       10.45    12.53
                   Maximum Yield from 1997-2007             37.5
                                       2007 Yield           31.0
Percent Reduction in Expected Yield from the              17.3%
Maximum
                                                                       32
                        Ottawa Wheat
         NASS
         County RMA
         Planted Expected GRP                                    GRIP-HRO
 Year    Yield   County   RATE           Volatility    GRIP Rate Rate

  1997      56.8       30.8       6.80
  1998      52.4       30.8       6.80
  1999      44.0       30.8       6.80
  2000      39.4       36.2       6.90
  2001      37.2       36.4       6.90          0.20
  2002      39.9       36.6       6.90          0.18
  2003      58.1       38.8       6.90          0.22
  2004      47.7       39.1       6.90          0.19
  2005      32.3       43.0       6.90          0.19
  2006      43.5       46.7       6.90          0.18        8.55     9.79
  2007                 42.4       6.62          0.20        9.75    10.72

                   Maximum Yield from 1997-2007             46.7
                                       2007 Yield           42.4
Percent Reduction in Expected Yield from the               9.2%
Maximum
                                                                        33
             Compare Cheyenne, Rawlins & Ottawa
                                   Cheyenne           Rawlins           Ottawa

RMA Expted County Yield         25.2           31.0              42.4

                                2004           2004              1989
Year with Largest Yield loss

Largest Disaster Year            7.8            5.5               2.1
County Yield
5 Year Average Percent of      5.1%           2.0%               <1%
Planted Wheat Acres under
Irrigation
NASS 20 Years Simple            33.4           33.2              34.8
Average Planted Yield
NASS 20 Yr Standard             11.5           10.7              12.9
Deviation of Planted Yield
NASS 20 Yr Coefficient of      34.5%          32.2%             37.2%
Variation
NASS 33 Years Simple            33.5           33.3              41.9
Average Planted Yield
NASS 33 Yr Standard              9.9            9.8              11.0
Deviation of Planted Yield
NASS 33Yr Coefficient of       29.6%          29.3%             26.1%
Variation
GRP Rate                        8.1%           8.5%              6.6%
GRIP Rate                      14.6%          10.5%              9.8%
GRIP-HPO Rate                  16.1%          12.5%             10.7%
                                                                                 34
            Compare Cheyenne, Rawlins & Ottawa


                               Cheyenne             Rawlins                  Ottawa

                                     GRIP-                GRIP-                GRIP-
                            GRP GRIP HPO         GRP GRIP HPO         GRP GRIP HPO
KSU Estimated Farmer Paid   0.97 0.66 0.65       1.87 1.80 1.97       1.58 1.77 1.82
Loss Ratio
KSU Estimated Frequency     12%    18%    21%    21%    38%    41%    18%      32%    32%
of Claim
KSU Estimated Industry      0.44   0.30   0.29   0.84   0.81   0.88   0.71     0.80   0.82
Loss Ratio
KSU Estimated Farmer Paid   0.35   0.38   0.35   0.88   0.86   1.08   0.91     1.29   1.30
Loss Ratio, Assuming 2004
Disaster Yield Replaced
with County Average Yield
KSU Estimated Industry      0.16   0.17   0.16   0.39   0.42   0.48   0.41     0.58   0.58
Loss Ratio, Assuming 2004
Disaster Yield Replaced
with County Average Yield




                                                                                      35
                                              Warning: NOT a K-State Slide
                                                             Wheat Planted Yield for Cheyenne County, KS
                                                                              1972-2005
                                                                                                                                                             99
                     50



                                                                                                                               93        95
                                                                                       85                       90

                                                                                                                                                        98
                     40




                                                                  80
                                                                                                 87
                                                                            82 83 84
                                                                                                                     91
Planted Yield,bu/a




                               73                                                                                                   94        96
                                                                                                      88
                          72                                                                86
                                                                       81                                  89                                                           101         103
                     30




                                    74
                                         75
                                                        78                                                                                         97
                                              76
                                                   77                                                                                                             100
                                                             79
                                                                                                                          92
                     20




                                                                                                                                                                              102
                                                                                                                                                                                                105
                     10




                                                                                                                                                                                          104


                                                                  80                                            90                                            100
                                                                                                      Year
                                              Warning: NOT a K-State Slide
                                                         Wheat Planted Yield for Rawlins County, KS
                                                                         1972-2005
                                                                                       85
                     50




                                                                                                                                                        98 99

                                                                                                                90
                                                                                                                                         95
                                                                                                                                                                                  103
                     40




                                                                             83                  87                                                                   101
                                                              80                                                                    94
                                                                                            86
Planted Yield,bu/a




                               73             76                                                                               93
                          72                                                                                                                       97
                                                                        82
                                         75
                     30




                                                                                                      88
                                                                                                                     91                                                                       105
                                    74             77 78 79                                                                                                     100         102

                                                                                                                                              96

                                                                                  84
                                                                                                                          92
                     20




                                                                   81

                                                                                                           89
                     10




                                                                                                                                                                                        104


                                                              80                                                90                                          100
                                                                                                      Year
                                          Warning: NOT a K-State Slide
                                                          Wheat Planted Yield for Ottawa County, KS
                                                                         1972-2005
                     60

                                                                                                                                                                                  103
                                                                                                                                                 97

                                                                                                                                                      98
                     50




                                                                                                                                                                                        104
                                                                                                                90
                                                                                                                                                           99
                     40




                                                                             83
                                                         79                                                                       94                            100         102
Planted Yield,bu/a




                                                                                       85
                                                                                                                                                                      101
                          72 73                                                                  87
                                          76                                                                                                96
                                                              80
                                                                                  84                  88             91 92                                                                    105
                                                                                            86
                     30




                                  74 75             78
                                                                        82

                                                                   81
                                                                                                                                       95
                     20




                                                                                                                             93
                                               77
                     10




                                                                                                           89
                     0




                                                              80                                                90                                          100
                                                                                                      Year
2007 exp yield as % of 33-year average
      yield; no practice specified




                                         39
               GRP/GRIP Summary

   Little/no Protection for Hail, wind, flood or
    other spot losses

   No Prevented Planting or Re-plant Protection

   GRP insured growers worried about Rust
    may want to change to APH

   Farmer can suffer a total loss and receive no
    payment, maybe a lender concern.



                                                    40
                   Policy Issues

   The Corn Belt has generated underwriting gains

   Those gains allow RMA to hit the targeted loss
    ratio

   If the those farmers shift from APH to GRIP,
    then RMA may (will ?) lose a major region with
    consistent underwriting gains

   Farm Bill based on a “GRIP” type program?



                                                     41
       Thank You
 DR. G. A. “ART” BARNABY, JR.
  KANSAS STATE UNIVERSITY




      PHONE: 785-532-1515
EMAIL: abarnaby@agecon.ksu.edu
  Check out our WEB page at
   http://www.AgManager.Info

				
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