Tag Archives: Risk management

IF YOU GROW CORN OR TOMATOES…..!!

If you grow CORN or TOMATOES and have crop insurance ! one final REMINDER! JUNE 10TH is the final planting date for corn and tomato crop insurance policies. If you have corn or tomato crop insurance policies be sure to get your crops in the ground before the June 10th deadline or you may be subjected to late planting production guarantee reductions!

 

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June 10th Crop Insurance Final Planting Deadline!

JUNE 10TH is the final planting date for corn and tomato crop insurance policies. If you have corn or tomato crop insurance policies be sure to get your crops in the ground before the June 10th deadline or you may be subjected to late planting production guarantee reductions!

REMINDER Fruit crop insurance policy holders……!!!

ATTENTION Growers with FRUIT crop insurance!!! If you have a blueberry, cranberry, peach or apple fruit crop insurance policy, acreage reports for that policy are due JANUARY 15! If you have any questions, please contact your crop insurance agent or our office at 856-769-0090 Happy Holidays!!!!

FINANCIAL ASSISTANCE PROGRAM (FAP) FOR PRODUCERS IN TARGET STATES

USDA BULLETIN NO.: MGR-12-006

TO: All Approved Insurance Providers
All Risk Management Field Offices
All Other Interested Parties

FROM: William J. Murphy /s/ William J. Murphy 5/9/2012
Administrator

BACKGROUND:
Section 524(b), Agricultural Management Assistance, of the Federal Crop Insurance Act
(the Act) states that the Secretary shall provide financial assistance to producers in the
States of–Connecticut, Delaware, Hawaii, Maine, Maryland, Massachusetts, Nevada,
New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Utah, Vermont,
West Virginia, and Wyoming. Pursuant to section 524(b) of the Act, funding will be
made available by the Commodity Credit Corporation.
ACTION:
1. Financial Assistance Program (FAP) funding will be provided to producers in the
above identified States who purchase buy-up insurance policies (except as excluded
in paragraph 2) for the 2012 crop year with acreage reporting or inventory value
reporting dates prior to September 30, 2012.

2. Policies not eligible for financial assistance include all catastrophic risk protection
policies, and any policies or endorsements insured under the Livestock Risk
Protection and Livestock Gross Margin plans of insurance.

3. The Risk Management Agency (RMA) will provide a fixed premium reduction of
$225.00 per crop policy for eligible producers. If the total producer-paid premium
per crop policy is less than $225.00, the amount of premium reduction will be capped at 100 percent of producer-paid premium for the crop policy.
BULLETIN NO.: MGR-12-006 Page 2

4. No portion of any administrative fee will be paid under the FAP.

5. RMA is making $5.5 million available for this initiative. If participation in the FAP results in total expenditures that exceed this amount, RMA will determine a pro-ration factor to reduce the aggregated financial assistance to an amount equal to or below the $5.5 million appropriation. Approved Insurance Providers (AIPs) will reduce the amount of financial assistance using the pro-ration factor for all eligible producers and reflect the correct amount of financial assistance in the producers’ billing statements or revised billing statements (if applicable). If the pro-ration factor, when applied, results in underpayment of premium by insureds, the AIPs will be responsible for collection of any underpaid premium from the insured entity. AIPs will be required to utilize the pro-ration factor to determine accurate amounts of financial assistance to be submitted through RMA’s Policy Acceptance Storage System (PASS) or eDAS System for validation and reimbursement purposes.

6. Section 524(b)(3) of the Act provides that the total amount of payments made to a person (as defined in Section 1001(5) of the Food Security Act (7 U.S.C. 1308(5))) (before the amendment made by section 1703(a) of the Food, Conservation, and Energy Act of 2008) under this subsection for any year may not exceed $50,000. RMA will coordinate with other USDA agencies as necessary to apply this limitation.

7. No additional application is necessary to qualify for the FAP. Financial assistance will be applied automatically to all applicable crop policies which meet the eligibility criteria outlined in this bulletin, including those policies insured by written agreement, not to exceed the $5.5 million appropriation.

8. For billing purposes, AIPs will either deduct the amount of financial assistance from the producer premium on the billing statement, or note on the billing statement that the producer premium will be subject to a refund based on the final amount of financial assistance provided. In the event that participation results in the projected total expenditures for financial assistance exceeding the $5.5 million appropriation, it will be reduced on a pro-ration basis as outlined in Item No. 5 above.

9. In order to determine expenditures timely and accurately, AIPs should submit all information through the PASS or eDAS systems regarding premium by the latter of the following deadlines: a) Within 30 days after the applicable acreage reporting date or; b) Within 30 days after issuance of this bulletin.

10. At the December accounting cutoff prior to the Annual Settlement, RMA will establish an amount billable (to FSA for the FAP and to applicable state governments for any State subsidies). These billable amounts per AIP become the maximum amount that can be paid to the AIP for the applicable category.
a) RMA aggregates all AIP billable amounts to determine the total amount billed to the respective funding entity. RMA bills each funding entity as soon as feasibly possible.
b) If a pro-ration process is required due to insufficient funds availability from the funding entity, then:

BULLETIN NO.: MGR-12-006 Page 3
i. RMA will determine the pro-ration factor;
ii. RMA will calculate correct amounts based on these pro-ration factors and;
iii. RMA will notify AIPs as to the pro-ration factor to be utilized in each situation.
AIPs must submit to RMA by October 31, 2012, a list of all policies receiving financial assistance for which Appendix III information was not accepted by PASS or by eDAS prior to the October accounting cut-off date (October 12, 2012). This list in spreadsheet format must contain the following: AIP Code, State Code, Crop Year, County Code, Policy Number, Plan of Insurance, Crop Code, Coverage Level, and the amount of financial assistance for each crop policy. Please submit this list electronically in Microsoft Excel format to Lee Z. Ziegler, Economist, Reinsurance Services Division, at lee.ziegler@rma.usda.gov.
AIPs can refer to Appendix III for instructions regarding processing and reimbursement.

DISPOSAL DATE:
December 31, 2013.

Farming is a Risky Buisness

Every business and every person faces risks each day, but, really, What is Risk? People have different attitudes about risk. Some will wager a week’s pay at a casino, while others will hide their money under a mattress. A person’s aversion to risk is a key factor in the extent to which they will try to manage their risks. In general terms, people often think of risk as the chance of something bad happening. “Bad” and “chance” are two key elements of risk. In financial terms, risk is the possibility of financial loss.

Risk Management, in a business context, is about reducing the cost of risk, which includes the cost of managing risk. Business, including farming, is about making profits or gains. Farmers need money to make a living for themselves and their families. To make a living, farmers must take risks, investing $200,000 or more worth of seed, fertilizer, and herbicides and hoping for rain – but not too much rain. Farming is risky; one doesn’t know what the outcome will be when the crop is planted (the “chance” element), as all or a portion of the crop could be lost (the “bad” element). Because farmers are willing to take this risk, our nation has a plentiful food supply.

Don’t Risk a Lot for a Little

The first key concept of risk management can be expressed by the old saying, “nothing ventured, nothing gained.” Risk management involves asking the question, “Is the risk appropriate for the return?” Is the farmer venturing too much for too little gain, (i.e., will the farmer make enough profit to reasonably justify the risk?) The word “reasonable” is key. Usually, as people take greater risks, they seek a higher return on their investments. Banks, for example, charge higher interest rates to customers who they believe are less likely to pay back a loan.  Remember, the more risk you take, the greater the reward you should expect.  In short, “Don’t Risk a Lot for a Little.”

Don’t Risk More than You Can Afford to Lose

Few people think it wise for retirees to invest their life’s savings in a technology stock. If they lose, there is no opportunity to make back the loss. Who hasn’t seen movies of the gambler who loses, but just needs that last “score” to get even? It never seems to work out for this person. No matter how good the odds, sometimes bad things still happen. No one should invest more than they can afford to lose, unless they want a drastic change in their lifestyle, because sometimes they’ll lose. Ruin is the result of losing more than you can afford. Unfortunately, to support a family by farming, some farmers must face the possibility of ruin each year. Crop insurance helps reduce the chance of ruin by reducing the maximum amount of money a producer can lose. Still, in today’s economic climate, ruin is a real issue for farmers.

Know the Odds

A coin toss is a 50-50 proposition. A roll of a die is a 1-in-6 event. What are the chances that this year will bring a drought? And, if it does, how much revenue will be lost? No one knows precisely, but estimates can be made based on historical data, and these estimates can be invaluable in making an investment decision. The USDA’s Risk Management Agency (RMA) develops tools to help farmers estimate the chances of profit or loss. The odds may be in a farmer’s favor, but sometimes they still lose. That is why avoiding ruin is important—it allows a farmer to keep farming. A loss doesn’t put them out of business.

It is very important to realize that the odds of making a profit or of ruin change every year, and a losing year can make the odds of either outcome much worse the next year. “Losing years” must be paid for by borrowing or by using equity built up in good years. The greater the debt or the less equity a farmer has, the harder it will be for the farmer to pay the bills if another loss occurs. Thus, it is very important that farmers understand their true financial situation, including not only preparing cash flow projections, but also preparing a balance sheet and income statement. Remember, a farmer can have a positive cash flow and still lose money.

In Conclusion

For risk management to be effective, a farming operation must have a reasonable expectation of making a profit (assuming financial returns are important). Risk management cannot make a business that is fundamentally not profitable, profitable. Today’s most effective farm managers keep careful records that facilitate effective use of available risk management strategies designed to keep expected financial returns in line with the risks. Done well, risk management can help protect a farmer’s  hard-earned money from the risks associated with farming.  RMA’s mission is to encourage farmers to proactively manage their risks. Farming is risky, more so than many other businesses. For taking these risks—and feeding the world—some farmers earn a good return on their investment. Others do not. By practicing risk management, farmers can gain greater control over their risks, financial returns, and solvency.

The content for this article was adapted from “Risk and Risk Management”, a Risk Management Agency Fact Sheet available at

http://tinyurl.com/7exa3mc.  Custom Ag Solutions (CAS) works with producer organizations, such as the Massachusetts FFA Association, to reach America’s beginning producers with information about risk management and Federal Crop Insurance Programs administered by the USDA’s Risk Management Agency (RMA).  Look for CAS’ workshops at the upcoming Massachusetts FFA State

Convention or at your local chapter.  For more information about RMA and its programs, please visit http://www.RMA.USDA.gov or, to receive information by mail, call CAS at 877-277-8094.

Is our 2011 risk management plan adequate for 2012?

As we make plans for 2012, we have an excellent opportunity to seriously evaluate the adequacy of the 2011 risk management plan we had in place. Does last year’s plan seem adequate for the current year? Many things have changed since this time last year and we might want to take some time before the spring rush to make adjustments to our risk management strategies. For a great discussion tool on whole farm risk we can access a USDA “risk management checklist” at: http://www.rma.usda.gov/pubs/2011/risk_management_checklist.pdf

There are many sources of farm and family risk that need our attention. However, as an Ag Marketing Extension Educator I am primarily concerned here with price and financial risk.

Many experienced farmers may have gotten used to government programs that almost automatically provided a pretty good safety-net and about all producers had to do was to enroll, and perhaps, idle a few acres.  This is no longer the case for farmers. Today, the major farm safety-net is determined by individual proactive producer decisions.

Marketing is the part of business that transforms production activities into financial success. Effective marketers understand that unanticipated forces can lead to dramatic changes in crop and livestock prices. Understanding these forces is an important consideration for skilled marketers. We can rarely predict the future with much certainty, but if we study the future and consider what adjustments might be needed in a given scenario – we are better prepared to respond when changes occur.  To be successful, you should take an informed and balanced approach to making marketing decisions. As we match our marketing and risk management strategies, let’s remember three personal factors:

  1. Know what level of risk you are comfortable with.
  2. Be willing to increase the number of skills in your marketing toolbox.
  3. Develop an integrated management approach to your business

Ask yourself   .   .   .

  • Am I financially able to “shoot for the top price” and withstand the potential downside consequences of missing?
  • Should I receive professional marketing services?
  • Would a “marketing club” fit my need for current information and help in developing a marketing plan.
  • Can I afford to store a crop, hoping the price will increase, or are my cash flow needs such that I must sell directly at harvest?
  • How sensitive is our dairy to milk price swings? What recourse might we use if prices drop rapidly?
  • Will my lender understand my plan and help me achieve my goals?
  • What are the potential costs and returns associated with alternative strategies?
  • Does my marketing plan cover the entire calendar or crop year?
  • Have I checked my marketing plan against my financial plan to make sure that income from marketing covers cash flow needs?
  • Are all crop and livestock enterprises covered in my plan?
  • Have I calculated production costs and estimated my yield to determine my breakeven price?

2012 expectations are that risk exposures will increase in the form of high crop values, increased price volatility, higher input costs, tighter credit requirements, the need to recover from 2011 losses, higher family living costs, and aging farm operators. Does it make sense to manage risk by self-insuring?  Just how much protection is needed for 2012?

What is your risk management needs for 2012?  Protect crop values, all or part of input costs, put a floor under marketing contracts, recovery of 2011 losses, securing operating loan and/or secure family living expenses?  With these concepts in mind, is your current risk management plan adequate for 2012 to fulfill your strategy?

Crop insurance agents now have 2012 rates and rules. They are also prepared to help you to complete a free Risk Management Checklist and to discuss coverage, and cost control options that can strengthen your farm business plan to minimize the risk of an income interruption.  The deadline to enroll/ change policies for most crops in 2012 is March 15. Managing risks may result in improved peace of mind for you, your business and your family in the year ahead.

Article by John Berry, Penn State Extension Marketing Educator    Submitted by Gene Gantz, gantz@pa.net, 717-497-6398

INFORMATIONAL MEMORANDUM: PM-11-054 from The USDA and RMA

November 23, 2011

INFORMATIONAL MEMORANDUM: PM-11-054

TO: All Approved Insurance Providers

All Risk Management Agency Field Offices

All Other Interested Parties

FROM: Tim B. Witt /s/Tim B. Witt

Deputy Administrator

SUBJECT: Acceptable Records for Vertically Integrated Producers

BACKGROUND:

The 2011 FCIC 18010 Crop Insurance Handbook (CIH) Section 14F added

procedure regarding acceptable records for vertically integrated producers. This

procedure limited the production records for vertically integrated producers to

hand-picked production records or daily sales records when accompanied by

additional documentation; pre-harvest appraisals or tax records. Interested parties

have expressed concern regarding the limitation these acceptable production record

requirements placed on vertically integrated producers.

ACTION:

The Risk Management Agency (RMA) authorizes the following acceptable

production records as stand-alone records for vertically integrated producers: daily

sales records, daily pick records, pre-harvest appraisals or tax records in accordance

with the procedure established in CIH Section 14D(6). RMA also authorizes

machine harvest records and certified scale weight records, as stand-alone

acceptable production records. These records must be legible, include the name of

the insured, the name of the crop, the date of harvest or the date weighed, unit

number or the location of the production, practice, type, crop year and a printout of

the quantity of weighed production. For wineries that process their own grapes, the

weight can be recorded on the form used for reporting to the Alcohol and Tobacco

Tax and Trade Bureau.

DISPOSAL DATE:

Until incorporated in the CIH.