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What Is AGR?
Risk Management Tool Insures against low revenue due to unavoidable natural disasters and market fluctuation Uses a producers historical farm revenue as a base to provide a level of guaranteed revenue
What Is AGR?
Provides insurance coverage for multiple agricultural commodities in one insurance product Reinforces program credibility by using IRS tax forms and regulations to alleviate compliance concerns
At least one of the two most recent years income is greater than the average AND expected revenue exceeds average.
Each year is divided by the previous year with a maximum (cap) of 1.2000 and a minimum (cup) of .8000, then averaged.
Year 1996 1997 1998 1999 2000 Revenue $152,000 $143,000 $206,000 $205,000 $265,000 Factor .941 1.441 (cap of 1.20) .995 1.293 (cap of 1.20) Avg 1.084
Approved AGR
Indexed AGR from example =
$268,143 Expected Insurance Year Revenue from example = $250,000 Approved AGR is the lesser of the indexed average and expected revenue - $250,000
Trigger
$162,500 $162,500 $187,500 $187,500 $200,000 $200,000
Indemnity
$121,875 $146,250 $140,625 $168,750 $150,000 $180,000
Claims
Claims are paid after the insured has filed income tax reports for the insurance year. Income and expenses are adjusted by the differences between beginning and ending accounts receivable, accounts payable, inventories, and pre-paid expenses. Insured is required to report notice of loss with 72 hours or discovery and not later than 15 days after filing farm tax forms for the insurance year.
Indemnity Calculation
Example: Approved AGR of $250,000 with 75%/90% level of coverage Trigger Level = $187,500 Actual Income = $150,000 Loss in Revenue = $37,500 Loss Payment = $33,750 ($37,500 x 90%)
Premium Example
Berrien County Expected Revenue Breakdown Peaches - $125,000 Apples - $76,000 Squash - $25,000 Corn - $24,000 CAT Policy on Peaches, Apples, Corn with total CAT liability of $63,508
75/75
75/90 80/75 80/90
$8946
$12208 $12714 $17124
$4920 (55%)
$6714 (55%) $6103 (48%) $8220 (48%)
$4026
$5494 $6611 $8904
AGR Liability
Level AGR Liability
$60,937 $82,742 $77,117 $105,242 $86,492 $116,492
A Lenders Perspective
Presented by GreenStone Farm Credit
Production Risk
What can effect the Quantity and Quality of the Product(s) you Produce? How is the product produced? What risks can be reduced or eliminated?
Marketing Risks
Buyer Reliability Payment History Financial Strength Marketplace Position Appropriate Variety HoneyCrisp or Golden Delicious Contracts
Financial Risks
What is your ability to withstand adversity?
Do you have a large enough cash reserve to operate at a loss for a long period of time?