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FEBRUARY 2011

VOL. 44, NO. 1

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Why Do Producers ChooseIndividual or Area

Insurance Protection?

The Essential Strengthsof Crop Insurance

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TODAYPRESIDENT’S MESSAGE

NCIS® EXECUTIVE COMMITTEESteve Harms, Chairman

Steve Rutledge, Vice ChairmanTed Etheredge, Second Vice Chairman

NCIS® MANAGEMENTThomas P. Zacharias, PresidentP. John Owen, General Counsel

James M. Crist, CFO/COOFrank F. Schnapp, Senior Vice PresidentMike Sieben, Senior Vice PresidentLaurence M. Crane, Vice President

Dave Hall, Vice President

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Originally, the lyrics of the legendary blues-singerand songwriter Robert Johnson, with a later renditionperformed by Eric Clapton and Cream, inspire us tothink of the crop insurance industry as being at the“Crossroads” if you will.

To me, the intersection of the Crossroads representsthe evolution of a program and an industry that has farexceeded any reasonable set of expectations that couldhave been foreseen in the early 1980s when the privatesector became actively involved.

As we stand at the Crossroads, what do we see? Isee our program and industry at the intersection of four

major thoroughfares which have served us well in the recent past. These are: 1) Sustainedhigh levels of participation; 2) Improved actuarial soundness; 3) A mature yet expandingproduct mix for the American farmer; and, 4) Substantive risk-bearing on the part of theprivate sector.

Let us spend a few minutes and briefly consider each of these elements of the pro-gram in relation to the New Year and new decade ahead of us.

ParticipationIncreases in participation can be primarily attributed to two significant pieces of legis-

lation: 1) the Crop Insurance Reform Act of 1994; and, 2) Agricultural Risk Protection ActContinued on page 32

CROP INSURANCE TODAY® 1

Tom Zacharias, NCIS

“. . . I went downto the crossroads. . .”

TODAYCROPINSURANCE

Table of Contents

16

30

4

VOL. 44, NO. 1

FEBRUARY 2011

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Copyright NoticeAll material distributed by National Crop Insurance Services is protected by copyright and other laws. All rights reserved.Possession of this material does not confer the right to print, reprint, publish, copy, input, transform, distribute or use samein any manner without the prior written permission of NCIS. Permission is hereby granted to Members in good standing ofNCIS whose Membership Class (and service area, if membership is limited by service area) entitles them to receive copiesof the enclosed or attached material to reprint, copy or distribute such NCIS copyrighted material in its present formsolely for their own business use and solely to employees, adjusters or agents who are under contract with them, andas a condition to receiving such copies, such employees, adjusters and agents agree that they will not reprint, copy ordistribute, or permit use of any such NCIS copyrighted material to or by any other person and/or company, or transforminto another work such NCIS copyrighted material, without prior written permission of NCIS.© 2011 National Crop Insurance Services, Inc.

1 President’s Message

4 The Essential Strengths of Crop Insurance

9 Why Do Producers Choose Individual or Area Insurance Protection?

16 What is the current status of my farm business?

26 Crop Insurance Plan Comparison

30 Refuge in the Bag

32 NCIS Promotions & Service Awards

35 Greg Meek Retires

36 Insurable Crops, Locations & Plans

4 february 2011

The Food, Conservation, and Energy Act of 2008 (2008 FarmBill), which authorizes the major agricultural programs administeredby USDA, expires in the fall of 2012. The process of developing anew farm bill began with Congressional hearings during the sum-mer of 2010. While the process is just starting, many stakeholdershave already emphasized the crucial need in the new farm bill fora strong crop insurance program to protect farm income and sus-tain farms. Even so, some have called for crop insurance programchanges, including expansions of other safety net programs intoareas now covered by crop insurance. (For example, see the TODAYarticle in this issue on individual and area insurance, page 9.)

As commodity and farm organizations, the Administration andCongress assess policy options, the important benefits provided bythe crop insurance program should be recognized, carefully consid-ered, and supported. Farmers and ranchers want and buy cropinsurance to protect their livelihoods. Crop insurance is the fore-most risk management tool that provides a safety net under theirfarm income. If a natural disaster occurs or market prices plunge,crop insurance allows the producer to pay bills and remain in oper-ation. Beyond this fundamental strength, there are many other ben-efits of crop insurance to producers, government and the public.This article describes a dozen essential program features that shouldmake crop insurance the focus of the next farm bill’s risk manage-ment programs.1) Producers Share in the Program Cost. When a producer

wants crop insurance coverage, the producer must pay for it.While the program is partially subsidized by the government,producers have substantial “skin in the game.” Their financialcontribution helps defray taxpayer costs and encourages finan-cial discipline by producers. This feature is important in mak-ing crop insurance more defensible in the eyes of the publicand more sustainable over time than other some other safetynet programs that are fully subsidized by taxpayers.

2) Producers Must Take Active Personal Responsibility forRisk Management Choices. While farm programs help

reduce farm financial risks and require producers to protectthe land, producers have little to no role in designing a pro-gram shaped to their individual farm. Moreover, when partic-ipating in crop insurance, the producer must assess the farm’srisks and design a crop insurance program that mitigatesthose risks and is affordable. The producer must learn to man-age risk through the conscious selection among many plansof insurance, insurable units (i.e., the area to be insured), cov-erage levels and premium rates. In addition, the producermust meet the standards of “good farming practices” requiredby the policy to be eligible for payment when incurring loss-es. Good farming practices are those required for the crop toproduce at least the yield used to determine the insuranceguarantee. For example, good farming practices include keep-ing informed about disease or pest outbreaks, knowing whatpractices to use (such as those recommended by local exten-sion agents or certified crop consultants) should an outbreakreach the producer’s farm, scouting fields and documentingfindings, and keeping records of good farming practices oneach insurable unit. Thus, crop insurance compels producersto become active risk managers and to operate proficiently.

3) Producers Receive Individualized Risk ManagementSolutions. Crop insurance covers the expected yield or rev-enue risk of each individual producer. The producer canselect alternative coverage levels for the producer’s historicalyield on the acres planted on a choice of insurable units.Additional rules cover new lands brought into production andproduction on risky lands. The producer may also receiveprotection for prevented planting, replanting costs and quali-ty losses. While there are plans of insurance available for pur-chase that pay out based on county yield and revenue short-falls (Group Risk Plan (GRP) and Group Risk IncomeProtection (GRIP)), these plans only accounted for less thanfour percent of total program premium in 2010. Most produc-ers need and want individual risk protection matched to the

The Essential Strengthsof Crop Insurance*

TODAYcrop insurance

risks and characteristics of their opera-tions, and crop insurance provides it.Other safety net programs are general-ly structured to be similar across cropsand producers for ease of delivery andwide application, and their paymentsmay not fully reflect the individuallosses borne by the producer.

4) Producers Receive Crop InsuranceIndemnities in the Timeliest Way.While some farm programs may makepayments fairly promptly, such as mar-keting loan benefits, others pay outlong after the payments are needed.For example, the final countercyclicaland Average Crop Revenue ElectionProgram (ACRE) payments for the2010 spring planted crops will bemade no earlier than October 2011.Similarly, the Supplemental RevenueAssistance Payments Program (SURE)payments may occur about 11/2 yearsafter harvest. On the other hand, cropinsurance indemnities are paid outclose to when the loss occurs. Cropinsurance policies require the compa-nies to pay within 30 days of claim set-tlement. Losses due to disasters likefloods or hurricanes and preventedplanting and replant payments may bepaid well before harvest. Other pay-ments are usually made shortly afterharvest. As this article was being writ-ten in mid- December, already $2.9 bil-lion is indemnities had been paid for2010 crop-year losses

5) Producers Do Not ReceiveUnnecessarily Excessive Payments.Crop insurance only pays a producerwhen, after a fitting production effort,there is a loss due to low price or lowproduction due to natural disaster orboth. A trained crop loss adjuster mustwork the producer’s claim.Indemnities received are based onactual losses incurred. Thus, cropinsurance rewards proper effort and

appropriately protects against eventsbeyond the producer’s control.Moreover, crop insurance companiescurrently employ over 4,700 certifiedcrop loss adjusters who are welltrained to accurately assess productionlosses. This loss adjustment system,which includes adequate training, strictconflict of interest standards, and fre-quent claim reviews by third parties,has dramatically reduced waste, fraudand abuse in the program.

6) Producers Can Use Crop Insuranceas Collateral for Loans. Whenbankers loan to a producer, theyrequire an expectation that the loancan be repaid. Many producers useland, equipment or crops as collateralto secure the loan. Farm program pay-ments can also be part of the collater-al. However, some farm program pay-ments may be quite uncertain, andthey may not be well correlated withyield or revenue shortfalls of borrow-ers. Bankers prefer individual cropinsurance to area insurance or pay-ments from some of the other farmprograms. Subject to the provisions ofthe policy, individual crop insuranceguarantees the financial performanceof the business and can be counted onby the banker should production orprices go amiss for the borrower.

7) Producers Can Use Crop Insuranceto Improve their Pre-HarvestMarketing Plans. Many producers donot take advantage of price increasesprior to harvest by using forward sales.They fear that they might not have suf-ficient production to deliver against aforward contract or enough income toclose out a futures or options position.Should disaster strike yields or prices,crop insurance revenue products canprovide the income needed to settleforward contracts or futures andoptions positions. Crop insurance

products provide the financial back-stop needed to optimize farm market-ing.

8) Producer Indemnities are notCapped by Arbitrary PaymentLimits. All farm programs have limitson a producer’s annual adjusted grossfarm and off-farm income to be eligi-ble for payments. Farm programs alsohave annual payment limits for all pro-grams except marketing loans. Directpayments are limited to $40,000 perperson (20 percent less if in ACRE);countercyclical payments are limited to$65,000; ACRE payments are limited to$65,000 plus the amount that directpayments are reduced (20 percent);and SURE payments are limited to$100,000. There are no income caps tobe eligible to buy crop insurance, andcrop insurance premium subsidies andindemnities are not limited.

9) Producers Benefit from theEfficiencies and Service of thePrivate Sector Delivery System.Crop insurance policies are sold andserviced by 15 private sector insurancecompanies, some 15,000 agents andover 4,700 certified loss adjusters.

6 february 2011

Agents and adjusters are generallylicensed by state regulators and haveannual training requirements imposedby states and USDA’s RiskManagement Agency (RMA). Marketincentives and competition haveresulted in intense efforts by cropinsurers to meet their customers’needs in the most efficient and helpfulways. Companies have invested heav-ily in information technology and cre-ated an outstanding delivery infra-structure for crop insurance. Evidenceindicates producers place a very highvalue on the timely, customer-centricservices of private-sector deliveredcrop insurance.

10) Crop Insurance is Comprehensiveand Program Features can beAdjusted Quickly. Crop insurancenow covers a broad range of com-modities, including farm programcrops, horticultural crops, pasture andrange and livestock. Importantly, cropinsurance products can be quicklyadjusted to the changing needs of pro-ducers without going through a longlegislative process. New crop pro-grams can be developed and put inplace and existing programs can bealtered by RMA and the Federal CropInsurance Corporation (FCIC) withoutCongressional action. Having the flex-ibility to make major program adjust-ments also imposes financial disciplineon the government, because it has theresponsibility and authority to corrector eliminate programs and featuresthat are not working. In a sense, thisregulatory flexibility and responsibilitymakes the program self-correcting.Similarly, the government can updatepremium rates to reflect changes inprogram losses and ensure financialintegrity of the program without theneed for Congressional action.

11) Crop Insurance Has AlreadyContributed to Deficit Reduction.While the budget for the new farm billremains uncertain, it is likely to bequite limited. The crop insurance pro-gram has the benefit of having recent-ly undergone substantial budget cuts,most of which have been earmarked

for deficit reduction. The new StandardReinsurance Agreement (SRA)between the government and theapproved insurance companies putinto effect on July 1, 2010, reducedcrop insurance program spending by aprojected $6 billion during 2011-2020,with at least $4 billion of that savingscounting toward deficit reduction.

12) Crop Insurance Has Flexibility toHelp Meet WTO Disciplines. Farmprogram direct payments are consid-ered not to distort production andtrade; thus they are “green box” andnot subject to discipline under theWTO. However, marketing loan bene-fits and ACRE payments are consid-ered production and trade distorting,or “amber box,” and subject to disci-pline. Each dollar spent supportingfarmers under these amber box farmprograms counts against the limit onsupport allowed by the WTO. Cropinsurance, too, is currently consideredamber box, but with some advantagesover most other safety net programs.First, crop insurance is consideredamber box nonproduct specific (as arecountercyclical payments). This meansthe support that crop insurance pro-vides is grouped with other supportthat is not tied to a specific commodi-ty, and the total support of these pro-grams does not count against theallowable U.S. support unless the totalnonproduct specific support exceeds acap, or “de minimis” level, equal tofive percent of total U.S. farm produc-tion value. Second, not all crop insur-ance subsidies are considered to becrop insurance support. Only netindemnities-gross indemnities minusfarmer-paid premiums-are reported asamber box support for crop insurance.Third, crop insurance is generallyviewed favorably by the WTO. In fact,crop insurance can be green box, pro-vided several criteria are met, includ-ing a formal disaster declaration,indemnities that only cover a loss of 30percent or greater and do not exceed70 percent of expected production,and the use of an expected yield thatis a three-year average or five-year

Olympic average. None of these crite-ria currently apply to the U.S. cropinsurance program, which accounts forits amber box classification. But look-ing to the future, changes in the cropinsurance program and the way it isreported to the WTO, along with pro-visions under discussion in a newWTO agreement, could result inreduced crop insurance support beingreported to the WTO, compared withthe current practice, thus easing com-pliance with WTO limitations.

As farm organizations and governmentofficials formulate their recommended pro-grams for the upcoming farm bill, theyshould place a heavy weight on the manystrengths that crop insurance provides toagriculture. As the above discussion pointsout, crop insurance benefits go well beyondindemnities. The public-private crop insur-ance partnership, built around individualyield and revenue protection, possesses thestrengths to be a sustainable, publicly sup-ported, long-run farm support program.The new farm bill provides an opportunityto maintain and strengthen the program tosecure its place as the centerpiece of riskmanagement options for U.S. producers.

* The NCIS Program DevelopmentCommittee (PDC) is monitoring theprogress of the next farm bill and reportingto the NCIS Board of Directors on farm billissues of interest to the crop insuranceindustry. PDC members engaged in thisactivity, including the development of thisarticle, include Ron Brichler (MarkAllison), Great American Insurance Co.;Dan Bird, Rural Community InsuranceServices; Gene Grimsley, Agro NationalInc.; Bob Haney, Rain and Hail L.L.C.;Kendall Jones, ProAg; Greg Meek, FarmersMutual Hail Insurance Company of Iowa;Jay Rushing, ARMtech Insurance Services;Wade Shuler, Heartland Crop Insurance,Inc.; and, Tim Weber, Great AmericanInsurance Co. NCIS staff members partici-pating in the development of the documentinclude Laurence Crane, Dave Hall, TomZacharias, Frank Schnapp, Mike Sieben,Therese Stom, Loretta Sobba, Troy Brady,Laurie Langstraat, and Harun Bulut, aswell as Keith Collins, adviser to NCIS.

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The Federal Crop Insurance (CI) pro-gram has grown to become the center-piece of the agricultural safety net for cropsand currently protects nearly $80 billionworth of liability. Government spendingon crop insurance is now projected toexceed spending on farm commodity pro-grams in future years (Shields, Monke andSchnepf, 2010) (Figure 1). With all farmsupport programs expected to face tightbudget constraints in the upcoming FarmBill, alternative programs are under exam-ination to reduce spending, simplify pro-grams, and eliminate redundancy.Therefore, it is imperative to examine theinteraction of crop insurance and otherfarm support programs and assess howproducers may be affected by emergingFarm Bill proposals for alternative farmsupport structures.

A key development in the last Farm Billwas the move toward revenue protectionas an objective of traditional farm pro-grams. Early proposals for the next FarmBill have included variations on the role ofrevenue protection in farm programs, withan emphasis on improved area revenueprotection. However, most crop insurancepolicies sold today provide revenue pro-tection on either a county or individualbasis. This situation is raising fundamentalquestions about the effectiveness for pro-ducers of area versus individual revenueprotection plans, with such plans usedeither separately or in combination withone another. Consequently, the focus ofthis article is on the connection between

individual and area plans of crop insurancein relation to current and proposed arearevenue plans under farm programs. Weaddress this issue by deriving the produc-er’s preference for coverage between areaand individual plans using an economicmodel of producer choice. Related eco-nomic literature is first summarized, andthen conclusions from the model are pre-sented.

The Evolution ofRevenue Protection

One aspect of the ongoing Farm Billdiscussion is the relative roles of cropinsurance and area revenue programs.

Since the 1990s, farmers have had bothindividual farm and county-based RevenueInsurance Plans available within the CIprogram, which protect against revenueshortfalls. The revenue plans currentlyconstitute nearly the 80 percent of totalpremium (Figure 2). The Food,Conservation, and Energy Act of 2008(2008 Farm Bill) authorized additional farmprograms to protect revenue. One plan, theSupplemental Revenue AssistancePayments Program (SURE), is a whole farmprogram that supplements CI and theNoninsured Crop Disaster AssistanceProgram. Payments under SURE are basedon individual producer losses spread over

Why Do ProducersChoose Individual or AreaInsurance Protection?

TODAYcrop insurance

By Harun Bulut, Keith Collins, Tom Zacharias, Frank Schnapp, NCIS

Figure 1. FY2011-2020: Projected Program Costs, $Bil.

10 february 2011

an entire farm. However, the other newplan, Average Crop Revenue Election(ACRE), protects against revenue shortfallsat the state level. Some concerns on possi-ble overlap and duplication of coveragesbetween ACRE and CI have been raised(Zulauf, Schnitkey and Langemier, 2010;Barnaby, 2010).

There are also proposals emerging forchanging ACRE into a county-level areaplan and integrating that with crop insur-ance (Babcock, 2010). Integrated programsare also known as “wrapped insurance,”where individual insurance works as if“wrapped” around the area program loss-es. Individual crop insurance would paythe residual amount of farmer’s loss oncearea payments are netted out (Coble andBarnett, 2008). Similarly, Cooper (2010)includes ACRE payments in the harvest-time premium calculation for CI.

A solid understanding of the interactionof CI with area insurance and related rev-enue programs and how these optionsaddress the risk management needs of pro-ducers and affect their participation deci-sions is essential for a healthy public poli-cy discussion. However, the literaturedeveloping the factors behind a producer’schoice of area insurance, such as Miranda(1991) and Mahul (1999), has not takeninto account the availability of multipleinsurance or farm program alternatives inthe analytical modeling.

Developing a Modelto Better UnderstandProducer Choice amongInsurance Plans

In order to extend past research on pro-ducer choice to better incorporate policychoices that might be considered for theupcoming Farm Bill discussions, we devel-oped a stylized analytical model to assessfarmers’ choice of coverage levels fromindividual and alternative area plans ofinsurance. The model is flexible to accom-modate existing (such as the yield-basedGroup Risk Plan (GRP) or the revenue-based Group Risk Income Protection(GRIP)) or proposed area plans of insur-ance (such as county-based ACRE ) andfarm revenue protection programs (such asACRE). We combined the two-point distri-

bution approach (i.e., the farmer faces theprospect a loss with probability P or no losswith probability (1-P)) used in the Duncanand Myers (2000) insurance model with thecorrelation modeling approach (i.e., theindividual farm and area losses may be cor-related to varying degrees) used in Bulutand Moschini (2006). As in Duncan andMyers, we specify that the farmer’s prefer-ence is based on expected income, expect-ed losses and the variance (a measure ofvariation) of losses (i.e., the farmer has a“mean-variance utility function”) and thefarmer pays a premium and chooses cover-age levels. To that framework, we intro-duce area insurance plans and define thejoint distribution of individual and arealosses where the losses are imperfectlyand positively correlated. We then solvea risk-averse farmer’s optimization prob-lem under various insurance planoptions.1 (A copy of the paper describingthe model and the study results in detailis available in the AgEcon Search Website:http://ageconsearch.umn.edu/handle/96307.Alternatively, it can be requested from theauthors.)

We identify the main factors determin-ing the farmer’s coverage demands as: thepremium rates, expected farmer’s and arealosses, standard deviations of farmer’s andarea losses, the correlation betweenfarmer’s and area losses, and the farmer’sdegree of risk aversion. Overall, the find-ings indicate a strong case for individualinsurance vis-à-vis area insurance when thepremium rates for area and individualplans are actuarially fair (equal to expectedindemnities).

The root of the findings is the following:it is known that if insurance is actuariallyfair, a risk averse producer will fully insure(100 percent of loss) (Mas-Colell,Whinston, and Green, 1995). Particularly,consider the situation where the farmerwill hold coverage from either individualor area insurance (such as the APH yieldplan versus the county level GRP yieldplan) but not both. Under actuarially fairpremium rates for either insurance plan,the farmer’s expected income is initialincome minus the expected loss. Thefarmer can minimize the variance ofincome to zero by choosing full coverage

1 For instance, a producer i is assumed to have a preference function for individual and area coverage specified asUi = M –πxx –πyy –li –0.5 Ó

where Ui denotes utility or satisfaction level, M : the farmer’s initial income, πx : premium per unit of individual insur-ance coverage level, x : individual coverage level, πy : premium per unit of area insurance coverage level, y : areacoverage level, li : the farmer’s expected loss with coverage, : risk aversion parameter, : variance of the farmer’sexpected loss with coverage.

Then, the farmer’s problem is to find the utility maximizing levels of coverage demands with individual and areaplans given premium rates and other parameters such as probability of individual loss, probability of area loss, andcorrelation level.

Figure 2. Plans of Insurance: 2010 Premium Share


with individual insurance. On the otherhand, the farmer cannot minimize the vari-ance of income to zero with area insur-ance, unless the producer’s loss and arealoss are perfectly correlated as demonstrat-ed in Table 1.

The table indicates that the farmer willbe paid whenever area has a loss. But, theprobability that the area will have a lossmay not be necessarily equal the probabil-

ity that the producer will have a loss,unless the losses are perfectly correlated,which is highly unlikely. Therefore, an areaplan is a more risky choice relative to anindividual plan, and the risk averse farmerwould prefer individual insurance.

The analysis may help evaluate theeffectiveness of proposed county-level arearevenue plans from a pure risk manage-ment perspective. The findings also help

explain the generally low level of participa-tion in the ACRE program (see Figure 3)and in county-level insurance plans, suchas GRP or GRIP (see Figure 4). Before pre-senting some of our initial conclusions onour modeling approach, it is instructive toexamine recent economic research on therelative effectiveness of individual and areacoverage.

Recent ResearchFindings on Farmers’Preference for AreaInsurance

A number of recent studies have ana-lyzed the existing and proposed area plansof insurance and their interaction with cropinsurance.

Regarding GRP or GRIP, Barnett, Blackand Skees (2005) find that GRP can beviable alternative to MPCI yield plan atleast in some crops and regions despite thebasis risk inherent in GRP. Basis risk refersto the possibility that a producer would notbe indemnified for the producer’s actualloss. Based on a analysis for cotton andsoybean production in Georgia and SouthCarolina, Deng, Barnett, and Vedenov(2007) find that GRP yield insurance maybe a viable alternative to MPCI yield insur-ance (even in heterogeneous regions) ifthe rates for farm-level insurance are over-priced, therefore not fair, while the GRPrates are fair. More recently Chaffin (2009)examined the farmer’s choice betweeninsurance plans that trigger at the farm orcounty level in a simulation study, whichincluded GRP, GRIP, GRIP with HarvestPrice Option (HPO) along with the APHindividual yield plan and the individualrevenue plans, Revenue Assurance (RA)and RA with HPO. The study identifies thefactors determining optimal insurance planchoice as the correlation between countyyield and farm yield and whether the farmis spatially diverse in a given county.Unless the correlation coefficient is above0.9 and the farm is spatially diverse, thestudy recommends serious caution inchoosing a county plan.

Regarding ACRE, Zulauf, Dicks, andVitale (2008); Zulauf (2009); Zulauf,Schnitkey and Langemier (2010); Paulson,Schnitkey and Zulauf (2009); Schnitkey and

Table 1. Possible Payment Outcomes for Individual and Area InsuranceArea With a Loss Area Without a Loss

Farmer With a Loss Farmer is Paid Farmer is Not Paid

Farmer Without a Loss Farmer is Paid Farmer is Not Paid

Figure 3. 2009 ACRE Enrolled Base Acres as a % of Total Base

Figure 4. 2009 GRIP/GRIP: Insured Acres as a % of Total Insured Acres

12 february 2011

Paulson (2009) and Paulson (2009) tend toview ACRE and Revenue CI working moreas complements rather than substitutes andrecommend that farmers participate inACRE and purchase CI. The crop insurancepremium paid by the producer is added tothe farm-level ACRE guarantee, increasingthe probability of a payment and giving anextra incentive for farmers to sign up.However, ACRE may provide incentives toreduce CI coverage levels and use yieldinsurance rather than revenue insurance(Paulson, Schnitkey and Zulauf, 2009).

Zulauf, Dicks, and Vitale (2008) andZulauf, Schnitkey and Langemier (2010)argue that ACRE would allow farmers tobetter adjust to possible declining pricesand would be effective for large declines inprices that last longer than one year. ACREmay address price risk across years via the10 percent cap and cup on the state guar-antee and also by the use of the movingaverage of past prices, whereas CI protectsagainst price risks only up to the harvesttime in the current production year. Underthe assumption of a stable demand for acommodity, if productivity gains are high-er than input cost increases, commodityproduction would expand and equilibrium

prices would fall, which would lead tolower base prices and lower guarantees.However, a lower guarantee might notcover the increase in production cost,which has tended to increase in recentyears.

The preceding argument in Zulauf,Dicks, and Vitale (2008) and Zulauf,Schnitkey and Langemier (2010) has thefollowing limitations. The stable demandassumption in these studies can be calledinto question. Rising global food and fiberdemand, the recent approval of higherethanol blend levels in the U.S. and recentsupply shortages in the world marketseem to indicate that stocks may remaintight for major crops, which would tendto limit price declines. It is also not alsoclear why productivity gains may increasefaster than input cost increases during thelife of the next Farm Bill. Furthermore, ifprices were to increase sharply over time,CI revenue plans would respond morequickly and appropriately than ACRE.Based on a historical analysis covering 31years from 1977 to 2007, Schnitkey andPaulson (2009) report that 18 out of 31times the year-over-year increase in thestate guarantee is capped at 10 percent.

They do not report on the frequency ofwhich the state guarantee is cupped.Given the rising prices and increasingvolatility in the last decade, it seems rea-sonable to think that the state guaranteewould be capped at least as often in thefuture as in the past.

Somewhat contrary to the aforemen-tioned studies, Hong, Power andVedenov (2009) find that a representativefarmer in representative counties inMidwestern and Southern regions prefersCrop Revenue Coverage (CRC) revenueinsurance over the combination of ACREand CRC. This preference is more pro-nounced for cotton production inHockley County (irrigated) and HaleCounty (non-irrigated) in Texas (whereyield risk is high and yield and price arenot highly correlated) relative to cornproduction in Piatt County in Illinois. Inthe latter county, the CRC option is onlyslightly preferred to the ACRE and CRCoption.

Even though ACRE is optional for alleligible farmers and farmers do not direct-ly pay for ACRE, selection of ACRE has animplicit premium as farmers must give up20 percent of their direct payment andtheir entire price-based countercyclicalpayment, along with a 30 percent reduc-tion to their marketing loan rate. Thisimplicit premium does not change withthe risk associated with ACRE, and is notbased on actuarial or underwriting consid-erations (Barnaby, 2010). If the implicitpremium may be mispriced, this mayencourage or discourage participation inACRE depending on the producer’s risk ofloss. In addition, the multiyear commit-ment for participation in ACRE and theprogram complexity may have curtailedparticipation levels. Overall, participationin ACRE has been low and rather selectiveby crop and region (Barnett, 2010).Specifically, nearly 13 percent of all eligi-ble acres nationwide enrolled in ACRE in2009; corn and soybeans have about 15percent enrolled; wheat is 13 percent; riceand cotton are zero percent. About 25 per-cent of corn acres in Illinois, Nebraska,and South Dakota corn are enrolled inACRE, while Iowa and Indiana are about16 percent. (see also Figure 3). Barnaby


(2010) points out that risk managementwas probably not the main reason forwheat (especially winter wheat) producersselecting ACRE as they had the informa-tion to adversely select on ACRE. Unlikethe CI guarantee based on futures prices,the ACRE guarantee is calculated based ona moving average of past prices, whichmay not reflect current market conditions,and may distort farmers’ planting deci-sions (Babcock, 2009).

Simulation studies such as Dismukes,Arriola, and Coble (2010) and Cooper(2010) find that ACRE tends to pay more inareas with high expected yield and lowyield variability. ACRE is also ineffective incovering a farm’s idiosyncratic risk-thoseuncorrelated with widespread losses.

Findings from OurAnalysis

Using our stylized model of coveragelevel choice with area and individualinsurance, we do not find any support forthe purchase of area plans when the pre-mium rates for area and individual plansare fair and the producer has to choosebetween individual and area plans (suchas the APH individual yield plan versusthe county-level GRP yield plan). Instead,the farmer would fully insure with individ-ual insurance. The findings on the cover-age choices (conditional on the premiumrates) with area and individual plans when

Table 2. The Producer’s Coverage Choices for Individual and Area InsuranceCoverage Choice: Individual and Area Coverage are separate plans (Producer may buy one or both)(Assumes losses under individual and area plans are less than perfectly correlated)

Premium Rate Level Individual Coveraage Choice Area Coverage Choice Combined Individual andArea Coverage Choice

Individual = Fair 100% 0% Individual = 100%Area = Fair

Individual = Fair <100% >0% Individual + Area may >100%Area = Free

Coverage Choice: Individual and Area Coverage are Intergrated(Individual Plan pays the remainder of loss after the Area Plan pays)(Assumes losses under Individual and Area Plans are less than perfectly correlated)

Premium Rate Level Individual Coveraage Choice Area Coverage Choice Combined Individual andArea Coverage Choice

Individual = Fair 100% 0% Individual = 100%Area = Fair

Individual = Fair >100% >0% Individual + Area >100%Area = Free

these plans are separate (yet the farmercan hold coverage from both individualand area insurance) or integrated are sum-marized in Table 2.

We also looked at a situation in whichthe producer could insure using both anindividual and an area plan, similar to aproducer being able to participate in aplan such as ACRE. If the individual andarea losses are positively but not perfect-ly correlated and premium rates are fair,our model indicates the farmer will fullyinsure with individual insurance anddemand no area coverage. However, ifthe premium rate on the area plan is notfair (under- priced), then individual insur-ance and the area plan are substitutes,and the demand for area insurance willbe influenced by the correlation levelbetween the individual and area losses.For example, if area insurance is free andthe individual plans are charged at the fairrate, the farmer has an increasing incen-tive to substitute more area insurance forindividual insurance as the correlationincreases. Our analysis suggests thefarmer may even want to over-insuregiven the availability of free area insur-ance and the flexibility of being able tochoose coverage levels with the areaplan. (Note that the coverage level, orstate revenue guarantee, with ACRE is setat the 90 percent of the state benchmarkrevenue. Farmers cannot choose their

coverage with ACRE as they do with indi-vidual crop insurance where the maxi-mum coverage level is 85 percent.)

Appeal and PotentialRole of Area Plans

GRP and GRIP will likely continue toserve as useful insurance products for alimited area of the country where farms aremore homogeneous in their response tonatural disasters. However, the increasedfarm premium subsidies for enterprise unitsappear to be cutting into the market sharefor these products. Proposals such as mov-ing ACRE closer to the farm-level coveragein the form of a county-level revenue guar-antee presumably hope to gain from high-er correlation levels of losses between thecounty and the average farm relative tothose between the state and the averagefarm. Regarding the actual levels of the cor-relation by county, we are unaware ofcomprehensive U.S. estimates of farm andcounty yield, loss, or revenue correlationsbased on individual farm data.

Coble, Dismukes, and Thomas (2007)report simulated national average yield cor-relations between county and farm of 0.89for corn, 0.87 for soybeans, and 0.89 forcotton, high enough to suggest somepotential attractiveness for county plans.However, caution is warranted with thesenumbers as the national average revenuecorrelations between farm and state report-

14 february 2011

ed in the same study, which are 0.74 forcorn, 0.72 for soybeans and 0.746 for cot-ton, are higher than those recently reportedin Dismukes, Arriola, and Coble (2010). Thelatter study reports that the U.S. averagefarm-state revenue correlations are 0.55 forcorn, 0.54 for soybeans and 0.39 for cotton.

Barnett, Black and Skees (2005) reportestimated average correlations betweenfarm and county yields for corn in 10 statesusing individual farm data on nearly 67,000farms during 1985-1994. Their correlationsvaried widely; they were generally high inthe heart of the corn belt, ranging from 0.71in Ohio to 0.82 in Illinois, but fell to 0.49 inTexas and 0.36 in Michigan. These wide cor-relation differences across regions suggestthat county area plans are likely to be ofwidely differing risk reduction value to pro-ducers in various regions. Large divergencesin value complicate the determination of anappropriate implicit premium for any fore-gone farm program payments if the currentACRE program is shifted to a county rev-enue guarantee.

Furthermore, a county-based ACRE pro-gram would face significant operational hur-dles. There are already separate county CIprograms with explicit premiums, such asGRP and GRIP. The experience with theseprograms has pointed out significant prob-lems with the availability of reliable countyyield estimates from the NationalAgricultural Statistics Service (NASS), whichRMA uses as a basis for the GRP and GRIPprograms. RMA discontinued GRP/GRIPprograms in 1,062 counties in 2010, whichincluded counties producing corn, soy-beans, grain sorghum, and peanuts, becausethe revised standards introduced by NASSresulted in fewer but more reliable countyestimates. Moreover, the Farm ServiceAgency and NASS would face substantialadditional workloads if ACRE were to berestructured to operate on county-level data,and both agencies already operate underlimited funding and staff.

County-based ACRE proposals seem tooverlook the fact that farmers have had littledemand for GRP and GRIP in many regionsof the country, as these plans accounted forless than four percent of the total MPCI pro-gram premium in 2010. This is consistentwith our finding of a strong preference tohold individual insurance and fully insure

when rates are fair. Integrating a county-based ACRE plan with crop insurance canlead to program savings through eliminationof duplication of payments. Nevertheless, ourfindings further indicate that the county-based plan integrated with an individual pol-icy, such as a county ACRE plan, will bedesired by the farmer only if it is underpricedand the farmer can over insure, that is, thefarmer would want to hold more coverage intotal than what is necessary to pay thefarmer’s entire loss.

ConclusionOur findings confirm that crop insur-

ance is best suited for providing individualrisk protection tailored to the risks andcharacteristics of individual farmers’ opera-tions. We conclude that farm programs

should not be redesigned to function asarea plans which would be intended tooverlap or substitute for crop insurance.Farm programs can be compatible withcrop insurance-they can do what cropinsurance does not, such as enhancingincome, if that is the policy choice, or par-tially compensating for crop insurancedeductibles. However, it does not seemprudent to try to displace crop insurancewith a low cost or free farm program withlimited coverage options and, presumably,payment limitations. Instead, crop insur-ance, as a dynamic, self-correcting, andevolving program of individual risk protec-tion that is partly funded through produc-er-paid premiums, should be strengthenedto enhance its position as the key long-term tool for agricultural risk management.

ReferencesBabcock, B. A. 2009. “ACRE: Price Support or Crop Insurance?” Iowa Ag Review. Spring.Babcock, B.A. 2010. “Costs and Benefits of Moving to a County ACRE Program.” CARD Policy Briefs. 10-PB 2. Available

at http://www.card.iastate.edu/publications/synopsis.aspx?id=1128 .Barnaby, G. A. 2010. “Should Basic Underwriting Rules Be Applied to ACRE and SURE?” Journal of Agricultural and

Applied Economics. 42(3): 517-35.Barnett, B.J., J.R. Black, Y. Hu, and J.R. Skees. 2005. “Is Area Yield Insurance Competitive with Farm Yield Insurance?”

Journal of Agricultural and Resource Economics. 30(2): 285: 301.Barnett, B.J. 2010. “Crop Insurance and Farm Programs.” Presented at the Symposium on New Developments in Crop

Insurance and Their Implications for 2010 and Beyond at the 2010 Annual Meeting of American Agricultural EconomicsAssociation in Denver, CO on July 25-27.

Bulut, H. and G. Moschini. 2006. “Patents, Trade Secrets and the Correlation Among R&D Projects.” Economics Letters.91: 131-137.

Chaffin, B. 2009. “Crop Yield and Revenue Insurance: Choosing Between Policies That Trigger on Farm vs. CountyIndexes.” Masters Thesis. Department of Agricultural Economics. Michigan State University.

Coble, K.H. and B.J.Barnett. 2008. “Implications of Integrated Commodity Programs and Crop Insurance.” Journal ofAgricultural and Applied Economics. 40(2): 431-442.

Cooper, J.C. 2010. “Average Crop Revenue Election: A Revenue-Based Alternative to Price-Based CommodityPrograms.” American Journal of Agricultural Economics. 92(4): 1214-1228.

Deng, X., B.B. Barnett, and D. V. Vedenov. 2007. “Is There a Viable Market for Area-Based Crop Insurance?” AmericanJournal of Agricultural Economics. 89(2): 508-519.

Dismukes, R., C. Arriola, and K.H. Coble. 2010. “ACRE Program Payments and Risk Reduction: An Analysis Based onSimulations of Crop Variability.” USDA Economic Research Report No: 101. September.

Duncan, J. and R. M. Myers. 2000. “Crop Insurance Under Catastrophic Risk.” American Journal of AgriculturalEconomics. 82 (4). 842-855.

Hong, S.W., G.J. Power, and D.V.Vedenov. 2009. “The Impact of the Average Crop Revenue Election (ACRE) Program onthe Effectiveness of Crop Insurance.” Paper Presented at the Southern Agricultural Economics Association AnnualMeeting in Atlanta, GA on January 31-February 3.

Mahul, O. 1999. “Optimum Area Yield Crop Insurance.” American Journal of Agricultural Economics (Feb): 75-82.Mas-Colell, A. M.D. Whinston, and J.R. Green. 1995. Microeconomic Theory. Oxford University Press. New York, NY.Miranda, M.J. “Area-Yield Crop Insurance Reconsidered.” American Journal of Agricultural Economics. 79 (May

1991): 233-42.Paulson N., G. Schnitkey, and C. Zulauf. 2009. “The Relationship Between the ACRE Program and Crop Insurance.” Paper

Presented at the Annual Meeting of SCC-76 Group in Galveston, TX on March 19-21.Paulson, N. 2010. “ACRE, Insurance Seen As Complementary ‘Coverages’.” December 17. Available at

http://farmweeknow.com/story.aspx?s=34004Schnitkey, G. and N. Paulson. “Historical Analysis of ACRE.” Farm Economics: Facts and Opinions: FEFO 09-11.

University of Illinois Extension.Shields, D.A., J. Monke, and R. Schnepf. 2010. “Farm Safety Net Programs: Issues for the Next Farm Bill.” . Congressional

Research Service Report for Congress. R41317.Zulauf, C.R., M.R. Dicks, and J.D. Vitale. 2008. “ACRE (Average Crop Revenue Election) Farm Program: Provisions, Policy

Background, and Farm Decision Analysis.” Choices. 23(3) 3rd Quarter.Zulauf, C. 2009. “Why I Chose ACRE.” The Ohio State University Agricultural, Environmental, and Development

Economics Report No: 0122-09. October.Zulauf, C., G. Schnitkey, and M. Langemeier. 2010. “Average Crop Revenue Election, Crop Insurance, and Supplemental

Revenue Assistance: Interactions and Overlap for Illinois and Kansas Farm Program Crops.” Journal of Agricultural andApplied Economics, 42(3): 501-515.

The purpose of this step is to inventory theresources available to the farm businessand document how they are currentlybeing used. The information includes thevalue and productive capacity of tangibleassets, the types and timing of laborresources and needs, the farm’s currentfinancial condition, and its capacity toassume additional risk.

You need to first know where you arebefore you can decide how to proceed.Thus, the beginning step in businessplanning for your farm is to thoroughlyidentify and document your farm in itscurrent state. This includes developingan inventory of the assets that make upthe current farm business. The inventorywill include a summary of the farm’sresources, a description of its enterprises,and an assessment of its financial status.Activities in completing this step will like-ly include:• Describing the current farm operationin terms of types and quantities of

commodities generally produced, andtotal acreage (owned and leased);

• Developing a list of non-land assetsowned or leased by the business, anddescribing their productive capacity;

• Outlining the quantity, type, and avail-ability of human resources;

• Summarizing the types and quantities ofinputs used to produce each commodity(including owned assets), and describingproduction and marketing strate-gies/practices;

• Analyzing each enterprise by assessingits production efficiency in terms of:• the dollar value of inputs and thedollar value of production;

• return to the owner’s labor, manage-ment, risk, and equity; and,

• comparing current production topast production and production bypeer firms.

• Listing the business owners, the farmassets each owns, and the method ofcompensating them for allowing thebusiness to use their assets;

• Assessing the overall farm business by:• comparing availability of inputs towhat is needed, in terms of quantityand timing;

• developing up-to-date financial state-ments (cash flow statement, incomestatement, and balance sheet);

• comparing the current situation withpast financial situations and thefinancial situation of peer firms; and,

• measuring the farm’s capacity toassume risk.

You should not expect to complete all

of these activities the first time you attemptthis step; there is too much information.Instead, you should expect to initiallyexpand the documentation you alreadyhave, such as financial statements and adepreciation schedule, then each year youcan enhance your description of the farmbusiness. After several efforts, you willhave developed and documented a com-plete description of your farm. You willalso have gained a more complete under-standing of your farm and the elements,both good and bad, that it encompasses.Experience indicates that it is not uncom-mon to take three years to develop thiscomprehensive description and under-standing of a farm business.

I. RESOURCES USED TO OPERATETHE CURRENT FARM

The first activity is to document theresources currently being used on the farm.Once this list is completed you will need toconcentrate on the resources necessary tocontinue operating the farm in its currentconfiguration. Following are some sugges-tions on how to identify, categorize, andorganize available and needed resources.After compiling these two sets of information(available resources and needed resources),you will be prepared to assess whichresources are inadequate and which areunder-utilized. In either case, some changesin the farm business may be necessary.

Enterprise and Whole-farm Analysis

Inventorying a business can encom-pass two major analyses. One analysis

STEP 1-INVENTORY OF ASSETS

Q: What is the current statusof my farm business?

TODAYcrop insurance

16 february 2011

This is the first in a ten-part series of articles on “The Steps of Farm Business Planning.”The introductory article for the series can be found in the November 2010 issue of Crop Insurance TODAY® on pages 8-10.

By Dr. Laurence Crane, NCIS

focuses on each of the individual piecesor enterprises that comprise the business.The second analysis concentrates on theentire business; that is, the whole farm.Most farmers are more familiar with awhole-farm analysis than with enterpriseanalysis. However, enterprise analysisallows you to recognize the level of prof-it being earned by each enterprise, andcommit resources to enterprises thatmove them closer to their ultimate goal(as discussed in Step 4-Setting Personaland Business Goals). The analyticalprocesses described here focuses onboth individual enterprises and on thewhole-farm.

Primary and SecondaryEnterprises

Farmers often initially describe theiroperation according to the commoditiesthey produce or the enterprises theyoperate. Identifying each commodity orenterprise, whether it is a primary or anancillary activity for the farm operation,reduces the likelihood that secondaryenterprises are overlooked when analyz-ing the current farm business and con-sidering its future potential. For examplea typical dairy farm would have milkproduction as the primary enterprise,with replacement heifers, bull calves,and feed production (corn, alfalfa etc.)as potential secondary enterprises.Agritourism and on-farm milk sales arealso examples of potential secondaryenterprises.

Productive CapacityAs you complete the inventory of

assets on your farm, think about and con-sider the capacity each of these assetshave to produce. By considering produc-tive capacity you are thinking about whatyou can do with the assets rather thanjust measuring quantity and dollar value.Productive capacity analysis focusesattention on productivity, and reinforcesthat the value of an asset reflects “whatand how much” is expected to be pro-duced during the asset’s remaining usefullife. Different production practices andvarying uses of resources are consideredin Step 6 when alternatives for the farmoperation are identified.

Land ResourcesLand often is a second characteristic

farmers mention in describing their opera-tion. A complete inventory of land usagewould indicate the acreage that is:• Owned and operated;• Owned but leased to other farmers;and,

• Leased from other owners.Land leased from others is included in

the inventory because it is being used inthe farm business. Land leased to othersalso is inventoried because the ownermay have the alternative of operating itafter the lease expires. Another commonpractice is to categorize land according towhether it is cropland, pasture, or hassome other use. A summary of theacreage used in the farm’s primary enter-prises also can be helpful. But secondaryproducts or uses should not be over-looked, such as straw for bedding, sea-sonal grazing, fee hunting, or agritourism.The inventory also may indicate the typi-

cal yield for each of the products. Pastproduction records are valuable in com-pleting this activity.

It can be helpful to briefly describe thecharacteristics of each land tract. Thedescription probably begins with informa-tion about the number of acres in croplandor pasture, but since the emphasis duringthe planning process is on selecting a strat-egy for operating the farm in the future, theinventory also should report what can beproduced on the land. This productionpotential is referred to as the land’s produc-tive capacity.

Relevant questions in assessing land’sproductive capacity may include whatother commodities could be produced onthe land, could the pasture/hayland beused to produce a crop, could the croplandbe used for grazing, and could the land beimproved (perhaps drained or irrigated).Brief responses to such questions providea more complete description of the land.Likewise, this vision begins to lay the foun-


18 february 2011

dation for considering alternatives in latersteps of the planning process. For exam-ple, farmers may want to identify possibleby-products from the production processesand consider whether the by-products canbe used on the farm or sold. Also, alterna-tive uses (non-agricultural) for the landmay be part of this description.

Another example of describing the pro-ductive capacity of an acre of land would bethat it is able to annually produce 80 bushelsof corn, 60 bushels of barley, or two tons ofhay rather than only being described as hav-ing a market value of $1500 per acre.Computerized mapping systems based onsoil type and other production considera-tions are the extreme in detailed assessmentof land productivity. Other considerations indescribing land resources might include dis-tance to trade centers, pest problems, legalrestrictions on use, and the base acreage forparticipating in federal government farmprograms.

Additional information for leased landwould include the rental rate and possibleduration of the lease. Information about thebook value, market value, and encumber-

ing liens further describes owned land.Some of the information for owned landmay already be documented on the owner-s’ balance sheet or other financialstatements.

Owners of farm businesses that do notrely on extensive acreage, such as a nursery,seed processing plant, or a confinementlivestock operation that purchases neededfeeds, may find it more useful to develop adescription of that primary enterprise thanto spend considerable time detailing theirland uses. Capacities or alternative uses forthe facilities may be part of the description.

Inventory of Equipmentand Buildings

The next activity is to develop a list of allnon-land assets used in the business. Thedepreciation schedule already lists equip-ment and purchased breeding livestock, andis a good document with which to start thisprocess. You would add to this schedule:• Equipment and purchased breeding live-stock that have been fully depreciated;

• Raised breeding livestock; and,• Non-breeding livestock.

Farmers who maintain a detailed balancesheet may have much of this informationalready compiled, in which case, a copy canbe inserted in their planning manual as partof this section.

Like land, the inventory of equipmentcould include an assessment of the asset’sproductive capacity. For example, a farmerowns a tractor to use in the farming opera-tion; perhaps to complete 1,000 hours ofwork each year. If the farmer, during a laterstep of the planning process, selects enter-prises that annually require 1,500 hours ofwork from that tractor, the farmer may haveto make some changes.

Additional factors in describing equip-ment could include alternative uses forthe equipment; other enterprises in whichthe equipment can be used; and, the age,state of repair, acreage capacity, ease oftransporting, useful life, and obsolescenceof the equipment. Encumbering liens thatmay restrict disposition of the equipmentalso could be part of the inventory.

In assessing livestock buildings, relevantquestions may address capacity and condi-tion of facilities for housing, feeding, live-stock handling, feed processing, feed stor-age, and waste management. The availabili-ty of water also is an important considera-tion. Factors considered for a grain enter-prise could include capacity and conditionof facilities for storage, processing, handling,and drying.

General farm buildings, such as the farmshop and machinery storage, could begauged according to their capacity to meetcurrent and future needs (especially asequipment sizes continue to increase). Suchan assessment also will likely consider thebuildings’ age, state of repair, and potentialfor expansion or refurbishing. These factorssecondarily influence value but primarilyinfluence what and how much can be pro-duced, or which tasks can be accomplished.

Like land leased from others, leasedequipment and buildings should be inven-toried since they are part of the farm’s pro-ductive capacity.

Livestock InventoryA detailed description of livestock often

is helpful. For breeding livestock, informa-tion about their age, projected productivity,

death rate, cull rate, and replacement rateprovides a more complete description ofthe herd than just the number of head andtheir current market value.

Production and SupplyInventory

Farm businesses almost always have aninventory of goods. Last year’s grain stored forsale would be part of the production invento-ry. The quantity, quality, and market valueoften are critical since this type of asset gen-erally will be used only as a source of cashrevenue.

You also may have an inventory of sup-plies/inputs that will be used to produceanother commodity on the farm. Hay raised

for feed and fuel stored in the farm tanks fallwithin this category, even though one wasproduced on the farm while the other waspurchased. The dollar value of these itemsmay not be as critical as the fact that there isenough hay (measured in terms of quantityand quality) to feed the breeding herd for sixmonths, and enough fuel to till and plant 400acres in the spring. A description of supplieswould likely specify quality, quantity, alterna-tive uses, and restriction on uses (such asgrain subject to a Commodity CreditCorporation loan). Again, some of this infor-mation may already be part of a detailed bal-ance sheet.

In describing purchased inputs, farmersgenerally include inputs that are invested in

growing crops, such as fieldwork completedlast fall or chemicals and fertilizers alreadyincorporated into the soil. In addition, theinventory could include inputs that have beenpurchased and paid for, but not delivered(commonly referred to as prepaid expenses).

Available Labor-theHuman Resource

Labor is an important asset not listedon the balance sheet or depreciationschedule. A business inventory perhapsshould include information such as:• How many people are working in thebusiness;

• When and for how long they are avail-able (such as full-time, summer

months, weekends, evenings);• Their talents and skills;• Their level of management or supervi-sory skills;

• Which skills should be improved;• The tasks they typically perform;• Their rate of pay; and,• How the availability of this labor mightchange in the future (such as a teenagechild leaving home in several years, afamily member retiring, or an adultchild leaving an off-farm job and beingavailable full-time).Developing an inventory of available

labor poses some unique challenges forseveral reasons:• Labor is not a homogenous commodi-ty, (each worker has different skillsand talents);

• Labor can be quantified using differentmeasures;

• Labor is not fungible, that is individualunits are usually not mutually substi-tutable;

• Extra labor cannot be readily stored foruse at a later time; and,

• Labor is necessary to utilize most anyother resource in the business (such asequipment).A farm inventory may have categories

of available labor skills, such as equip-ment operator, livestock handler, crafts-

man/mechanic, or manager. The farmermay further sub-divide or categorizeskills; for example, management couldbe subdivided into areas of production,marketing, financing, and interpersonalskills (which could include supervisingand negotiating). Since all successfulfarms need to perform these tasks invarying degrees, the process of invento-rying the farm’s available labor maydevelop such categories. Also, distin-guishing categories of labor on the basisof time helps assess the adequacy of thiscritical component. An approach similarto a cash flow statement perhaps canhelp understand the timing issue forlabor. A similar timing analysis can beconducted for equipment, building, andland resources.

II. RESOURCES NEEDED TO OPER-ATE THE CURRENT FARM

The activities of this step, thus far, havefocused on what resources are available.The next activities concentrate on theresources necessary to operate the presentfarm. After compiling these two sets ofinformation (available resources andneeded resources), farm owners are pre-pared to assess which resources are inad-equate and which are under-utilized. Ineither case, some changes in the farmbusiness may be necessary.

Enterprise BudgetsDeveloping a description of each enter-

prise is one procedure for compiling arecord of what and how resources are usedin operating the farm. A component of thedescription would be an enterprise budgetthat includes information about the quanti-ty produced and the revenue generated.Some enterprises produce several sourcesof revenue. For example, a wheat enter-prise could generate income in the formsof grain sale, government program pay-ments, crop insurance benefits, straw, andfall grazing.

A detailed description of each enter-prise also would include a list of inputs, thequantity used, cost per unit of input, andtotal cost for the input. This informationcould be thought of as the “recipe” thefarmer follows in producing the commodi-ty.

Some farmers will conduct more thanone enterprise analysis for some commodi-ties. For example, multiple analyses areneeded when the operator uses differenttechnologies or levels of input to producethe commodities. A corn enterprise that fol-lows organic production practices is dis-tinct from one where corn is producedusing conventional production practices.Farmers will want to analyze the profitabil-ity and feasibility of each “recipe” to under-


stand which one best utilizes theirresources.

It is important that the enterprises bedescribed as specifically as possible so theanalysis accurately reflects your business.Otherwise, in later steps you will be mak-ing decisions based on faulty data for yourfarm. It is for this reason that you cannotuse general descriptions or budget valuesthat are developed by others.

Crop enterprise budgets often are pre-pared on the basis of one acre whereaslivestock enterprises often are on a per-head basis. An advantage to preparingenterprise budgets on a per-acre or per-head basis is the ease of changing the scaleof the enterprise by multiplying by a differ-ent number of acres or animals. Such anapproach, however, assumes that the pro-ductivity of each acre or of each animalvaries little from the average. However,some farmers have or are developingrecords in sufficient detail so their budgetsreflect variation among fields or groups oflivestock, rather than assuming that eachfield or group is equally productive.

One challenge in developing an enter-prise budget is to identify and measure allinputs being used, including resourcesprovided by the owners and family mem-bers. For example, farmers generally arenot paid a regular wage for their efforts,and this may cause them to overlook thevalue of their labor in the analysis. Anenterprise that generates $20 of profit andrequires three hours of the owner’s labormay be more desirable than an enterprisethat generates $30 of profit but requires10 hours of the owner’s time. Later stepswill provide more ideas on how to assessalternatives; but in completing this inven-tory, farmers are encouraged to specify allresources used to produce their com-modities.

Opportunity CostAn important part of inventorying your

assets and getting to know your currentfarm situation is to consider the opportuni-ty costs for your farm. The cost businessowners impose on themselves for the useof their own resources is referred to asopportunity cost. The definition of anopportunity cost often is stated as “the

amount of income I am giving up when Iuse this asset in my business.” For land, aquestion to ask in determining an opportu-nity cost could be, “How much rent am Inot receiving because I use my land in mybusiness rather than leasing it to anotherbusiness owner?”

An alternative definition could be “theamount of income I want to receive inreturn for using my resource in this activi-ty.” This definition allows the asset ownerto consider their own values. For example,a farmer may want to receive $10 per hourfor operating a crop enterprise but wouldwant $15 per hour to handle livestock,because the farmer does not like animals.Each person likely could present severalexamples of when they would impose adifferent opportunity cost depending onthe activity in which the resource is beingused. Regardless of the definition used,farmers need to understand the cost ofusing their own resources in their business.

Another question that arises with thisanalysis is deciding which resource shouldhave an opportunity cost imposed. It doesnot matter, except if there are particulargoals the farmer wants to reach. One sug-gestion is that the owner could impose anopportunity cost on the resource the ownerconsiders most important in terms of earn-ing a return. Then, any amount remainingafter subtracting that cost is the return tothe other owned assets.

For example, if the farmer was tocharge for the labor the farmer provides tothe business, the amount remaining aftersubtracting an opportunity cost for thelabor would be the farmer’s return for allother owned assets. The farmer could thenask, “If I am paid for my labor, does thebusiness generate enough revenue to justi-fy investing my other assets in the busi-ness?”

By imposing a cost for some ownedassets, you are better positioned to decidewhether to continue or change the currentfarm operation. This analytical step, how-ever, does not change the amount of rev-enue you receive since an opportunity cost(labor, in the previous example) does notrequire a cash payment to another person.This step is one analytical method to helpyou better understand your farm business.

Cash Flow for theEnterprise

The cash flow of operating the enter-prise should also be considered because itwill be different than the revenue or costs.For example, harvesting straw after wheatharvest so it can be used as bedding, doesnot generate cash even though it is a prod-uct from the enterprise. The straw has valuein the revenue column but does not haveany amount in the cash column.Depreciation is a cost that does not requirecash. Principal payments on debt are anexample of a cash outflow that is not a cost.Recognizing these differences helps farmersbetter understand their businesses.

Description of theEnterprise

A budgetary summary is not adequate tofully describe an enterprise. The descriptionalso should include a summary of process-es used in operating the enterprise. Forexample, in a livestock enterprise, the sum-mary could indicate the ration, medications,and production technology being used, aswell as when each practice is performed.For crop enterprises, the description wouldlikely indicate field operations, the equip-ment used for each operation, the length oftime it takes to complete each operation,when the operation is performed, andwhether production of the commodityinvolves participation in a government pro-gram.

Additional information for most enter-prises also could address the marketingstrategy, the timing of cash flows, risk expo-sure, and labor needs. Operators who fol-low a documented marketing plan caninclude a summary of the plan as part ofthis section in their overall plan; otherwise,a brief description of how the commodity ismarketed would be a good start. Later stepsin the planning process offer an opportuni-ty to refine these strategies/practices.Similarly, quantifying and managing the riskexposure is addressed in later steps.

Timing of ResourceNeeds

Having resources available when theyare needed is a key element to successfullyoperate any business. Cash flow, labor, and

22 february 2011

production operations (such as field work)are perhaps the management issues mostdirectly impacted by timing.

A cash flow statement provides informa-tion as to when cash is needed and whenit is received. Generally cash flow state-ments are developed for the entire farm (awhole-farm analysis) as addressed in a sub-sequent section. However, to develop awhole-farm analysis, each enterprise isimplicitly or explicitly considered.Presumably, farmers think about cash flowon an enterprise basis even though theymay summarize the information onto onesheet of paper for the entire farm.

Developing a whole-farm cash flow isnecessary in order to see the “big picture.”But when alternative enterprises are con-sidered (as will be done in Step 6 of theplanning process), the whole-farm analysiswill be partially dismantled to replace thecash flows of discontinued activities withthe cash flows of new enterprises. Havingdocumented the cash flow of each enter-prise may ease the replacement processbecause the assumptions made in develop-ing the original cash flow statement wouldbe more explicit. Knowing the timing andsize of cash flows are critical in managing abusiness.

This type of detailed analysis is equallyimportant in assessing the impact of alter-natives on the timeliness of labor and pro-duction operations. Again, the level ofinformation necessary to develop and doc-ument such a thorough understanding ofthe business will likely take several years tocompletely assemble.

Labor NeedsDescribing the types and timing of labor

needs poses many of the same challengesfaced in documenting the availability oflabor, and thus similar strategies may bebeneficial. The same categories could beused for labor needs as were used for laboravailability.

One method for inventorying laboravailability, uses, and needs is to prepare a“labor flow budget” similar in concept to acash flow budget. A labor flow budgetwould show the quantity of labor neededthroughout the year on a periodic basic(day, week, month, or year). Doing this at

the enterprise level is helpful in document-ing the amount of labor required to per-form specific tasks. You can also begin toidentify surpluses and shortages with thisprocess. A whole farm labor schedule canbe created by combining the labor flowsfrom the individual enterprises. A morecomplete labor flow budget/labor schedulewould also identify the individuals who willperform the labor. At this level, the skills ofeach individual become important, and theunique characteristics of labor as a humanresource become evident.

Later in the planning process, you willhave an opportunity to consider alternativecombinations of enterprises. Some of thecriteria for selecting enterprises will includeprofitability (does the enterprise earn anadequate profit) and feasibility (do the cashand non-cash resources necessary to oper-ate the enterprise match with what is avail-able to the business). Recognizing the needfor and beginning to gather the detailedinformation required to answer these ques-tions should ease the process of analyzingalternatives in later steps.

Matching Whole FarmResource Availabilitywith Needs

At this point, you have recordedresource availability and resource needs byenterprise and are now ready to shift backto a whole farm analysis. However, totalingthe dollar amounts or number of units fromall enterprises may not be the total for thefarm. Some costs or needs that have notbeen allocated to an enterprise must alsobe included. For example, the cost ofmaintaining the farm office or the fee fortax preparation may not have been allocat-ed among enterprises. Similarly, the timenecessary to maintain the farmstead or toattend educational meetings may not havebeen allocated. These unallocatedcosts/needs should be added to the totalsof the enterprises to arrive at a total for thewhole-farm.

With the whole-farm totals, the farmercan search for opportunities wherein indi-vidual enterprises complement one anoth-er. For example, a whole-farm cash flowstatement which summarizes the cashinflows and outflows, would document that

the cash generated with livestock saleswould be timely for paying crop produc-tion expenses. With this information, thefarmer can document when cash needs tobe borrowed and when there may be a sur-plus with which to pay debt, purchase sup-plies, or meet extra family living costs.Labor can be similarly analyzed; the farmercan determine the amount of labor neededthroughout the year and the amount avail-able. By comparing these quantities, thefarmer is able to recognize when labor maybe in short supply or when there may besome unused time.

The strategies for addressing inade-quate or excess supply of a resource willvary depending on the resource. For exam-ple, a difference between cash and labor isthat cash can be stored and moved fromone time period to another by borrowing,repaying, prepaying, and saving. Labor, ifnot used, is lost. The primary opportunityfor managing labor is to hire part-timeworkers when labor is short and dischargeworkers or seek alternative employmentwhen labor is not fully utilized. Anotherpractice is to add an enterprise that prof-itably utilizes excess labor, or performtasks ahead of time (such as completingequipment maintenance during the wintermonths). Subsequent steps in the planningprocess offer opportunities to consideralternative strategies for managing resourceavailability and needs.

Despite the efforts, a detailed analysisof the match between resource availabilityand needs often is difficult. It may be best,the first time through this step, to only con-duct a preliminary analysis by describing,based on recall of past experience, whichresources were in short supply or under-utilized, when during the year the situationarose, the extent to which there was ashortage or surplus, and how the situationwas managed. This description then can beenhanced over time as you more closelymonitor and record resource mismatchesand why they are occurring. Perhapsanswering questions such as those listedbelow would be helpful in preparing apreliminary analysis.

In the past:• What resources have been in shortsupply?


• What time of the year were they short?• Why were they in short supply?• How did you accommodate the short-age?

• What resources were under-utilized?• What time of the year were they under-utilized?

• Why were they under-utilized?• What did you do to increase their uti-lization?

Current PracticesAnother part of describing the current

farm operation is to explain present prac-tices or strategies. Production and market-ing strategies/ practices have beendescribed for each enterprise, but theremay be other areas that pertain to the over-all farm business that have not yet beendocumented. These could include:• How is the current farm operationfinanced; how much of the cash operat-ing needs are met by drawing upon sav-ings; how much is being borrowed;who are the creditors; and, when is theoperating loan normally repaid (financ-ing strategy)?

• When are major capital assets acquired;when are they disposed of, how aretheir purchases financed; and, what isthe criteria for deciding whether toacquire or dispose of a major asset (cap-ital budget)?

• How is available labor being managedand what is the practice for assigningtasks and providing feedback on per-formance (labor management)?

• What strategies are followed for manag-ing risk exposure (risk management)?

• What is the owners’ strategy for manag-ing income and self-employment taxes(tax management)?Some strategies may be quite informal at

this time, but a short description is a firststep to developing a more thoroughdescription. Other practices may be quiteformal and well-documented. Later stepsprovide an opportunity to refine thesepractices/strategies into functional plans forfuture operations.

Current OwnershipAnother aspect of the current farm is to

identify who are the owners of the busi-ness; that is, who is authorized to make

decisions and who is legally responsible forpaying obligations if the farm operationdoes not generate enough cash to meet allits expenses. A related question is whatassets do each of these business ownersown? For example, one or two individualsmay own a majority of the land while own-ership of some equipment is shared by all.In addition, other pieces of equipment maybe owned by an individual. A clear recordof current ownership can be helpful inunderstanding the present farm business.

Likewise, the description of the businesscould include an explanation of how theowners are compensated for their invest-ment in the business. It is not uncommonfor the owners to share the profit on thebasis of their contributions. However, inother farm business, the owners receive theequivalent of a wage for their labor anddivide any remaining profit in proportion totheir asset ownership. There are innumer-able ways to divide the farm earnings tocompensate the owners. This question willbe revisited during later steps and initialexplanations of current practices will behelpful at that time.

Owners may also want to describe howthey assign responsibilities and authority. Insome farm businesses, individuals are iden-tified as being in charge of specified enter-prises. In other co-owned farms, the own-ers hold regular meetings to share informa-tion and make collective decisions. Again,the practices vary and are innumerable, buta description of your current practice willbe helpful in completing later steps.

Inventory ofFinancial Assets

Information about the financial results ofeach enterprise and physical assets doesnot describe the whole-farm business. Anunderstanding of the farm’s overall financialsituation requires key financial documents:the balance sheet, the income statement,the statement of owner equity, and thestatement of cash flows. Financial state-ments help assess the financial well-beingof the overall farm.

The balance sheet summarizes the val-ues of the firm’s owned assets and liabili-ties. The difference between the two totalsis the owners’ equity (net worth). Leased

assets are not included in the balance sheetbecause the farmer does not own them(even though these assets are part of thefarm’s productive capacity).

A completed balance sheet shows infor-mation, such as the total value of assets,total indebtedness, equity, available cash,and value of liquid assets. This informationcan then be analyzed to determine thebusiness’ current ratio, its borrowingcapacity, and opportunities to attract equi-ty capital.

An income statement reports theamount of profit the business generates.Usually income statements are prepared onan annual basis. An accrual income state-ment often provides a better measure of thefarm’s performance because it considerschanges in inventory rather than only cashtransactions. It is for this and other reasonswhy an income tax return should not berelied on as measuring the farm’s profit.

A cash flow statement reports thesources and uses of the business’ cashresources. Such statements not only showthe change in the farm’s cash resourcesover the year, but also when the cash wasreceived or spent. As discussed previously,an understanding of the timing of cashreceipts and expenditures is critical in man-aging the whole-farm. Neither an incometax return nor an income statement providethe same information as a cash flow state-ment.

Using the Informationfrom FinancialStatements

Compiling the financial documents frompast years is useful because they revealtrends or patterns. Comparing the currentstatements to past statements reveal whathas been happening to the business’ finan-cial situation. The balance sheet and state-ment of owner equity show changes inowner’s equity and risk exposure (whetherthey have been increasing, decreasing, orremaining the same), the income state-ments reveal trends in profit, and the state-ment of cash flows can help the farmerunderstand the sources and needs of cash.

The four financial statements can alsobe used to prepare financial ratios thatshow the strength of the business.

24 february 2011

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Common financial measures include thefirm’s debt/asset ratio, return on farmassets, and net farm income. The FarmFinancial Standards Task Force has devel-oped standardized farm financial factors,measures, and reporting formats thatfarmers can use to understand their farmbusiness.

Key financial ratios can be calculated tomake several comparisons. First, the cur-rent performance of the farm can be com-pared with its historical performance.Second, the farm’s performance can becompared to that of similar farm business-es. Numerous public and private sources offarm financial information are becomingavailable that can be used to compare thefarm business.

A third relationship is to compare theperformance or profitability of the enter-prises within the farm business. A fourthcomparison is to relate the performance ofthe business to what had been previouslyprojected or budgeted. This comparisonhelps farmers understand how and why theactual outcome of the business differs fromwhat they had expected. A fifth comparisoncan be made between the performance ofthe farm business and nonfarm alternatives.

This last comparison identifies opportuni-ties, if any, that are lost or relinquishedbecause one has invested their time andcapital in owning and operating a farm.

Capacity to Assume RiskThe opportunity for the business to earn

a profit requires assuming some risk.Although not described as a business asset,the ability and willingness to assume risk iscritical. Types of risk a farm businessencounters include production, marketing,financial, human resource, and legal. A farmwill likely differ in its capacity to assumeeach type of risk exposure

Ability (or capacity) to assume risk dif-fers from a willingness to assume risk, buteither can limit the risk exposure a firmaccepts. A farmer’s willingness to assumerisk is discussed in the next step-HumanResources. Farmers who recognize andprudently use their capacity to assume riskare likely to enhance their chance for finan-cial success.

One way to consider a farm’s capacity toassume risk is to describe it as a chain withfive links:• The first link is net earnings as a percentof the value of the farm production,

which shows the farm’s capacity toabsorb losses resulting from reduction inyields or price.

• The second link is the working capital ofthe farm business; this indicates if thebusiness has sufficient cash flow (andcurrent assets) to cover operating lossesthat occur in the first link.

• The third link is current debt repaymentcapacity, which shows the farm’s abilityto rely on a carryover operating loan tofinance operating losses.

• The fourth link is owner’s equity, whichis the business’ ability to sell assets torestructure its finances.

• The last link is collateral, which is thelegal right to the owner’s equity.If any one of these links is weak, so is

the chain; that is, the farm’s capacity toassume risk.

Related to the ability to assume risk isthe desire or willingness to control riskexposure through insurance or alternativestrategies. Perhaps one rule of thumb onassuming risk could be, “If the activity pre-vents you from sleeping at night, you maynot want to pursue it.” Methods of assessingand controlling risk are explored in subse-quent steps.

When you team up with ADM Crop Risk Services, you get more than c . You get f from one of the world’s leading agribusinesses.

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ADM Crop Risk Services is an equal opportunity employer. The products and services described here are written by American Alternative Insurance Company and reinsured to Agrinational Insurance. The insurance products described here are subject to availability and qualifications. Other terms, conditions, and exclusions may apply. American Alternative Insurance Company is not licensed in all states. Not all products are available in all states. This does not constitute an offer of any product in any jurisdiction.

26 february 2011

PLAN COMPARISONCrop Insurance

The most widely available revenue protection policy is CRC. This policy guarantees an amount of revenue (based on the individ-ual producer’s actual production history (APH) x commodity price) called the final guarantee. The coverage and exclusions of CRCare similar to those for the standard MPCI policy. This final guarantee is based on the greater of the spring-time generated price (baseprice) or the harvest-time generated price (harvest price). While the guarantee may increase, the premium will not. Premium will becalculated using the base price. Since the protection of producer revenue is the primary objective of CRC, it contains provisions address-ing both yield and price risks. CRC covers revenue losses due to a low price, low yield, or any combination of the two. A loss is duewhen the calculated revenue (production to count x harvest price) is less than the final guarantee for the crop acreage.

YP provides protection against a loss in yield due to unavoidable, naturally occurring events. For most crops, that includes adverseweather, fire, insects, plant disease, wildlife, earthquake, volcanic eruption, and failure of the irrigation water supply due to a natural-ly occurring event. Like the APH plan of insurance, YP guarantees a production yield based on the individual producer’s APH. Unlikethe APH plan of insurance, a price for YP is established according to the crop’s applicable commodity board of trade/exchange asdefined in the Commodity Exchange Price Provisions (CEPP). The projected price is used to determine the yield protection guarantee,premium, any replant payment or prevented planting payment, and to value the production to count. The coverage and exclusions ofYP are similar to those for the APH plan of insurance. An indemnity is due when the value of the production to count is less than theyield protection guarantee. Crops covered under this plan include barley (includes malting type), canola/rapeseed, corn, cotton, grainsorghum, rice, soybeans, sunflowers, and wheat.

Yield Protection (yP) (Plan 01)

In November of 2010, the USDA RiskManagement Agency (RMA) published ROServer Release 10-042, which included theinitial release of actuarial information forcrops with an 11/30 contract change date.As subsequent actuarial data master (ADM)data was released for the 11/30 Filing crops,it became evident that some of the informa-tion on the side-by-side Crop InsurancePlan Comparison (CIPC) published in theNovember issue of the Crop InsuranceTODAY ® magazine needed to be revised.While the revisions are few, they may besignificant.

The subsidy factors listed on the CIPC forenterprise and whole-farm units (page 3 ofthe CIPC) were verified against those listedon the ADM and subsequently updated

accordingly. The subsidy factors for whole-farm units under Revenue Protection (RP)(Plan 02) and RP with the Harvest PriceExclusion (HPE) (Plan 03) were revised forcoverage levels 75%, 80% and 85%. In addi-tion, the statement associated with the aster-isk (*) (page 3 of the CIPC) was also updat-ed. This statement, which only applies toYield Protection (YP) (Plan 01) and APH(Plan 90), was revised to clarify that there areno commodities insured under the specifiedplan of insurance for which coverage isoffered based on whole-farm units.

The following updated side-by-side plancomparison was developed by NCIS as atraining tool and a quick-reference job aid.The CIPC compares the foremost characteris-tics of seven different crop insurance plans

(including APH, GRP, GRIP, GRIP HRO, YP,RP, and RP HPE) which represent 91 percent*of the total liability and 96 percent* of thetotal premium across the U.S. The insuranceplan characteristics listed include ApplicablePrice(s)/Price Election(s), Guarantee,Coverage Level Percent Available, SubsidyAmount, Indemnity, and many more.

The CIPC has been a widely utilized toolin the past. We hope you find it helpful forthe 2011 crop year; a year of unprecedentedsignificant program changes.

*Figures are based on the 2009 crop year data asof October 18, 2010, using APH (representing the APHand YP in the 2011 crop year), GRIP (which represents2011 GRIP and GRIP HRO), GRP, and the revenue cov-erage CRC, IP, IIP, and RA (representing the new RP andRP HPE plans of insurance available for the 2011 cropyear).

By Lisa Cain, NCIS

The products and product topics summarized in this outline are not all-encompassing and do not substitute for the policy provisions.See the policy provisions and/or contact your company for a complete description of available coverages and their terms and conditions.

The products and product topics summarized in this outline are not all-encompassing and do not substitute for the policy provisions.See the policy provisions and/or contact your company for a complete description of available coverages and their terms and conditions.

NOTE: Beginning with the 2011 crop year, the Crop Revenue Coverage (CRC), Income Protection (IP), Indexed Income Protection (IIP),and Revenue Assurance (RA) plans of insurance have been discontinued. Additionally, Actual Protection History (APH) coverage is nolonger offered for barley (includes malting type), canola and rapeseed, corn, cotton, grain sorghum, rice, soybeans, sunflowers, and wheat.Instead, a producer may choose to insure these crops utilizing either Yield Protection coverage or Revenue Protection coverage.

CIPC-UPDATED!


RP HPE is similar to RP, however RP HPE coverage provides protection against loss of revenue caused by price decrease, low yieldsor a combination of both. Unlike RP, the revenue protection guarantee for RP HPE is based on the projected price only and it doesnot increase based on a harvest price. Crops covered under this plan include barley (includes malting type), canola/rapeseed, corn,cotton, grain sorghum, rice, soybeans, sunflowers, and wheat.

RP with the Harvest Price Exclusion (RP HPE) (Plan 03)

GRIP HRO is GRIP but with an added Harvest Revenue Option. For additional premium, this option offers “upside” harvest priceprotection by valuing lost bushels at the harvest price in addition to the coverage offered under GRIP. GRIP HRO will pay a loss whenthe county revenue is less than the HRO trigger revenue which is calculated using the higher of the projected price or harvest price.

GRIP with the Harvest Revenue Option (GRIP HRO) (Plan 05)

Revenue protection provides protection against a loss of revenue caused by price increase or decrease, low yields or a combina-tion of both (for corn silage and rapeseed, protection is only provided for production losses). This coverage guarantees an amountbased on the individual producer’s APH and the greater of the projected price or harvest price. Both the projected price and harvestprice are established according to the crop’s applicable commodity board of trade/exchange as defined in the Commodity ExchangePrice Provisions (CEPP). While the revenue protection guarantee may increase, the premium will not. The projected price is used tocalculate the premium and replant payment or prevented planting payment. An indemnity is due when the calculated revenue (pro-duction to count x harvest price) is less than the revenue protection guarantee for the crop acreage. Crops covered under this planinclude barley (includes malting type), canola/rapeseed, corn, cotton, grain sorghum, rice, soybeans, sunflowers, and wheat. (Pleasenote the “Maximum Price Movement” for rapeseed and corn silage on the following page.)

Revenue Protection (RP) (Plan 02)

GRP coverage is based on the experience of the county rather than individual farms, so while maintaining the insured’s actual pro-duction history is encouraged, it is not required for this program. GRP indemnifies the insured in the event the payment yield fallsbelow the insured's trigger yield. The Federal Crop Insurance Corporation (FCIC) will issue the payment yield in the calendar year fol-lowing the crop year insured. Since this plan is based on county yields and not individual yields, the insured may have a low yield ontheir farm and not receive payment under GRP.

Group Risk Plan (GRP) (Plan 04)

Like GRP, GRIP is based on the experience of the county rather than individual farms, so while maintaining the insured’s actualproduction history is encouraged, it is not required for this program. A GRIP policy includes coverage against potential loss of rev-enue resulting from a significant reduction in the county yield or commodity price of a specific crop. When the county yield esti-mates are released, the county revenues will be calculated. An indemnity is due under GRIP when the county revenue publishedby FCIC is less than the trigger revenue. Since this plan is based on county revenue and not individual revenue, the insured mayhave a loss in revenue on their farm and not receive payment under GRIP. The Harvest Revenue Option (HRO) Endorsement isavailable for GRIP (see below).

Group Risk Income Protection (GRIP) (Plan 06)

APH is the oldest insurance product listed on this comparison. The APH plan of insurance provides protection against a loss in yielddue to nearly all natural disasters. For most crops, that includes drought, excess moisture, cold and frost, wind, flood and unavoidabledamage from insects and disease. Like YP, the APH plan of insurance guarantees a yield based on the individual producer’s actual pro-duction history. Unlike YP, the available price elections are established by the Risk Management Agency. An indemnity is due whenthe value of the production to count is less than the liability. Of the small grain crops, only oats, rye, flax, and buckwheat remain cov-ered under the APH plan of insurance for the 2011 crop year.

Actual Production History (APH) (Plan 90)

28 february 2011

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TODAYcrop insurance

30 february 2011

By Dr. Mark Zarnstorff, NCIS

The advent of the use of biotech cropsstarted with the introduction of insect con-trol by the incorporation of Bacillusthuringiensis (Bt), a naturally occurringprotein insecticide, into a crop’s geneticcode. This was a boon for the control ofsuch insects as European corn borer,southwestern corn borer, and corn earworms in corn, and the tobacco budwormand boll worms in cotton. Then a differentsubspecies of Bt, that would help controlthe corn rootworm complex (northern,southern and western), was developed.However, the use of these new biotechapproaches to control insects caused con-cern since Bt was one of the most effec-tive insecticides for use in organic cropproduction. People worried that over-useof Bt could lead to the insect resistanceand basically eliminate the effectiveness of

these strains of Bt. That is one of the majorreasons that the use of “refuge” areas wasdeveloped.

RefugesThe use of these genetically modified

plants has had the greatest influence oncorn and cotton production. A “refuge” issimply an area that is planted with a cropthat does not contain the Bt insecticide.The original Bollgard (Bt) protection thatwas incorporated into various cotton vari-eties requires a refuge of 20 percent of theplanted area be in a non-Bt protected cot-ton. The current requirements for corn aresimilar no matter if the Bt is for the cornborer/earworm complex or for rootworm.If corn that is planted with Bt control forthe corn borer/earworm complex in anarea where cotton is also being grown, therequirement is raised to 50 percent. Therefuge area can be protected by otherinsecticides to control the targeted insects,but they cannot be protected by the sametype of Bt insecticide that is incorporatedinto the crop. This refuge is still consideredto be an important part of the managementfor resistance development since it pro-vides an area that the insects can grow anddevelop without being exposed to the Bttoxins.

This would appear to be a pretty good

system; however farmers have not alwaysbeen very happy with it. The requirementof the refuge means farmers have to stopand clean out the planter and put in a dif-ferent seed source for the refuge area.They also have to either apply insecticideto the seed, for example for control of therootworms, or have the necessary insecti-cide boxes to apply the granular insecti-cide in the row at planting. Many farmersare tired of having to handle the insecti-cides because of the toxic nature of thechemicals.

A different problem that is commonwith the corn borer insect is that there isn’tan effective control strategy for the insectbecause it they are difficult to scout forand then apply an effective insecticideover the top of the growing plants. Theuse of the Bt corn provides some of thebest control strategies for the cornborer/earworm complex.

The last area of concern with the useof refuges is that a farmer isn’t required tohave the 20 percent refuge on his land aslong as there is a non-Bt type of corn orcotton within one-half mile of the field.Regulators, companies, and universitiesworry that this results in many refuges notbeing planted and we would lose theeffectiveness of that technology. All youhave to do is look at the over reliance to

Refuge in the Bag

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Hudson Crop is a unit of Hudson Insurance Group, the US Insurance Division of

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worldwide with $3.5 billion in policyholders’ surplus. Hudson

Insurance Company is rated “A” (Excellent) XV by A.M. Best

and is widely licensed. With an exclusive strategic relationship with Growers National Cooperative*, Hudson Crop is a rapidly growing company, committed to providing our farmers and their agents with the best service our industry can offer.

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the herbicide Roundup® and the resist-ance weeds like Palmer Amaranth havedeveloped to realize that this is a realpossibility.

“Refuge in a Bag”The advent of different strains of Bt

that affect the different target insects withdifferent modes of action or points of con-trol were found or developed. This ledmany of the biotech companies to try toenhance their products by incorporatingtwo or more of these compounds withinone variety. This is what happened first incotton with the release of Bollgard II® cot-ton. The companies incorporated two dif-ferent strains of Bt that attack the insects intwo different ways so the likelihood ofresistance to these two mechanisms isgreatly reduced. Regulators approved theidea that the need for a refuge within thefield was no longer needed, so we nowhave a “natural refuge” when the BollgardII® cotton is planted.

Seed companies are now looking atthe refuge issue in corn and are taking a

similar approach. Companies are lookingat the idea of providing a “refuge in thebag.” Pioneer® is the first to have regis-tered a product, Optimum Acre Max 1,which is a blend of their Herculex XTRA(CRW/CB/LL/GLY) and Herculex 1(CB/LL/BLY). This will provide a 10 per-cent refuge for the corn rootworm right inthe bag. The farmer will still need to pro-vide a 20 percent refuge for the cornborer. This technology should be availablefor the 2011 growing season. Dow andMonsanto have submitted for release aseries of hybrids that will provide for afive percent “refuge in the bag” for bothabove ground insects and below groundinsects. The reason this is possible isbecause they will have two differentmodes of action for control of each of thesets of insect pests. This should provide amuch better resistance managementscheme than just one mode of action. Theother beauty of this system is that this willmean that there will definitely be a refugeplanted, which will provide the neededrefuge without any questions.

Impacts on Crop InsuranceThe current Biotech endorsement on

corn requires that the Approved InsuranceProviders (AIPs) obtain samples from thegrower’s fields to ensure that the coveredhybrids are being grown in the areas andover the number of acres that the farmeris covering through the endorsement.Sometimes, adjusters need to resamplefields if the first sample comes back withthe samples not showing the biotech trait.If a second set of samples comes backwithout the traits, the advantage of thelower premium is lost. The use of the new“refuge in a bag” systems, when they areavailable in 2012, will mean that the non-traited seed is randomly dispersedthrough the field. It may mean that therewill be more cases of an adjuster obtain-ing one of these random plants and show-ing a false negative for the biotechendorsement. I am sure there will bechanges made to address this situation inthe crop insurance because the advan-tages of having a true refuge in each fieldwill overshadow the troubles.

TODAYcrop insurance

NCIS is pleased to announce the pro-motions of several staff members. JimCrist, formerly Controller, is now ChiefFinancial & Operating Officer; ThereseStom, formerly Director of ActuarialApplications & Insurance Filings, is nowVice President of Actuarial Applications;Troy Brady, formerly Director of DataQuality & Systems Design, is now VicePresident of Data Quality & SystemsDesign; Linda Kovelan, formerlyExecutive Assistant/Actuarial ApplicationsSpecialist, is now Director of ExecutiveServices; and, Dana Ford, formerlyHuman Resource Manager, is now Directorof Human Resources.

In addition to the promotions, NCISalso presented several awards to employ-ees for their years of service to NCIS:

NCIS Promotions&Service Awards25 Year Award

Loretta Sobba, Director of Crop-Hail

20 Year AwardsRobin Hill, Data Processing Support/Task ManagerLaurie Langstraat, Director of Public RelationsTom Zacharias, President

15 Year AwardsTroy Brady, Vice President, Data Quality & Systems DesignLisa Cain, Senior Training & Education SpecialistLaurence Crane, Vice President, Education & Communications

10 Year AwardImran Bhuiyan, Client/Server Programmer Analyst

5 Year AwardsShawn Hou, Senior Client/Server Programmer AnalystRoxanne Wise, Electronic Publication Assistant/Data Entry

32 february 2011

Continued from President’s Message

(ARPA) of 2000. The Crop InsuranceReform Act of 1994 provided catastrophic-level coverage (CAT) to eligible producersfor a nominal administrative fee, andincreased the subsidy levels for higher lev-els of coverage. In addition, producerswho participated in the traditional produc-tion and price support programs were ini-tially required to obtain at least the CATlevel of coverage. Enrolled acreage in cropinsurance more than doubled as a result ofthe 1994 Act. ARPA provided additionalsubsidy at the higher coverage levels, fur-ther encouraging producers to obtain high-er levels of crop insurance coverage.

As a result, the program has been ableto achieve historically high levels of partic-

ipation and these have been relatively sta-ble at approximately 80 percent of eligibleacres. The participation gains are two-fold.With the 1994 Act, the program achievedbroad acceptance and the acreage in theprogram was greatly expanded. WithARPA, participation grew “deep” with pro-ducers moving to higher coverage levelsand the participation gains of the 1994 Actwere reinforced. These participation gainshave no doubt contributed significantly andpositively to the recent actuarial perform-ance of the program.

Actuarial SoundnessThe events leading to improved actuari-

al soundness can be traced to the early1990s. During these years the program was

heavily criticized for its poor actuarial per-formance. It was at this time that the FCICdeveloped its Blueprint for FinancialSoundness, which included several initia-tives to improve the actuarial and financialperformance of the program. Prior to theCrop Insurance Reform Act of 1994, thecumulative loss ratio (indemnity divided bypremium) for the program was 1.52 for theperiod 1980-1993. This, of course, includesthe drought year of 1988 and theflood/excess moisture year of 1993.

Interestingly enough, roughly twentyyears later, the program is now criticizedfor being “too” actuarially sound. Themost recent five-year and ten-year lossratios for the program as a whole are 0.69and 0.79, respectively. The favorable actu-


arial performance of the program wasused as an argument to reduce the under-writing gain potential of the private sec-tor during the 2011 SRA renegotiationprocess. Currently, and to its credit, RMAis undergoing a major review of its actu-arial procedures, and one of the issues inquestion, at least indirectly, is the degreeof weight or credibility to attach to therecent run of exceptionally good years ofactuarial experience. The conclusion todraw here is that the modern programnow operates well within its mandatedfinancial parameters and continues to re-examine its actuarial processes.

The Product SuiteUnder the Reform Act of 1994, new

authorities were established that allowedthe private sector companies to submitnew crop insurance programs. Approvedprograms were eligible for premium sub-sidy, expense reimbursements, and rein-surance. Upon approval, the new planwas available for sale by any participatingcompany.

The FCIC Board of Directorsapproved the first revenue plans ofinsurance in 1996, available for corn andsoybean growers in the Cornbelt (initial-ly Iowa and Nebraska). The revenueplans of insurance now dominate themarket, representing nearly 74 percent ofthe total liability of the program. The rev-enue and production plans of insurancefor the traditional field crops and tradi-tional growing areas represent maturemarkets with high rates of participationand are characterized by high levels ofcoverage.

Since 2000, over thirty new crop insur-ance products have been introduced.Generally speaking, the new introduc-tions attempt to fill the demand for nichemarkets. It is reasonable to anticipate thatthe introduction of new products willcontinue, perhaps at a less rapid pace,but an upward trend nonetheless. Interms of product mix, the program hasbeen able to achieve market maturity forthe nation’s field crop sector and contin-ues to expand its new product offeringsto meet the demands of a growing anddiverse agricultural production sector.

Increased Risk-SharingBeginning in 1992, and most definitive-

ly since 1998, the risk-sharing arrangementsbetween FCIC/RMA and the companieshave fundamentally changed. These risk-sharing arrangements are found in theStandard Reinsurance Agreement (SRA).Each renegotiation has generally resulted inincreases in the risk exposure of the privatesector. Granted increased risk exposure hasbeen associated with the increased poten-tial for underwriting gains on the part of theprivate sector; however, the potential forgain does attract private capital into theprogram which can manifest itself in theform of new product development,improved incentives for further expandingparticipation, as well technological innova-tion for improved service for the farmer,such as advanced mapping software orpremium quoting systems.

It can be, and has been, argued that the2011 SRA marginally reduced the compa-nies’ risk exposure, and simultaneouslyreduced upside profit potential, particularlyin the Cornbelt states. The 2011 SRA wasgreatly simplified, reducing the number ofreinsurance funds (risk pools) available tothe companies, subsequently reducing theirability to shift certain risks to the govern-ment. However, even with the advent ofthe 2011 agreement, the private sector stillretains approximately 80 percent of thecommercial risk in the program.

The key point here is that the privatesector is substantively, actively and routine-ly engaged in the management of price andyield risk for the agricultural productionsector. Given that the companies retain themajority of risk themselves, the Federalgovernment has effectively outsourcedboth the idiosyncratic and systemic risk ofthe agricultural production sector to the pri-vate sector.

“... I went down to the Crossroads...”Standing at the Crossroads - I believe

the program has greatly matured, continuesto be self-correcting, and has respondedpositively to its critics. Granted certain “self-corrections” have been externally imposed,either as a result of Congressional oversightor response to oversight agency reports.However, taken in totality, the crop insur-ance program has responded to its critics,

and continues to modernize and expand.The crop insurance program we knowtoday has the potential to set the stage forthe future of the agricultural risk manage-ment and to become the cornerstone ofmodern agricultural policy.

I would encourage readers to take thetime and avail themselves of other relatedarticles in this issue of Crop InsuranceTODAY®. Specifically, the article entitled“The Essential Strengths of CropInsurance.” This article is a work product ofthe NCIS Committee structure. In June of2010, the NCIS Board of Directors estab-lished the NCIS Program DevelopmentCommittee along with NCIS staff, and Dr.Keith Collins as the Farm Bill Workgroup totake the lead in analyzing, compiling, andformulating a coherent understanding ofthe factors that would shape the Farm Billdebates. In addition, the workgroup was toanalyze the role of crop insurance in theupcoming Farm Bill process. The “EssentialStrengths” article is a synthesis of the work-group’s initial discussions on the criticaland ever-increasing role of crop insurancein agricultural risk management.

In addition to “Strengths” this issue ofTODAY® includes an article entitled “Whydo Producers Choose Individual CropInsurance?” This article is part of a largerbody of work being conducted by NCIS’analytical staff. The focus of these efforts isto better understand the microeconomicand behavioral elements which explainfarmers’ choices between individual insur-ance and group or area-type products. Thiswork represents an important contributionin our collective understanding of howcrop insurance works today and how theprogram will interface with programs suchas ACRE and SURE in the future, particular-ly in light of the upcoming Farm Bill.

With that we enter 2011, the beginningof the second decade of the NewMillennium. I do believe we stand at theCrossroads: the four roads metaphoricallydefined as the intersection of actuarialsoundness, adequate participation, privatesector risk-sharing, and a diverse andexpanding product mix. I believe we standat the Crossroads which leaves the industryand the American Farmer well positionedto meet the challenges of the future.

Greg Meek, Senior Vice President –MPCI Department, of Farmers Mutual HailInsurance Company of Iowa (FMH),retired on December 31, 2010, after 36years in the crop insurance industry.

Greg devoted the majority of his workcareer to the promotion and betterment ofFarmers Mutual Hail Insurance Companyof Iowa, and the crop insurance industryas a whole. Through the years, Greg’sinsight, integrity, and experience havebeen key components to his success.

Greg began his career with FMH as anadjuster, worked up to being a fieldsupervisor, and finally state supervisor forArkansas and Missouri. He moved to thehome office in 1995 to become the assis-tant claims manager and, soon after,claims manager. In 1997, he was namedto the company’s Board of Directors, andeventually joined the ManagementCommittee for the company as well. Gregretired from the final position he trans-ferred to in 2003, senior vice president ofthe MPCI Department. Greg left with a

reputation for being fair-minded andtrustworthy.

Greg also gave generously of his time toindustry associations like NCIS and CIRB.He rose to top positions in some of thecommittees because of his leadership traitsand his willingness to go the extra mile.Greg played an active and instrumental rolein accomplishing many issues and projectsas a member and chairman of the Crop HailPolicy, Procedure and Loss AdjustmentCommittee for NCIS.

While serving on the Committee, Gregencouraged continued research on themajor grain, feed, seed and oilseed crops todetermine whether loss charts were accu-rate for new and genetically modified vari-eties. He was instrumental in the Committeerecommending updates to NCIS GeneralProvisions (i.e., strengthening appraisal lan-guage, adding language that losses will beadjusted using published NCIS crop-hailloss procedures), increasing consistency ofpolicy terms between states, defining termsas needed, implementing new cropendorsements (i.e., Cotton Module FireEndorsement, Open Boll Cotton WindEndorsement, and Windshatter Coveragefor Peas and Lentils).

Greg led committee discussion on rec-ommendations from NCIS Regional/ StateCommittees on a variety of topics ranging

from cotton stepladder provisions to drybean deferred loss guidelines to corn defo-liation procedure. He often wanted staff toobtain input from other states on R/S rec-ommendations saying it was important toget input from those who have to apply theprocedures in the field.

Greg also served on the SoybeanCommittee for NCIS and took part in sever-al changes that were made to the soybeanloss instructions including adding guide-lines for working deferred losses on soy-beans in the vegetative and early-reproduc-tive stages, adding a replant delay chart,updating stand reduction loss charts forvegetative and early-reproductive stage soy-beans, updating the second loss procedure,and expanding stand reduction loss chartsto address higher plant populations.

In his retirement, Greg plans to spendmore time with his wife, Sarah, and theirfamily: Jenny (Joe) and their daughterGrace of Des Moines; Clint (Carrie), west-ern Missouri field supervisor (for FMH), andtheir daughter Sadie; and, Andrew, a fresh-man at Drake University in Des Moines. Healso plans to spend most of his summers attheir home in Lake of the Ozarks, Missouri,and to “get in a few rounds of golf andteach my grandchildren to fish.”

Congratulations to Greg on his retire-ment. We wish you the very best!

Greg Meek RetiresTODAYcrop insurance


The NCIS Crop-Hail Policy, Procedure, and Loss Adjustment Committee (left to right): Mike Hargrove, ARMtech Insurance (substitute for TomGowdy); Don Nelson, American Farm Bureau Ins.; Larry Ewart, Farmer Mutual Hail Ins. (replacing Greg Meek); Mark Splettstaszer, Great AmericanIns.; Matt Bradshaw, CGB Diversified; Tom Vetter, ProAg; Larry Burkart, RCIS; Jeff Meyer, Rain and Hail L.L.C.; Brad Fink, NAU Country (substitutingfor Barry Olson); Verne Cadwell, Grinnell Mutual Ins.; and, Greg Meek, Farmers Mutual Hail Ins.

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INSURABLE CROPSLocations&Plans

The following pages contain a list of all federally subsidized insurable crops, what states they are insurable in, under what plan(s) ofinsurance, and the number of counties where they are insurable. Please note this information is current as of December 15, 2010.Changes are constantly occurring in the crop insurance program and you should contact your crop insurance agent for the most up-to-date information.

The numbers in the matrix refer to specific insurances plans by the plan number as identified by the Risk Management Agency (RMA).A number containing a dash indicates that the crop is not insurable in every county in the state. The number following the dash representsthe number of counties in that state the crop is insurable under the plan of insurance indicated by the number before the dash. For exam-ple, the code 01-16 means that specific crop is insurable under the Yield Protection (YP) plan of insurance in sixteen counties in the state.If the number does not contain a dash, it is insurable in every county in the state. A number including (P) indicates a pilot program.

*AGRisaplanof

insuranceandnotacrop.U

nder

AGRmanycrops(includinglivestock)areinsurable

thatarenotinsurableunder

anyotherplanof

insurance.

01 = YP-Yield Protection02 = RP-Revenue Protection03 = RPHPE-Revenue Protection with Harvest

Price Exclusion04 = GRP-Group Risk Plan05 = GRIP-HRO-Group Risk Income Protection-

Harvest Revenue Option06 = GRIP-Group Risk Income Protection10 = PNT-Peanuts13 = RI-Rainfall Index

14 = VI-Vegetation Index30 = TGP-Tobacco (Guaranteed Production)40 = TDO-Tree Based Dollar Amount of Insurance41 = PRV-Pecan Revenue43 = AQDOL-Aquaculture Dollar46 = ARC-Avocado Revenue Coverage47 = ARH-Actual Revenue History50 = DO-Dollar Amount of Insurance51 = FD-Fixed Dollar55 = YDO-Yield Based Dollar Amount of Insurance

61 = AGR-L-Adjusted Gross Revenue - Lite63 = AGR-Adjusted Gross Revenue70 = TQ-Tobacco (Quota)81 = LRP-Livestock Risk Protection82 = LGM-Livestock Gross Margin84 = GS-GYC Span86 = G-Grower Yield Certification90 = APH-Actual Production History92 = APHAR-APH-Alternatively Rated96 = IAPH-Indexed APH

36 FEBRUARY 11

2011 CROP INSURANCE CHARTS

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6

42 FEBRUARY 11

CROP INSURANCE TODAY® 43w w w . c r o p i n s u r a n c e i n a m e r i c a . c o m

NATIONAL

CROP

INSURANCE

SERVICES

Under the direction of its Board ofDirectors, National Crop InsuranceServices has developed two nationalawards to be given to individuals whoachieve excellence in the criteria set out bythe awards.

The first award is the OutstandingService Award. This award, primarily foragents, has actually been in existence since2001 and has been awarded to severalexcellent individuals. The purpose of thisaward is to promote exceptional serviceindustry-wide, and encourage outstandingoutreach efforts to all farmers, especiallylimited-resource farmers, by highlightingan individual who has demonstratedexceptional service.

The newest award established is theIndustry Leadership Award. This award,targeted primarily to members of the NCISregional/state crop insurance committees,was created to formally recognize individ-uals who are directly involved in the cropinsurance industry and who consistentlyserve the industry by providing outstandingleadership. Company employees at boththe field and management level are eligibleto be nominated.

The criteria for both awards are:1. Strong personal and business ethics.2. Demonstrated service above and

beyond to the crop insurance industry.3. Represents themselves, their company,

and the crop insurance industry well.

The two winners will be presented withtheir awards at the crop insurance industryannual convention held in February ofeach year.

All nominations must be submitted inwriting to NCIS by October 15, 2011, forawards to be given at the 2012 AnnualConvention. For nomination informationand forms to be submitted, please go tothe NCIS website at www.ag-risk.org todownload. If you have any questionsregarding the criteria or whom is eligiblefor either award, please contact LaurieLangstraat at NCIS at [email protected] or913-685-2767.

INDUSTRYAWARDSNCIS

$.20 each, plus shipping.For orders over 500, please call

for discounted price.

Call 800-951-6247and ask for Donna

44 february 2011

Fear no weevil.

Great American Insurance Group is an equal opportunity provider. I 580 Walnut Street I Cincinnati, OH 45202 I GreatAmericanInsurance.com

www.GreatAmericanCrop.com

Profits are safe with a Crop Insurance policy from Great American,

protecting generations of America’s farmers from pest and pestilence

for more than 100 years.

PRSRT. STD.U.S. POSTAGE

PAIDPermit No. 1155

LIBERTY, MO

8900 Indian Creek Parkway, Suite 600Overland Park, Kansas 66210

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