![Page 1: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/1.jpg)
ADJUSTED GROSS REVENUE (AGR)
What’s In It For You?
![Page 2: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/2.jpg)
What Is AGR?
• Risk Management Tool
• Insures against low revenue due to unavoidable natural disasters and market fluctuation
• Uses a producer’s historical farm revenue as a base to provide a level of guaranteed revenue
![Page 3: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/3.jpg)
What Is AGR?
• Provides insurance coverage for multiple agricultural commodities in one insurance product
• Reinforces program credibility by using IRS tax forms and regulations to alleviate compliance concerns
![Page 4: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/4.jpg)
Why To Consider AGR
• Preserve Net Worth
• Maintain Cash Flow
• Peace of Mind
• Increase Financing Opportunities
• Insures against any combination of low yields and low market prices
![Page 5: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/5.jpg)
Who Can Purchase AGR?
• Pilot program in Allegan, Berrien, Kent, Mason, Muskegon, Newaygo, Oceana, Ottawa, VanBuren counties
• Produce agricultural commodities primarily in pilot counties (may include income from contiguous non-pilot counties)
![Page 6: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/6.jpg)
Who Can Purchase AGR?
• Growers who have had same tax entity for 7 years unless a change in tax entity is reviewed and approved by insurance provider
• Purchase traditional Federal crop insurance, if available, when more than 50% of expected income is from insurable commodities
![Page 7: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/7.jpg)
Who Can Purchase AGR?
• Earn no more than 35% of expected allowable income from animals and animal products
• Earn no more than 50% of expected allowable income from commodities purchased for resale.
![Page 8: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/8.jpg)
When Can You Purchase AGR?
• Deadline to purchase AGR for the 2002 calendar year is January 31, 2002
• Insurance begins January 1, or 10 days after a completed application is received
• Insurance year is the calendar year in which the sales closing date occurs and includes both calendar year and fiscal year tax filings
![Page 9: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/9.jpg)
What Information Is Needed?
• Copies of past 5 years IRS Schedule F (For 2002, years 1996 through 2000)
• Annual farm report listing each commodity to be produced including quantity and expected price
• Beginning inventories, if applicable• Changes that will result in less income than
the historic average
![Page 10: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/10.jpg)
Income Included in Average
• Sales of livestock and other items bought for resale, less cost
• Sales of livestock, produce, grains or other products raised
• Cooperative distributions directly related to commodity production
• CCC loans reported under election or forfeited• Other commodity related income
![Page 11: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/11.jpg)
Income Excluded from Average
• Additional income from value added items (cost of supplies and labor)
• Custom hire• Agricultural Program payments• Crop Insurance Payments• Net gain from commodity hedges• Commodities not covered (animals for
show, timber, forest, forest products)
![Page 12: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/12.jpg)
How to Calculate the AGR
• A simple average of five years of allowable income is used, unless:
• 1. At least one of the two most recent years in the database are higher than the average
• 2. The insurance year’s expected income is greater than the average
• 3. The income factor is greater than 1.000
![Page 13: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/13.jpg)
Year Revenue
1996 $152,000
1997 $143,000
1998 $206,000
1999 $205,000
2000 $230,000
Avg $194,200
At least one of the two most recent years income is greater than the average AND expected revenue exceeds average.
Averaging Example with Expected Revenue of $250,000
![Page 14: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/14.jpg)
Each year is divided by the previous year with a maximum (cap) of 1.2000 and a minimum (cup) of .8000, then averaged.
Year Revenue Factor
1996 $152,000
1997 $143,000 .941
1998 $206,000 1.441 (cap of 1.20)
1999 $205,000 .995
2000 $265,000 1.293 (cap of 1.20)
Avg 1.084
Index is greater than 1.000, so AGR qualifies for indexing.
![Page 15: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/15.jpg)
Completing the Indexed AGR
Index of 1.084 is taken to the 4th power (multiplied by itself 3 times) 1.084 x 1.084 x
1.084 x 1.084 =
1.381
Average Income is multiplied by factor
$194,200 x 1.381 = $268,143
![Page 16: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/16.jpg)
Approved AGR
Indexed AGR from example =
$268,143
Expected Insurance Year Revenue from example = $250,000
Approved AGR is the lesser of the indexed average and expected revenue - $250,000
![Page 17: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/17.jpg)
Expenses Included in AGR Average
• Car & Truck Expense• Chemical, Fertilizer,
Seeds, Plants• Conservation Expense• Custom Hire• Depreciation (of animals
only)• Feed Purchased• Storage, Warehousing• Veterinary, breeding &
medicine
• Freight, Trucking, Gasoline, Oil
• Supplies• Insurance (not health)• Labor (less share-holder
& credits)• Utilities• Repairs, Maintenance• Others directly related to
the production of commodities
![Page 18: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/18.jpg)
Expenses Excluded from AGR Average
• Depreciation for all but animals
• Employee Benefit Programs
• Health Insurance Costs
• Interest Expense• Shareholder Wages
• Pension & Profit Sharing Plans
• Rent or Lease Expenses
• Taxes• Other Expenses not
directly related commodity production
![Page 19: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/19.jpg)
Average Allowable Expenses
• Expenses are averaged over the same 5 year period, and indexed if the average income was also subject to indexing
• If expenses are less than 70% of the average in a claim year, the approved AGR is reduced by 0.1% for each 0.1% the approved expenses fall below 70%
![Page 20: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/20.jpg)
Levels of Coverage Available
• All producers with 1 or more commodities (meeting other eligibility requirements) are eligible for 65%/75% level.
• Diversification formulas are applied to determine eligibility for higher levels.
![Page 21: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/21.jpg)
Diversification Formula for 65%/90% 75%/75%
75%/90%
• Must produce at least two commodities• Example – Producer has expected income of
$250,000 and produces 3 commodities• Formula: 1 divided by 3(# of commodities)
times .333 times total expected income• 1 / 3 x .333 x $250,000 = $27,750• At least 2 of the commodities must be expected to
have income of $27,750 or more to be eligible
![Page 22: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/22.jpg)
Diversification Formula for 80%/75% or 80%/90%
• Must produce at least four commodities• Example: Producer has expected income of
$250,000 and produces five commodities• Formula: 1 divided by 5(# of commodities)
times .333 times total expected income• 1 / 5 x .333 x $250,000 = $16,650• At least 4 of the commodities must be expected to
have income of $16,650 or more to be eligible
![Page 23: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/23.jpg)
How Is The Level Applied to the AGR
• Approved AGR multiplied by the elected level is the basis for determining the premium and indemnity.
• The approved AGR is first multiplied by the coverage level (65%, 75%, or 80%) to determine the trigger level.
• Trigger level is then multiplied by the payment rate (75% or 90%) to determine the total indemnity.
![Page 24: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/24.jpg)
Trigger Level & Indemnity with $250,000 Approved AGR
Level Trigger Indemnity
65%/75% $162,500 $121,875
65%/90% $162,500 $146,250
75%/75% $187,500 $140,625
75%/90% $187,500 $168,750
80%/75% $200,000 $150,000
80%/90% $200,000 $180,000
![Page 25: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/25.jpg)
Claims
• Claims are paid after the insured has filed income tax reports for the insurance year.
• Income and expenses are adjusted by the differences between beginning and ending accounts receivable, accounts payable, inventories, and pre-paid expenses.
• Insured is required to report notice of loss with 72 hours or discovery and not later than 15 days after filing farm tax forms for the insurance year.
![Page 26: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/26.jpg)
Events Not Covered by AGR
• Negligence, mismanagement or wrong doing
• Failure to follow good farming practices
• Water contained by any govt, public or private dam or reservoir
• Failure or breakdown of irrigation equipment
• Vandalism, mysterious disappearance, theft
• Quarantines, boycott or refusal to accept
• Lack of labor• Failure of any buyer to
pay the insured• Abandonment• Failure to obtain price
reflective of local market value
![Page 27: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/27.jpg)
Income Adjustments to Accounts Receivable for Claim Purposes
• Accounts Receivable (Crop sold and delivered for an agreed upon price for which payment has not been received)
• Beginning balance A/R is compared to A/R balance at end of year.
• A/R increase results in increase to income
• A/R decrease results in decrease to income
![Page 28: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/28.jpg)
Inventory Adjustments to Income for Claim Purposes
• Inventory (commodities not yet sold for a specified price)
• Inventories that increase from beginning to year end balances will result in an increase to allowable income and decrease in inventory will decrease income.
• Example: January 1 – 10,000 bu corn at $2.00 minus December 31 – 6,000 bu corn at $2.00 = $8,000 decrease to allowable income.
![Page 29: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/29.jpg)
Prepaid Expense Adjustments to Allowable Expenses
• Prepaid expenses – Supplies held on farm or in a suppliers warehouse purchased for production of the next year’s crop.
• When prepaid farm supply expenses increase (decrease), allowable expenses will be decreased (increased) by the difference.
• Ex: Beginning prepaid value of $20,000 – Ending prepaid value of $10,000 = $10,000 reduction to allowable expenses.
![Page 30: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/30.jpg)
Accounts Payable Adjustments to Allowable Expenses
• Accounts Payable – Monies owed for expenses related to the production of a commodity
• Increases (decreases) in accounts payable will result in an increase (decrease) to allowable expenses.
• Example – Beginning A/P balance of $20,000 - $30,000 ending A/P balance = $10,000 increase to allowable expenses.
![Page 31: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/31.jpg)
Other Adjustments to Income for Claim Purposes
• Fed production will be accounted for through the sales of livestock and in the inventory process.
• Deferred crop insurance proceeds will be added to the current year’s income
• Income from livestock sold that was deferred to the following year will be added to the current year
• Insurance payments (other than AGR) for loss or damage to commodities will be included as income to count for claims purposes.
![Page 32: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/32.jpg)
Indemnity Calculation
• Example: Approved AGR of $250,000 with 75%/90% level of coverage
• Trigger Level = $187,500
• Actual Income = $150,000
• Loss in Revenue = $37,500
• Loss Payment = $33,750 ($37,500 x 90%)
![Page 33: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/33.jpg)
Premium Example
• Berrien County• Expected Revenue Breakdown
Peaches - $125,000Apples - $76,000
Squash - $25,000Corn - $24,000
• CAT Policy on Peaches, Apples, Corn with total CAT liability of $63,508
![Page 34: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/34.jpg)
Premium For All Level Combinations
Level Total Premium
Govt Subsidy(%)
Producer Premium
65/75 $4570 $2696 (59%) $1874
65/90 $6206 $3662 (59%) $2544
75/75 $8946 $4920 (55%) $4026
75/90 $12208 $6714 (55%) $5494
80/75 $12714 $6103 (48%) $6611
80/90 $17124 $8220 (48%) $8904
![Page 35: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/35.jpg)
AGR Liability
Level AGR Liability
MPCI CAT Liability
Total Liability
65/75 $60,937 $60,938 $121,875
65/90 $82,742 $63,508 $146,250
75/75 $77,117 $63,508 $140,625
75/90 $105,242 $63,508 $168,750
80/75 $86,492 $63,508 $150,000
80/90 $116,492 $63,508 $180,000
![Page 36: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/36.jpg)
How Premium is Calculated
• AGR Liability is reduced up to 50% by Multi-Peril, Crop Revenue, and CAT policies.
• Premium on AGR is calculated on the AGR liability only.
• Trigger amounts and total combined liability are not affected by this reduction.
![Page 37: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/37.jpg)
![Page 38: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/38.jpg)
A Lender’s Perspective
Presented by
GreenStone Farm Credit
![Page 39: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/39.jpg)
What Are The Risks?
• Production Risk
• Marketing Risk
• Diversity
• Financial Strength
• Can AGR Reduce Any Of These Risks – Short-term or Long-Term?
![Page 40: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/40.jpg)
Production Risk
• What can effect the Quantity and Quality of the Product(s) you Produce?
• How is the product produced?
• What risks can be reduced or eliminated?
![Page 41: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/41.jpg)
Production Risks Vegetable Production System
• PRACTICES• Tunnels• Stakes• Fumigated• Raised beds• Rotation w/cover crop• Trickle irrigation on
spinks sand
• RISKS• Heat• Hail• Humidity• Cold
![Page 42: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/42.jpg)
Production RisksTree Fruit Production System
• PRACTICES
• Superior site
• High Density
• Stakes
• Rotation w/cover crop
• Fumigated
• Trickle irrigation frost fans
• Overhead sprinklers
• RISKS• Heat• Hail• Humidity• Frost• Freeze• Wind• Cold
![Page 43: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/43.jpg)
Marketing Risks
• Buyer Reliability
• Payment History
• Financial Strength
• Marketplace Position
• Appropriate Variety – HoneyCrisp or Golden Delicious
• Contracts
![Page 44: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/44.jpg)
Evaluate Contract Risks
• Acreage Contract – all you produce at market price – National Grape Co-op
• Delivery Stock – specific tonnage at market price – AgriLink, Coloma Co-op, Knouse
• Quantity & Price Contract – specific tonnage at set price – St. Julian Winery
![Page 45: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/45.jpg)
Diversity of Your Operation
• What is your geographic location?
• How many enterprises do you have?
• Are there markets available for your commodities?
![Page 46: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/46.jpg)
Financial Risks
• What is your ability to withstand adversity?
Do you have a large enough cash
reserve to operate at a loss for a
long period of time?
![Page 47: ADJUSTED GROSS REVENUE (AGR) What’s In It For You?](https://reader035.vdocument.in/reader035/viewer/2022062516/56649d635503460f94a45eec/html5/thumbnails/47.jpg)
Three Major Financial Criteria
• Working Capital = Current assets minus Current Liabilities – Minimum 15% of Adjusted Gross Income
• Equity = Total assets minus Total debts/Total assets – Minimum 50%
• Long Term Profitability = Profit, after living expense, available to pay term debt and/or replace equipment – Minimum 115%