AgriStability is changing substantially.
The media has covered the changes and government has re-leased information, but the sheer bulk of information, weighed down by percentages and opinions, may make it hard for farmers and livestock producers to decipher the best course of action.
Here is what you need to know about the new program:
The most important thing to realize is that the fundamental nature of AgriStability has shifted. The program is evolving to more closely resemble an insurance or risk management product, which will require a shift in producers’ thinking.
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In other words, AgriStability is designed to protect farmers from a financial wreck rather than small reductions in profit.
Given this change, producers should no longer think of it as a program from which they need to get more money than they pay in fees. They must look at it as insurance to protect against the ever-increasing risk they carry.
Reference margins have risen significantly over the past few years for some sectors, especially grain and beef.
Consider the size of the reference margin to be protected. Farmers must ask themselves if they have the resources to survive significant drops in their current profitability and continue to keep their businesses afloat in a downturn.
Like insurance, AgriStability protects against drastic setbacks that threaten the viability of a business.
Farmers should understand that although coverage has been reduced to 70 percent from 85 percent of the margin, the dollar value of the margins to protect is much larger.
Grain producers might argue that they already have protection through production and hail insurance.
However, they have to look at their specific reference margin and understand that AgriStability is designed to cover significant drops in profits rather than just production costs.
Few insurance products are available for the livestock industry, and AgriStability may be the only way for producers to ensure they are protected from future significant losses.
Producers are responsible for proving that they suffered losses that they are claiming. Errors in the application can add up to a large overpayment that will have to be repaid.
Accrual accounting is used to prevent producers from manipulating claims. That means producers cannot increase losses by deferring revenues or pre-buying input costs or livestock the way they can for tax purposes.
In most circumstances, advisers have to spend time properly recording inventory changes throughout the year, which contributes to the cost of preparing applications.
No one really wants a payment from the new AgriStability program be-cause to get one, a farmer’s margin has to have dropped by 30 percent. In other words, they have to suffer significant losses to get a claim.
A producer would much rather have crop proceeds rather than insurance proceeds. However, it’s good to know that it is possible to make a claim when it’s really needed.
These changes won’t be welcomed by everyone. I believe they have downgraded a great program to one that is merely good.
However, the benefits of participation still exist for many producers.
The deadline for applying for 2013 AgriStability is April 30.
The best advice for farmers is to take time to work with their advisers and determine how this program fits in with their risk management strategy.
