Crop Insurance Today Third Quarter 2019 - 10

Myth: There is no need
to support the amounts
reported on the IRS
Schedule F.

By now you should be picking up on the idea
that the IRS Schedule F is only a starting point to
determine the insurance guarantee for WFRP. A
quick read of section 11 of the policy titled "Allowable Revenue" adds to the discussion. Simply
providing an IRS Schedule F is not enough to create an accurate picture of the revenue generated
from the production of insurable commodities.
For example, WFRP does not provide coverage
against the loss of revenue from commodities
such as animals for show or sport, timber, and
forest and forest products that may be included
on the schedule F.
* The Take Away: In addition to the insured's duties, AIPs and agents are responsible
for making correct determinations of allowable revenue and expenses for each year in the
Whole-Farm history period using associated
tax returns, applicable worksheets, and supporting documentation.

Myth: Only the revenue
amounts (not expenses) on
the IRS Schedule F need to
be supported.

Expenses play a limited, though important,
role in the coverage provided by WFRP and will
only come into play at claim time if the determined allowable expenses for the policy year (expenses actually incurred) are less than 70 percent
the approved expenses (allowable expenses de-

termined at the beginning of the insurance period). If expenses for the policy year determined at
claim time fall below 70 percent of the approved
expenses, the approved revenue for measuring
the current year's claim against will be reduced
one percent (expense reduction factor) for each
percent that expenses fall below 70 percent.
* The Take Away: WFRP does not provide
protection against expenses not incurred. To
ensure the benefits of the policy are accurately realized, supporting documentation of expenses must be provided to the AIP to make
the proper accrual adjustments.

Myth: Expected value =
the highest value ever
received for the commodity
on the farm.

Sure, the past can be an indication of the future, but only to a certain degree. According to
the website macrotrends.net, consider that in
1974 the highest price received for a bushel of
wheat was $6.34. The next year wheat was above
$6.00 per bushel was in 2007 when it reached
$9.79. Thirty-three years later! The price continued to go up until it began its decline from $12.83
in 2008 to a high of $6.75 in 2009. Wheat did not
return to above $6.00 per bushel again until 2015.
A current look at wheat prices shows it being
traded at $4.96 per bushel on July 26, 2019.
* The Take Away: The policy states: "Expected values must take into account current
local markets, cycles, and trends..." One can
certainly see that wheat prices have experienced a great deal of cycles and trends over
time. To expect $12.83 being realized in 2019

is not realistic, based on available information
at sales closing time (March 15 in most areas).
The policy provides a list of prioritized price
sources that are utilized to assist the farmer in
arriving at an appropriate expected value for
the farm plan.

Myth: Expected yields
= the highest yield ever
experienced on the farm for
the commodity.

The same logic, to a certain extent, applies to
determining expected yields as it does to determining an expected value. Expectations are going to be exceeded in some years and others will
leave a farmer disappointed. Several factors go
into determining an expected yield for WFRP.
For example, if an insurable commodity is also
insured under another Federal crop insurance
policy, the other policy's approved yield will be
the expected yield for the WFRP policy. There
are some allowances for deviations if the farmer
can prove that changes to production practices
that will be made during the insurance year will
result in either a higher or lower expected yield.
Again, supporting documentation will need to
be provided. When a commodity is not insured
under another Federal crop insurance policy,
then the expected yield will be determined from
the average yield produced on the farming operation during the Whole-Farm history period
and the lag year. The policy goes on to explain
the processes for determining yields for commodities produced for less than the number of
years in the whole-farm history or if the farmer
is growing a commodity for the first time.

http://www.macrotrends.net

Crop Insurance Today Third Quarter 2019

Table of Contents for the Digital Edition of Crop Insurance Today Third Quarter 2019