CAISP and Crop Insurance

[lakenheath]

Kevin Hursh wrote an article this morning stating that crop insurance participation could decline with the implimentation of CAISP. I disagree. The absolue maximum coverage a farmer can recieve from CAISP is 70% of a production margin decline.

I used an over-simplified example of a farm to see how this would work.

Mr. Farmer 1000 acres of durum:

REVENUES:

1000 x 40 bushels x $5.00 = $200,000

CAISP ELIGIBLE EXPENSES:

Fertilizer - 1000 x $25.00 = $25,000
Chemical - 1000 x $20.00 = $20,000
Crp. Insur - 1000 x $ 5.00 = $ 5,000
Salaries - = $10,000
Seed - 1000 x $ 7.00 = $ 7,000
Trucking - 40,000 x .12 = $ 4,800
Fuel - 1000 x $ 5.00 = $ 5,000

TOTAL = $76,800

REFERENCE MARGIN = $123,200

Let's assume the next year is a total crop failure and the producer opted out of crop insurance.

Maximum Government Payment -

$123,200 x 70% = $86,240
$ 76,800 x 60% = 46,080

Total = 132,320

Crop Insurance Would have Paid -

1000 acres x $120.00 = $120,000

The maximum government payment under the CAISP program is based on the mere assumption that loss ($76,800) are going to be covered by the program, as currently they are not.

This huge loss year now shows up on our refernce margin calculation as a poor year and will bring down your refernce margin for subsequent years.

To me it makes no sense opting out of crop insurance.

[dnach]

How is the reference margin calculated? Is it an average of 3 years or 5 years?
What about areas where 3 or 4 years of drought has devestated these margins?
70% of 0 is still 0, anyone have any info in these situations?

[lakenheath]

It is a 5 year Olympic average. You take your last 5 and drop the best and worst and then average the remaining 3 years. I agree with your comments about the drought. If your last 5 years have been poor than there will not be much of a reference margin to work with. Convient how that works. The goverment knew that many producers across the praires were coming off dry year. All the better for them, because there payouts will be less.

[moffat]

Does CAISP not cover your dollar for dollar loss if you have the top coverage? I thought there was a 92% figure being tossed around. Seems to me having crop insurance is only going to reduce any CAISP payout you might have got.I couldn't get to my local CAISP info meeting so I guess I will have to drive half way across the province to attend another.

[moffat]

Does CAISP not cover your dollar for dollar loss if you have the top coverage? I thought there was a 92% figure being tossed around. Seems to me having crop insurance is only going to reduce any CAISP payout you might have got.I couldn't get to my local CAISP info meeting so I guess I will have to drive half way across the province to attend another.

[dnach]

Yes there is a 92% coverage level, but my point is 92% of very little is still very little. This is the same problem that exsisted with the other programs like NISA, they only benifited those who could afford to put into them or those with a one year loss. There stillis nothing for the producers who have faced three or four years of consecutive droughts who have no money left and extremely low production levels with no falt of their own production practices. These are the producers who need assistance the most and are left out in the cold.

[almoy]

You are right dnach. We have been in the drought area for the last three years. The one really good year we had 4 years ago is thrown out, so our margin is very low. Finding the money to put in would be a problem too. There are too many other bills to pay with these worthless cattle. Having a larger inventory of cattle (held them over and was increasing the herd) pretty well puts us out of getting a payment. So much for a program that Vanclief kept saying would help us through the BSE crisis.

[cris]

Any more talk of a letter of credit from your financial instituion, Goodale mentioned this I heard, Second hand of course. You would not need the money in place until a payment is triggered the it would be an exchange of cheques.

[les]

Cris I asked my banker about the letter of credit, he said he hasnt heard anything about that as of yet.

[grassmarketeer]

The toronto dominion bank isn't pursuing a letter of credit just 'low interest rate loan'(Their idea of what is low interest not mine)for a contribution to having a CIASP account at their institution.

[cris]

My bank told me that this money on deposit will not be able to be used as security, It is like nisa money non-assignable so interest rates would depend on your credit situation.

[carebear300]

I was to my first meeting last night and apparently if you are in a claim position and you collected crop insurance that year, it will be figured out as if you didn't have crop insurance and you will be refunded an amount up to the total premium you paid to crop insurance this year. That doesn't sound too clear but don't know how to explain it any better.
Sorry!!!!!!! Needless to say I won't be filling out my own application will be hiring an accountant(sure hope he knows what he is doing)

[grassmarketeer]

The Toronto Dominion will give you a loan to set up your CAIS account deposit. You can never receive the proceeds of the loan unless you pay the loan out. They have realized that this is great business. You borrow the money at prime .25% , and if you borrow enough they will pay 1.75% on your account. Basically, it's just a matter of finding out which bank is less of a money grubber since it is all just an in house paper shuffle that will bill you the difference in interest. The money never trades hands, and was never available to you unless it can out of your pocket. As mine are empty, that won't happen so it will go down as more farm debt that I have accumulated. Indeed the gov't is out to help me. Wonder how hard it would be to set up a bank that didn't actually loan out money but just say that you have an account there and collect interest on your account to the tune of 3%. It is definitely in the BANKS best interest to have big CAIS accounts set up. Even if the money were deposited out of a farmers pocket wouldn't it be a thrill to get 1.75% and still keep paying those 7.5% beginning farmer loans to AFSC.