Program Year Margin
The current year’s financial profile for the farm or ranch is called the program year margin. It is based on the income and expenses directly related to the farming operation and includes accrual adjustments.
Allowable income and expenses ensure AgriStability coverage is restricted to production or price declines, rising input costs and market losses.
The program year margin also includes accrual adjustments that measure changes in the value of a producer’s accounts receivable, accounts payable, purchased inputs, deferrals and commodity inventories. Inventory changes are valued using fair market values. Essentially, if the farm’s inventory value increases, it increases the program year margin; if the farm’s inventory value decreases, it decreases the program year margin.
Triggering a Payment
When the program year margin declines by more than 30 per cent of the reference margin, an AgriStability payment is triggered. Payments can be triggered by the combined effects of several factors that on their own might not trigger a payment.
One situation may offset another. A bumper crop could offset the effects of poor commodity prices or increased expenses. Higher cattle prices could offset increased feed expenses. All of these factors are taken into consideration when determining the program year margin.
Inventory Adjustment is the difference between what you have on-hand at the start of the fiscal year, compared to what you have on-hand at the end of the fiscal year.
Crop and livestock inventories for market commodities are valued using both an opening price (P1) and a year-end price (P2). Breeding animals and culled breeding animals, which are not considered market commodities, are valued using a year-end (P2) price only.
Your historical financial information is used in the calculation of AgriStability benefits to accurately reflect your farming operation.
The program year margin is compared to the reference margin from the previous five years. The reference margin is determined by excluding the highest and lowest margins in the previous five years and averaging the remaining three.
If your farm or ranch is newly enrolled in AgriStability or has been operating for less than five years, the reference margin will be based on the three most recent margins (if available). If three years are not available, the reference margin will be based on industry averages and standards. New participants will only be required to submit the previous three years of historical financial information as well as the supplemental information.
Limited Reference Margin
AgriStability benefits are calculated using the lower of:
- the conventional reference margin; or
- the average allowable expenses in the same years used to calculate the conventional reference margin.
If the allowable expenses are used, the reference margin is limited. The reference margin limit (RML) will never be less than 70 per cent of the conventional reference margin.
A negative program year margin occurs if your allowable expenses exceed your allowable income after adjustments for changes in inventory valuation, receivables, payables and purchased inputs. Negative margins are protected under the AgriStability Program.