The current year’s financial profile for the farming operation is called the program margin. It is based on the income and expenses directly related to the farming operation’s production.
Allowable income and expenses ensure AgriStability coverage is restricted to production or price declines, rising input costs and market losses.
The Program considers an entire farm operation and not just one commodity. Payments can be triggered by the combined effects of several factors that on their own might not trigger a payment. On the other hand, one situation may offset another.
The program margin also includes inventory adjustments that measure changes in the value of your 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 margin; if the farm’s inventory value decreases, it reduces the program margin.
A producer’s historical financial information is used in the calculation of AgriStability benefits to accurately reflect the farming operation’s financial profile.
The financial profile of the farm is based on the program margins from the previous five years. The reference margin is determined by excluding the highest and lowest program margins in the previous five years and averaging the remaining three.
If the farm or ranch has been operating for less than five years, the reference margin will be based on the three most recent margins (if available) or typical industry margins for the commodities being produced.
Limited Reference Margin
Starting in the 2013 program year, AgriStability benefits are calculated using the lower of:
- the conventional reference margin; or
- the average allowable expenses in the years used to calculate the conventional reference margin.
To determine whether the limited reference margin will be used, the allowable expenses in the three years used to calculate the conventional reference margin will be averaged.
The lower of either the average of total allowable expenses or the conventional reference margin will be used in the calculation of benefits. If the average of the allowable expenses is used, the reference margin is limited.
Negative margins are protected under the AgriStability Program. A negative program year margin occurs when a producer’s allowable expenses exceed his/her allowable income after adjustments for changes in inventory valuation, receivables, payables and purchased inputs. A negative margin can occur when an operation is impacted by dropping commodity prices or a sharp increase in farm input costs.
To qualify for negative margin coverage you must have:
- incurred a negative program year margin due to reasons beyond your control; and
- followed sound management practices.
- two of the three years used to calculate your reference margin must be greater than $0.