May 1, when most producers were in the field or preparing to get there, the federal government announced the 2019 AgriStability program year enrolment deadline would be extended to July 2, 2019. The extension was in response to the canola dispute with China and gives producers a second opportunity to review their financial risk management coverage for 2019.
Some producers evaluate AgriStability on the likelihood of their getting a payment and consequently it is viewed as a line item in the current year’s budget. Often our clients will ask, “Why should I enrol in AgriStability if I will not receive a payment?” In response we offer the analogy of home insurance — your home coverage protects the significant investment in your home against the unlikely scenario of a disaster such as a fire. You pay an annual premium, but do not expect your house to be destroyed by fire every year. Similarly, you should anticipate paying an annual “premium” for AgriStability, without anticipating an annual payment. The coverage is for the exceptional circumstance of significant economic decline.
Many farms have been profitable and developed sizable reference margins over the past five years which translates into greater potential payments from the AgriStability program.
Since several years of interconnected financial and production records are required to complete an application, producers will be better served if they complete their reference margin calculations annually. Preparing your own AgriStability application can reduce the overall cost of participating in the program. If you require assistance you should consult with your chartered professional accountant.
The production and inventory information required for AgriStability is management information that all farms should be tracking regardless of enrolment in the program. While the names and specific calculations of Canada’s farm risk management programs have changed over the years, the nuts and bolts of production information, inventory, and income/expense have not. Similar to other industries, farms should be maintaining detailed production records in what is becoming an increasingly competitive margin environment.
Consider enrolling in AgriStability before July 2, 2019 as part of your farm’s financial risk management strategy. The tables further down outlines a $/acre AgriStability calculation example for a grain farm in southwest Saskatchewan. For more information, producers should contact their provincial authority administering the AgriStability program or their chartered professional accountant.
In this example below, the farmer pays $0.53/ acre in program fees (plus a per farm program administration fee of $55). With revenues of $280/acre in 2019, the farmer is eligible for payments of $13/acre. In this example:
1. There has been no change in inventory adjustments or accrual adjustments (prepaid inputs) in 2019.
2. There has been no change to the farm’s acreage in 2019.
3. An Olympic average (five-year average excluding highs and lows) was used to calculate the reference margin.
4. AgriStability’s published grain prices are used.
5. The reference margin is the lower of the reference margin or allowable expenses.
Of course, there are many details that will impact your individual farm’s reference margin and program payments.