The Capacity to Assume Risk
The opportunity for a business to earn a profit requires the assumption of some risk. The ability and willingness to assume risk is critical to the profitability of any business operation. Types of risk exposure that a business encounters include the following: production, marketing, financial, human resources, and legal. Each type of risk will have its own type and degree of exposure.
One way for a business to consider it's capacity to assume risk is to compare it to a chain with five links.
- The First link is Net Earnings as a percentage of the value of the total production of the business.
Question: Does the business have the capacity to absorb losses from reductions in production or price?
- The Second link is the Working Capital of the business. Question: Does the business have sufficient cash flow to cover the operating losses that occur in the first link?
- The Third link is current Debt Repayment Capacity. Question: Does the business have the ability to rely on a carryover operating loan to finance operating losses?
- The Fourth link is Owner's Equity. Question: Do the owners have the ability to sell assets to restructure their finances?
- The Fifth link is Collateral. Question: What is the potential of the legal right to the owner's equity?
We are living in a time of great uncertainty with concerns pertaining to the economy, weather, prices, the strength of the US Dollar, and many other risks. All of these risks are difficult enough to predict let alone manage. The transfer of risk to an insurance policy for the above risks that every business owner faces is a smart strategy for surviving and prospering in uncertain times.
Sloan-Leavitt Insurance first opened its doors for business in 1954. For 57 years we have been a constant companion to business owners in managing risk. As part of The Leavitt Group (One of the largest insurance agencies in the United States) we have over 800 companies at our disposal. We have the experience, expertise, and companies to help provide you with the right insurance coverage for the most economical price. In this way we are here to help you transfer some the risk inherent in doing business through insurance.
Sincerely,
Brad K. Risenmay
Co-Owner and Vice-President
Reducing Fruit Acreage - What Needs to Happen and Why. - by Kristine Sarles
As warmer weather approaches and you are trying to determine the damage done to your fruit from the cold weather we had last fall and winter, there are some important things to consider. Reduction in acreage after the January 15th may only be made with prior approval from insurance company. This includes grafting as well as completely removing trees and vines. Without prior approval, your yield and annual revenue (in the case of cherries) may be reduced in the event of an indemnity, not paying you for those trees/vines you took out whether or not it was for an insurable reason or not. Additionally, your annual yield and revenue could be lowered for subsequent crop years. So, if you are contemplating an acreage reduction, give your agent a quick call. It's as simple as that! We can then get a company adjuster to come out and evaluate your crop.
Why buy Crop Hail Coverage? - by Mike Seely
Spring rolling in brings with it a welcome change to the dreary winter, yet it also carries with it the inherent weather risk for all growing crops. With the erratic weather patterns that we have been experiencing, one of the major risks we face is hail. Warm, humid air masses and the entrance of cold fronts coupled with updrafts and thunderstorms create some of the necessary conditions to hail formation. The next few months historically produce just such weather patterns. Private Hail Coverage may be the answer to your risk.
BUT WHY SHOULD YOU BUY CROP HAIL IF YOU ALREADY HAVE MPCI? You may wonder why you would need Private Hail Insurance if you are already covered with a Multi-Peril Policy especially since it will cover damage to crops resulting from hail storms. The answer lies in how the policy calculates loss, how hail damage generally occurs, and the coverage requirements. Because of the very nature of hail, it rarely takes out an entire unit. It is much more likely to destroy in a swath or create a "spot loss." This type of loss can be absorbed by the average yield in the Multi Peril policy because it calculates loss based on yield, and is averaged over the entire unit before an indemnity is paid. For example, if hail were to damage the corner of the circle or orchard, the overall yield may exceed the minimum yield necessary to trigger the claim which is based on the coverage level (Percentage of your approved yield, which functions as a deductible of sorts) that you chose. This is what occurs in most cases.
The Private Crop Hail policy on the other hand, gives you a fixed dollar coverage per acre and can be created with no deductible and first dollar loss coverage. Let's say that you have 100 acres that gets hit by hail. The hail damages one acre of your crop and the remainder is left unscathed. With no deductible first dollar coverage it would cover the 1% loss regardless of average yield. In other words, the policy would pay 1% of whatever the total liability that the policy guaranteed for that unit. Hail coverage is also adaptable to your specific needs because it allows you to cover what you want and does not require you to cover all of your acres. Crop Hail insurance also covers fire regardless of whether it is natural or man-made, and best of all, it is relatively inexpensive! Private Hail coverage has many benefits, features, and options that allow you to customize and fine tune it to your specific area and operation. If Crop Hail coverage sounds like it may be a good addition to your risk management program, give us a call at 1-800-439-7533 and we can explain your options.
PP - Prevent Plant. Too cold? Too wet? Can't Plant? -by Heber Loughmiller
"What if I can't plant my crop before the final plant date?" and, "I haven't even been able to work the ground because of all the snow and rain!" These statements have become an all too common refrain during what is being described as a record-setting cold, wet spring. The answer to this challenge lies in the provisions of your Multi-Peril Crop Insurance policy: Prevented Planting coverage. Although prevented planting claims in the Northwest have traditionally been associated with drought and extended dry weather cycles, this year's frequent storms and cool weather have slowed and even prevented timely spring planting. A final plant date for each crop and county is listed in the actuarial documents provided by the Risk Management Agency. Crops planted after the final plant date face a reduction in coverage. Depending on the crop and lateness of planting, complete denial of coverage is possible. If your spring planting progress has been slowed by weather conditions, please call your Sloan-Leavitt agent and ask them about prevented planting provisions for your crop. As an agency that has handled many prevented planting claims over the years, we understand the difficult decisions that producer's face in these situations. Please give us a call and let us explain the options provided by your Multi-Peril policy.
Focus on Life Insurance: Preserving your Estate - by Greg Sloan
Many years ago I had a life insurance agent tell me, "You know, life insurance can be reduced to one basic type of insurance, and that is term insurance. All other life insurance products are a by-product of the basic Term insurance policy." I have come to find out that for the most part he was quite correct in that statement. If we look at life insurance in this light, it makes it a lot easier
to understand. My own interpretation of life insurance is that we either rent a policy or we buy a policy. If we buy a policy, or invest in a policy then it costs more money. Life insurance is meant to replace your income if you need cash in the event of a death. If you have enough cash available to your heirs to handle continuing expenses, estate taxes, inheritance taxes, or debt, as well as providing for the lifestyle which you desire them to have upon your demise, then you might not need to buy life insurance. However, if any of these instances might put your heirs in a financial bind then life insurance is a simple answer to the conundrum. When you purchase a term policy, there is a limitation placed upon the length of the coverage offered: 5 years, 10 years, 20 years, or 30 years. It is important to remember that the shorter the length of the policy, the lower the premium paid. It is equally important to remember that if you do not provide for an option to purchase a guaranteed renewal during the policy period, your insurance ends when the term is up. Should you have developed a health problem during the policy period and without the proper option, you may be unable to purchase new term insurance. Or it could be even worse, if you are able to purchase insurance it may be entirely unaffordable.
Keeping the facts in mind regarding term insurance, it may be wise to consider Whole-Life insurance if you desire to keep your policy in effect for your entire life. The premium will be higher in the early years of the policy but much lower as you grow older, especially in your senior years. If purchased properly it may even be paid up in your senior years. However, please remember Life insurance is not an investment vehicle, it is a preservation of wealth vehicle, and should be used for what it is intended, the preservation of your estate and of your family's assets.
Get to Know Sloan-Leavitt Insurance: Heber LoughmillerMeet one of the talented members of our insurance team, Heber Loughmiller. Heber is one of our crop insurance specialists, and works out of the Burley, Idaho office of Starley-Leavitt Insurance.
Heber is happily married to his wife Juliann and has 3 boys that keep him on his toes. They live on the family farm and ranch in Malta, Idaho. They enjoy four-wheeling and horseback riding together as a family. Heber is a proud University of Idaho Vandal alum and he supports his team whether they win or lose. Although they mostly do the latter...
Heber and his boys are involved in 4H. They love to attend BYU Cougars and Idaho Vandals college football games. Luckily this year they will play each other, so look for him in the crowd at the game. Heber is also a varsity HS football official, so if there are any missed calls during the game, he wants to hear about it. We're just giving Heber a hard time, but in truth we are glad to have Heber as one of our trusted agents.
Rain on Hay Protection - by Brad Risenmay
Protect the value of your hay with Weatherbill Rain on Hay Coverage. the major risk for any commercial hay grower is precipitation. Rain can reduce quality hay to feeder hay through loss of color, protein content, and of course resultant mold. For the first time, you can reduce the risk posed by rain on cut hay. You can manage this risk by choosing the following:
- Policy period when your cut hay is vulnerable.
- How much you want to receive for each rain event.
- Which fields you want to cover.
- Which cuttings you want to cover.
Rain on Hay Protection through Weatherbill is available for Alfalfa, Timothy, and any other type of hay. There is no claim process required. Weatherbill will send you a check automatically if experience untimely rain, compensating you immediately!
At Sloan-Leavitt Insurance, we can provide an immediate quote and bind coverage in just one visit! In Idaho, call Heber Loughmiller at (208) 358-2494 in Washington and Oregon call (800) 439-7533.
What is Umbrella Coverage? - by Nathan Beus
The most difficult risk to quantify and predict is the risk of becoming liable for damages to other people. If you have a $50,000 tractor, you can insure it for it's full value and know that in the event of a total loss to the tractor you will be compensated. However, if you buy a $1,000,000 auto liability policy, you have no way of knowing for sure whether that amount will be adequate because you risk is undefined. If your truck hits a schoolbus full of kids, $1,000,000 will not be enough. Umbrella and excess policies provide liability limits in addition to auto and general liability policies. These policies are very inexpensive and cover teh most catastrophic risks. We highly encourage you to consider your umbrella limits and work with us to pick a limit that is both affordable and offers a comfortable limit for you.
Our Trade Show Schedule is as follows:
January 4th and 5th - The Real Ag Farm Forum in Pasco, WA at the TRAC Center
January 12th and 13th - The Washington State Hay Growers Conference in Kennewick WA at the Three Rivers Convention Center
January 14th - The Washington Cherry Growers Institute in Yakima, WA at the Yakima Convention Center
January 19th and 20th - The Idaho Potato Conference in Pocatello, ID at the Idaho State Student Union Building
January 25th, 26th, and 27th - The Washington Potato Conference in Kennewick, WA at the Three Rivers Convention Center
January 29th - The Yakima Area Cattleman's Banquet in Yakima, WA at the Yakima Convention Center
February 9th and 10th - The Washington Wine and Grape Growers Trade Show in Kennewick, WA at the Toyota Center.
We hope to see you there!
To Cluster Thin or To Not Cluster Thin, That is the Question- by Kristine SarlesGrowers of premium wine grapes have often been faced with the eternal question between increasing yield or quality. In order for one to occur, the other must always be sacrificed. Recently a research paper by Preszler et al., 2010 has addressed this concern and has come up with a mathematical model for growers to use to help determine where the balance can be found.
The attached spreadsheet will aid growers in maximizing returns through the determination of minimum farm-level prices for grapes at varying yield levels, conditional on the existing market. Additionally, a more thorough understanding of the implication of cluster thinning is developed that growers can use to potentially gain negotiating leverage with prospective grape buyers. These methods can be tailored to any viticultural situation and use basic economic and yield data that are readily available to vineyard managers. The main goal is to enhance decision-making acuity with respect to crop load management and cluster thinning practices.
There were some assumptions in the study that should be kept in mind. Firstly, the grower is assumed to produce grapes from a given set of inputs, including land recourse endowments. Secondly, the grower’s price for a specific quantity of grapes is determined endogenously within the model and is dependent on the yield and canopy management practices used, as well as existing market conditions. Thirdly, the grower faces a multi-tiered pricing schedule based on crop yield and quality parameters related to adjustment of crop load. Production practices included a flat-cane vertical shoot-positioned system and are conducting shoot thinning, shoot positioning, leaf pulling, summer hedging, and spraying for disease and insect control throughout the growing season.
The main things to keep in mind are:
1. Since the demand for carbon assimilates by reproductive growth of the grapevine (in relation to vegetative growth) increases after berry growth, cluster thinning can lead to a yield compensation response in cluster weight.
2. Cluster thinning also incurs production expenses associated with the additional labor and other costs required for its execution.
3. The required cluster thinning price premium increases with the level of overall market price. Additionally, prices required are positively related to the level of cluster thinning costs. Vineyards with higher yields would adopt cluster thinning at lower price premiums. Finally, minimum prices required are positively related to the level of cluster thinning used and are inversely related to the level of compensating cluster weight effects.
4. Computing minimum prices required to adopt cluster thinning practices is a valuable first step for growers. However, the additional value of cluster-thinned fruit that is assumed by buyers may not result in grower prices that would induce cluster thinning. Additional information is required to understand changes in offered prices as a reflection of improved grape characteristics from cluster thinning. The final key to determining the optimal level of cluster thinning is in quantifying the additional value relationship (willingness-to-pay) assumed by buyers. While this relationship is often complicated because of differences in tastes and preferences, it is nevertheless required to determined optimal grower prices.
To summarize, this model is designed to enhance decision-making acuity among wine grape growers who use cluster thinning to reduce crop load or advance fruit maturity. It is suitable for application to vineyard operations in warm and cool climates, for red and white grapes of any commercially grown species, and for any canopy training system. In addition, the model can be tailored constructively in appellations where yield and cost structures vary widely among individual producers. Other vineyard management aspects that could be improved by these production optimality metrics include disease and pest pressure control, non-cluster thinning canopy management practices, and calibration of equipment usage versus hand-labor requirements.
Work Cited Preszler, T., T. Schmit, and Justine E. Vanden Heuvel, Amer. J. Enol. Vit., 2010 61:1, 140-146.
