February 26, 1998 INFORMATIONAL MEMORANDUM: R&D-98-006 TO: All Reinsured Companies All Risk Management Agency Field Offices FROM: Tim B. Witt /s/ R. E. Waggoner Deputy Administrator SUBJECT: Pecan Revenue Pilot Program BACKGROUND: Several questions pertaining to the new Pecan Revenue Pilot Program have been received. The following are the questions and RMA's responses. ACTION: Q1. How is the revenue determined for historical purposes (Type 15 Yield Record) if a grower has records for 1994, 1995, and 1996 but puts all or some of the 1997 pecans into storage and does not market them by the production reporting date? A1. Follow the procedure for temporary yields in section 7J(1) of the Crop Insurance Handbook, but substitute revenue for yield. If all of the production is put into storage, the temporary revenue for 1997 will be the average pounds per acre actually produced but not sold multiplied by the market price (as defined in the crop provisions) on the end of insurance date. If only some of the production is put in storage, use the weighted average of the actual revenue from the sold production and the estimated revenue from the unsold production multiplied by the market price. The temporary revenue is preceded by the yield descriptor "J" and is valid for the 2-year coverage module. Q2. If a producer stores part of the production for the most recent crop year, what price is used to estimate the value of the stored production (for loss adjustment purposes)? A2. The market price on the end of insurance date will be used to establish the value of the stored production. Q3. Must an inspection be done prior to harvest to determine production? A3. Section 10(a)(3) of the Pecan Revenue Crop Provisions states "If you intend to claim an indemnity on a unit, you must notify us prior to the beginning of harvest, or immediately if a loss occurs during harvest, so that we may inspect the damaged production". Q4. If the Agricultural Marketing Service (AMS) price is used, is it the AMS average price for the year or for the week of harvest? A4. Section 11(iii)(3) of the crop provisions states: "We will review the price(s) that you receive for your pecans relative to AMS published prices for the week you sold your pecans". Q5. Are the number of acres insured based on land acres with deductions for non-crop acres such as other tree crops? A5. Acres will be determined according to section 7D(3) of the 1998 Crop Insurance Handbook. Q6. If a pecan orchard is thinned after the first year of a 2-year coverage module, is the acreage redetermined at the beginning of the second year? A6. The acreage would not change if the orchard was thinned. However, if more than 12.5 percent of the trees were thinned, the guarantee would be reduced. The first year thinning reduction would apply according to the directions for Guarantee Per Acre calculation and Reduced Guarantee Factors in Manual 13. (See attached example for Type - 11 record). Q7. If the same acreage is thinned 2 consecutive years, which thinning reduction would apply after the second thinning? A7. If the identical acreage was thinned in 2 consecutive years, the first-year reduction factor would be applied in both cases and the second-year reduction factor would be applied in the third year. Q8. If a grower has a 100-acre pecan orchard with an individual dollar amount (average gross sales) of $923, selects the 65 percent coverage level, and thins 40 acres one year and 60 acres the following year, how does the thinning reduction apply? A8. Since more than 12.5 percent of the total acreage was thinned, a first year reduction would apply to the 40 acres. In the second year, a second year reduction would apply to the 40 acres and a first year reduction would apply to the 60 acres. (See attached example for Type - 11 record). Q9. If a producer signs up for insurance on a pecan orchard before the sales closing date and negotiates a lease for another orchard after sales closing date, is the orchard that was leased after sales closing date insurable for the same crop year? A9. If the leased acreage is inspected and accepted on or before the acreage reporting date, the leased acreage is insurable according to section 8(b)(1) of the Pecan Revenue Crop Provisions. If the orchard is leased or bought after the acreage reporting date, the additional acreage may be accepted if a crop inspection shows that at least 90 percent of the crop's potential can be made. See the provisions for late filed acreage reports in the Crop Insurance Handbook and the Loss Adjustment Manual. This is consistent with other tree crops. Q10. If a producer buys an orchard, can the previous owner's historical revenue records be used to derive the current owner's Individual Dollar Amount? A10. Yes, previous owner's records will be allowed as stated in section 7K(2) of the Crop Insurance Handbook. In addition to acreage and production records, the previous owner's revenue records are required. Q11. Is an inspection required on all new pecan policies regardless of acreage and variability? A11. Yes. The instructions on the APH Procedure Comparison & Reference Guide with modifications to section 7F and in Section 7(a)(2) in the pecan crop provisions state that a pre-acceptance inspection is required on all new pecan policies. Q12. Assume the end of insurance date is December 31, 1998, and that a hail storm occurs in January 1999. If the producer has not harvested the pecans, is the loss covered? A12. No, since the event occurs after the end of insurance date. Q13. How are the administrative fees determined? A13. The $50 dollar administrative fee applies to the 50, 55, and 60 percent coverage levels and the $10 dollar administrative fee applies to the 65, 70, and 75 percent coverage levels. Q14. May a grower who does not take out insurance for 1998 purchase insurance beginning in 1999? A14. Yes, a producer can purchase the 2-year insurance module beginning any year during the 3 year pilot. Attachment PECANS Acreage Record - Type 11 (Examples of Reduced Guarantee for Thinning) Reduced Reduced Unit Guar. Guar. Guarantee Total No. Flag Factor Per AcreAcres Guar. Example 1 00100 600 100 60,000 unit total 60,000 Example 2 00100 F 0.70 420 40 16,800 00100 600 60 36,000 unit total 52,800 Example 3 00100 S 0.85 510 40 20,400 00100 F 0.70 420 60 25,200 unit total 45,600 In all examples the grower has an Individual Dollar Amount of $923, selects the 65% coverage level (selected amount of insurance = $923 x 65% = $600), and has 100 acres of pecans. In example 1, there has been no thinning of the pecan grove and no reduced guarantee factors apply. In Example 2, 40 acres have been thinned and a first year reduced guarantee factor of .70 applies to those 40 acres while the remaining 60 acres have no reduction. In Example 3, 40 acres were thinned the previous year and a second year reduced guarantee factor of .85 applies to those 40 acres. The remaining 60 acres have now been thinned and a first year reduced guarantee factor of .70 applies to those 60 acres. * (Reduced Guarantee Factors in Manual 13 are: First Year Thinning =.70, Second Year Thinning = .85)