Answers to some frequently asked questions...
Questions
- What is the reference margin?
- How is the reference margin calculated?
- How are farms in business less than five years treated?
- Will the reference margin be based on farm income and expense information submitted using the cash method of accounting?
- Are producers with a negative reference margin eligible for CAIS?
Answers
What is the reference margin?
The reference margin is the basis for which the CAIS program provides farm income stabilization and disaster coverage. CAIS payments are triggered when the program year margin falls below the reference margin.
How is the reference margin calculated?
The CAIS reference margin is based on an olympic average. This method calculates the production margin for each of the last five years, drops the high and low margins and averages the remaining three margins.
How are farms in business less than five years treated?
Program benefit calculations for farms with three or more years of farming in the reference period, but less than five, will use a preceding three-year average.
Farms with less than three years of farming in the reference period are considered beginning farmers and will have margins created using industry standard information to make a preceding three-year average.
Will the reference margin be based on farm income and expense information submitted using the cash method of accounting?
Roughly 90 percent of all farms file income tax on the cash basis so most producers will have their reference margin calculated on the cash basis. For most producers this actually provides a higher and more stable reference margin over time, which in turn provides better support for CAIS program coverage.
For operations that have expanded over time or have had large changes in inventory, such as if the producer were building a livestock herd, a cash based reference margin does not provide an accurate reflection of the production margin for that farm.
The CAIS program allows producers to adjust their reference margin for both farm expansion and inventory changes. No additional information beyond what is already collected on the CAIS program forms is required to make adjustments for expansion.
Additional forms are required to make inventory adjustments to the producer's reference margin. Producers wishing to make inventory adjustments during the reference period must complete Schedule 4, Reference Period Accrual Adjustments.
Are producers with a negative reference margin eligible for CAIS?
Producers with a negative reference margin are eligible for CAIS provided the producer has three positive years within their five-year reference period and has met all other CAIS requirements.
