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Closing Statement · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:23
  SPEAKER_01: This is the eighth and final, I repeat, the final episode of our crop insurance series.
• 0:29
  SPEAKER_01: Lucas, it's been a blast.
• 0:31
  SPEAKER_01: Are you kicking me out, Mike?
• 0:32
  SPEAKER_01: I am kicking you out.
• 0:33
  SPEAKER_01: Oh man.
• 0:34
  SPEAKER_01: Don't so much crop insurance talk a guy can take.
• 0:37
  SPEAKER_01: So much talk, it's time to make decisions.
• 0:40
  SPEAKER_01: So I want you to throw us in uh a good closure today on and now we gotta make a decision.
• 0:47
  SPEAKER_01: Uh what are we gonna do?
• 0:48
  SPEAKER_01: And I want you to do it on three different scenarios.
• 0:51
  SPEAKER_01: And I kind of want it one scenario in the middle, that's kind of what everybody does, and then one on each side of you know what way you could lean or how it would look, I guess.
• 1:02
  SPEAKER_00: Alright.
• 1:02
  SPEAKER_00: All right.
• 1:03
  SPEAKER_00: I it is decision time now, right?
• 1:05
  SPEAKER_00: We got we got basically, well, not basically, we do have two weeks from today to finalize our spring crop insurance decisions uh by March 15th, and it's March 1st today.
• 1:17
  SPEAKER_00: So two weeks to to finalize this.
• 1:20
  SPEAKER_00: Uh our prices came in at 466 on corn, 1155 on soybeans.
• 1:26
  SPEAKER_00: And so kind of that first scenario, um, that and I and I don't want to make this sound like it's the wrong choice.
• 1:34
  SPEAKER_00: None of these are wrong.
• 1:35
  SPEAKER_00: Uh, I think this is also the point where every farmer has to look at their own farm and decide you know, where is their risk tolerance at?
• 1:44
  SPEAKER_00: Where are they at in their their business cycle, uh, their their uh farm operation as a whole, um, and and kind of see what fits them best.
• 1:55
  SPEAKER_00: I know this all is also the classic time of the year where, well, I was at the coffee shop and so-and-so said this is the best idea ever.
• 2:05
  SPEAKER_00: And well, it might have been for that guy, but it might not be for you.
• 2:09
  SPEAKER_00: So uh we'll go through some scenarios.
• 2:11
  SPEAKER_00: Uh they are not gonna be for everybody, but like to your point, Mike, let's uh kind of go through some.
• 2:17
  SPEAKER_00: And and the first one, I guess, is what uh I'm gonna consider.
• 2:21
  SPEAKER_00: Um, it's probably gonna be the most common for that uh slightly older generation of farmer, and that's uh just do what I did last year.
• 2:30
  SPEAKER_00: Okay, and most of those guys that like when I look at my customer base, it's 75, 80, 85 percent revenue protection, enterprise units, they've been doing it for years, uh, it's gotten them through good years and bad years, and so it's not the wrong decision at all.
• 2:49
  SPEAKER_00: But if we do that, what does it mean for 2024?
• 2:53
  SPEAKER_00: Well, the first thing it's gonna do is since the price is a lot lower than last year, uh, our coverage is gonna be down.
• 3:00
  SPEAKER_00: So, roughly for our average farmer out here in southern Minnesota, northern Iowa, eastern South Dakota, uh, you're gonna be giving up about$200 of coverage per acre on corn and$110,$115 on soybeans just because the price went down.
• 3:20
  SPEAKER_00: And I mean, that's a significant drop in price or in coverage dollars.
• 3:24
  SPEAKER_00: Uh, your premium's gonna be a little lower.
• 3:26
  SPEAKER_00: Your premium's probably gonna be anywhere from a buck to three bucks lower uh per acre.
• 3:32
  SPEAKER_00: Um, so I guess that's the good news.
• 3:34
  SPEAKER_00: You're gonna save a little bit, but um, you're gonna give up so much coverage that I'm not a uh a huge fan of that.
• 3:42
  SPEAKER_00: I think everybody uh, I mean, not that it's wrong, but you gotta realize, okay, what am I giving up?
• 3:50
  SPEAKER_00: There are ways I can get some back, which we'll go into next, but uh if I am gonna give it up, well, how am I gonna protect myself otherwise?
• 3:59
  SPEAKER_00: And that's where uh the services that you know ProEgg provides can come in nice of let's leave my crop insurance alone at uh 80% revenue protection and then work with a guy like yourself, Mike, and protect price when when rallies come.
• 4:13
  SPEAKER_00: And uh that's a just fine market or a strategy going forward in 2022.
• 4:18
  SPEAKER_01: So, what are you gonna label that one?
• 4:19
  SPEAKER_01: Basic?
• 4:19
  SPEAKER_00: So I'm gonna just label like maybe we'll call that traditional.
• 4:22
  SPEAKER_00: Traditional, I like traditional choice.
• 4:25
  SPEAKER_00: And and so with that traditional choice, if I'm 80% revenue protection uh on a normal yield year, my crop insurance isn't gonna kick in until about 372 on uh corn, uh, meaning that the October average uh is what I'd be referring to there.
• 4:42
  SPEAKER_00: And uh on soybeans, you know, we'd be in that 925 range, right?
• 4:48
  SPEAKER_00: Okay, so we got to have a significant drop in price in order uh for any uh crop insurance claims to be triggered with an 80% policy this coming year.
• 4:57
  SPEAKER_00: Of course, we also have our yield component in there we have to consider, but uh for today we're looking at price.
• 5:03
  SPEAKER_00: So that's our traditional uh approach, right?
• 5:05
  SPEAKER_01: How about number two?
• 5:06
  SPEAKER_00: Okay, so number two is going to be uh something that you've probably picked up on the last few podcasts.
• 5:12
  SPEAKER_00: We're gonna combine that traditional coverage with ECO coverage, and I'm gonna go uh 95% ECO coverage, 100% liability uh on that coverage, and I'm gonna move up my revenue protection to that 95% level.
• 5:30
  SPEAKER_00: And I know that's a county coverage, it doesn't protect my own acres.
• 5:35
  SPEAKER_01: How about under it then?
• 5:36
  SPEAKER_00: Uh and under it, I'm gonna keep my 80% revenue protection or kind of my traditional choice, right?
• 5:43
  SPEAKER_00: Whether it's 75 for you or 85 if you're in in uh maybe a county where coverage is a little cheaper, uh, I'm gonna leave that kind of traditional and I'm just gonna add my ECO coverage to it.
• 5:55
  SPEAKER_00: And the reason I want to keep it at 100% liability, uh, I know we've messed with that in the past.
• 6:02
  SPEAKER_00: We talked a little bit about on the ECO podcast, right?
• 6:04
  SPEAKER_00: Of we can change that liability and drop it to 50%.
• 6:08
  SPEAKER_00: The reason I'm buying ECO coverage is to protect price, right?
• 6:12
  SPEAKER_00: I'm I'm using that as my put option, if you will, for 2024.
• 6:18
  SPEAKER_00: And I'm gonna put an uh a floor on price of around 440 on corn and 11 bucks on beans, uh, under 95% of my bushels.
• 6:30
  SPEAKER_00: And and I feel I can do that.
• 6:32
  SPEAKER_00: I'm gonna use the government subsidy to help you know cheapen that up.
• 6:36
  SPEAKER_00: The county coverages are pretty realistic, uh, our yields are realistic to what I'm growing on my own farm.
• 6:43
  SPEAKER_00: I just feel uh comfortable buying that, and then I can have a price floor, a decent price floor, and I can wait for the market to rally and take advantage of rallies is when they come.
• 6:55
  SPEAKER_00: Now my insurance premium's gonna, you know, go up significantly.
• 6:59
  SPEAKER_00: I'm gonna spend 27 bucks an acre for ECO.
• 7:02
  SPEAKER_00: I'm gonna spend you know 14-15 bucks on my 80% revenue protection.
• 7:07
  SPEAKER_00: But at uh at the end of the year, I know I'll I'll be protected if prices and or yields uh go down in my area.
• 7:16
  SPEAKER_00: The the last option, or or maybe I don't know if we're gonna call it the last one, but uh maybe this is the more crazy crop insurance idea.
• 7:25
  SPEAKER_00: Um one of the biggest complaints or frustrations, I should say, not a complaint, uh frustrations that farmers have with crop insurance is man, every year that I have a loss, I'm just right at the point where crop insurance will pay me.
• 7:42
  SPEAKER_00: Or usually just under, right?
• 7:44
  SPEAKER_00: Like, man, the the price went down or my yield went down, but it didn't get uh to the point where my crop insurance started to pay.
• 7:53
  SPEAKER_00: And and that's probably true on any insurance, but on crop insurance farmers have felt that pain many times in the past.
• 8:00
  SPEAKER_00: And so with that in mind, uh one idea that we were kicking around in the office the other day is well, let's have most of our coverage moved up to the very top end.
• 8:12
  SPEAKER_00: And so, like that, 95 to 86 percent.
• 8:15
  SPEAKER_00: Uh so I'm gonna buy ECO, and that's gonna be that county coverage, revenue protection, uh, from 95 down to 86%, that 9% band.
• 8:25
  SPEAKER_00: Then I'm gonna come back and also buy a shallow loss uh band coverage uh from 95 to 86 percent on my individual acres.
• 8:35
  SPEAKER_00: I'm gonna make that revenue protection so that I have kind of double coverage at the very top end uh of my of my farm, that top 95 to 85 percent.
• 8:48
  SPEAKER_00: Lower my deductible to 5%.
• 8:51
  SPEAKER_00: Um, so I should trigger claims much more often.
• 8:55
  SPEAKER_00: And if the county follows the trend of my own farm, now I'm gonna uh get twice as much claim on those top end bushels.
• 9:04
  SPEAKER_00: Uh below that, I'm gonna purchase like a 75 or a 70% uh revenue protection policy.
• 9:11
  SPEAKER_00: I'm basically gonna use that as like disaster protection of something major went wrong, uh, and then that policy's price went down significantly or yield went down significantly, and I'll have that on the downside if that happens.
• 9:27
  SPEAKER_00: Uh but by pushing that coverage uh that kind of way up on top, you know, I'm gonna cover similar dollars uh to my other coverages.
• 9:36
  SPEAKER_00: So I'm not gonna give up total dollars covered.
• 9:39
  SPEAKER_00: All I'm gonna do is is push up when they're gonna pay to the very top end.
• 9:44
  SPEAKER_00: Now, that of course is gonna cost me a lot of premium.
• 9:46
  SPEAKER_00: So this option is probably in that$60 to$70 an acre range.
• 9:51
  SPEAKER_00: Um, and so that's gonna be uh maybe that's why as we call it getting crazy with crop insurance a little bit.
• 9:57
  SPEAKER_00: Spending that much on crop insurance might not always be the great idea, but the double up.
• 10:03
  SPEAKER_00: But you're gonna double up, you're going to uh have very good price protection and yield protection uh across your acres and also some county uh coverage in there as well.
• 10:14
  SPEAKER_01: Gives you plenty of flexibility to try to maybe wait a little bit longer for that rally into the spring.
• 10:20
  SPEAKER_00: Exactly.
• 10:20
  SPEAKER_00: So you you do have confidence that, well, if price go keeps going down, I am gonna get an indemnity out of it.
• 10:27
  SPEAKER_00: Uh, but when price does go up, uh which it usually does seasonally, you gotta take advantage and and get aggressive uh selling your bushels at that time.
• 10:36
  SPEAKER_01: Thank you for your time on this series.
• 10:38
  SPEAKER_01: You bet.
• 10:38
  SPEAKER_00: Glad to help you out, Mike.
• 10:40
  SPEAKER_01: And thank you to all our listeners.
• 10:42
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 10:45
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 10:50
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 10:57
  SPEAKER_01: See you next time.