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Crop Insurance Series: Additional Price Coverage · 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.
• 0:24
  SPEAKER_01: We are in the fifth part of our series here.
• 0:27
  SPEAKER_01: We're going to talk about additional price coverages today.
• 0:30
  SPEAKER_01: I've got Lucas.
• 0:31
  SPEAKER_01: How's it going?
• 0:32
  SPEAKER_00: It's going pretty well, Mike, and uh kind of a different topic uh today than we've been talking about.
• 0:39
  SPEAKER_00: Um you know, a little bit on, I guess, on the similar path to ECO of trying to figure out what more how how can we get more coverage for 2024, right?
• 0:50
  SPEAKER_00: Uh as price has continued to fall here, although we've maybe steadied out here towards the end of the month, we're still a lot lower than when we started the month, and we are significantly lower than we were last year for the crop insurance averaging period.
• 1:05
  SPEAKER_00: And so the number one question I've been getting from farmers is is how do I get some of that coverage back?
• 1:12
  SPEAKER_00: Uh, we talked a little bit about SEO uh before, really kind of like the ECO uh coverage.
• 1:19
  SPEAKER_00: Uh we talked about that, I think, last time.
• 1:22
  SPEAKER_00: Um, but there are other ways to get additional coverage too.
• 1:26
  SPEAKER_00: And but now we're gonna transition a little bit out of the subsidized products, and so uh getting rid of the government subsidy, these are private insurance products that most every crop insurance company out there offers, offers something like this.
• 1:43
  SPEAKER_00: So um uh the the products we'll talk about today and on the next one uh are private products.
• 1:50
  SPEAKER_00: Uh they aren't gonna be the exact same for every company.
• 1:53
  SPEAKER_00: Some companies might offer something, some might not.
• 1:57
  SPEAKER_00: Um, but if you if you have questions on it, uh talk to your agent, call us, we can talk through it and kind of make it more company specific for you uh as we go through the terminology.
• 2:08
  SPEAKER_00: And we're gonna start off uh kind of these private products with additional price coverages.
• 2:13
  SPEAKER_00: And and like this one, uh for example, uh one of the companies we work with, NAU, has a product called BPM, base price modifier coverage.
• 2:24
  SPEAKER_00: And all of these coverages, what they do is they take the uh spring crop insurance price, uh, which we'll set here uh coming up at the end of the week, and then you can add uh a price to that base price.
• 2:38
  SPEAKER_00: And so for corn, for example, I can add like a dollar to the base price.
• 2:44
  SPEAKER_00: Okay, so that sounds pretty good.
• 2:46
  SPEAKER_00: It's it's how I get back to closer to last year, right?
• 2:50
  SPEAKER_00: If if the price for February average on corn comes in at uh like 465 or so, and I can add a dollar to it, well now my base price is back up to 565.
• 3:03
  SPEAKER_00: Sounds pretty good, right, Mike?
• 3:05
  SPEAKER_00: Right.
• 3:06
  SPEAKER_00: So the the tricky part of it is you only get that price, um in the example for the BPM from NAU, if you have a bushel loss.
• 3:18
  SPEAKER_00: Okay, so it's not going to change when your loss pays.
• 3:22
  SPEAKER_00: Uh if you're buying 80% revenue protection, you're gonna need a yield loss in order to trigger this additional price.
• 3:30
  SPEAKER_00: Like a YP product, exactly.
• 3:32
  SPEAKER_00: So if I got a 200 bushel APH, I'm buying 80%, I'm guaranteed 160 bushels per acre.
• 3:39
  SPEAKER_00: Um, so if I harvested less than 160 bushels per acre, I I'd get my claim from the RP product or YP product, whatever I'm purchasing.
• 3:50
  SPEAKER_00: But then I'd also get my BPM payment or additional price coverage payment of a dollar a bushel for every bushel that I'm short.
• 3:58
  SPEAKER_00: Below the one below the 160 in that example.
• 4:01
  SPEAKER_00: So these coverages work really well in the fact of if I'm looking at my uh far my farm operation and I'm trying to figure out okay, I I can withstand a little bit of loss, but man, if I have a bushel loss, I'm really gonna suffer.
• 4:16
  SPEAKER_00: These products work well with that because I can get a little bit extra uh uh coverage, a little bit extra claim dollars if I have a loss.
• 4:24
  SPEAKER_00: Um, you can have them work on an enterprise unit level or optional unit level.
• 4:29
  SPEAKER_00: You know, we haven't talked a lot about the unit structure uh much on these podcasts.
• 4:34
  SPEAKER_00: Um, enterprise unit is all the crop in the county throwing together, optional units as each section stands alone.
• 4:40
  SPEAKER_01: That you farm.
• 4:42
  SPEAKER_00: That you farm.
• 4:43
  SPEAKER_00: And so uh what I I would probably lean towards having a an additional price coverage on an optional unit level, um, because it's more likely you're gonna find a bushel loss uh on an optional unit versus an enterprise unit where everything's thrown together.
• 5:00
  SPEAKER_00: Um but the other advantage now we'd be spending money.
• 5:03
  SPEAKER_00: So exactly.
• 5:04
  SPEAKER_00: So now optional units you're gonna spend uh twice the amount of premium than enterprise units, and just like the multiparel side, your additional price coverages are gonna become twice as expensive if we go optional uh units on those as well.
• 5:18
  SPEAKER_00: Um and so like the these do have a place.
• 5:21
  SPEAKER_00: Uh uh, we used to work a lot of these if a customer uh was working with a new lender and really needed to show that I had dollars protected in case I had a loss.
• 5:33
  SPEAKER_00: This is a great product to use to say, okay, I'm gonna get another dollar per bushel on all my guaranteed bushels.
• 5:40
  SPEAKER_00: So I'm gonna, in the case of if I have a 200 bushel APH, I'm gonna cover another$160 an acre, which is gonna look really good on my overall coverage.
• 5:49
  SPEAKER_00: And that's probably gonna cost you between four and eight bucks an acre.
• 5:53
  SPEAKER_00: Not terrible premium cost either.
• 5:55
  SPEAKER_01: Not terrible.
• 5:56
  SPEAKER_00: We just have to realize the only time we're gonna trigger that is with a bushel loss, not a revenue claim.
• 6:02
  SPEAKER_00: We would need a true bushel loss.
• 6:04
  SPEAKER_00: So uh these products fit a nice uh nice segment in there if you're looking for protection.
• 6:10
  SPEAKER_00: If stuff gets bad, I'm gonna need additional uh claim dollars.
• 6:14
  SPEAKER_00: You don't have to spend a crazy amount of premium on it.
• 6:17
  SPEAKER_00: Uh, I also use them or talk about them with customers that are maybe growing a crop where they're getting a little bit of a premium, like a non-GMO soybeans or or a high-lex soybeans.
• 6:29
  SPEAKER_00: Because on those, if I have a bushel loss, I'm not gonna get the premium on that bushel.
• 6:33
  SPEAKER_00: And so these can help fill the gap in uh for those uh those crops as well.
• 6:38
  SPEAKER_00: So uh there is a way you can uh get a little additional coverage on beans, they work the same way.
• 6:43
  SPEAKER_00: You can get up to about$2,250 uh a bushel extra with these additional price coverages.
• 6:50
  SPEAKER_00: Makes sense because you're gonna have smaller yield, smaller yields, uh, and it's a way to get that hundred and hundred and twenty dollars back uh of coverage uh that you can show to your to your lender if you need it, or to make you sleep better at night if you have a really bad uh yield situation and need the additional money.
• 7:08
  SPEAKER_00: So uh they fill a nice gap.
• 7:10
  SPEAKER_00: Um, and I I guess I would just have you if you're if you're looking for those, you'll have to talk to your agent or to call us, and we can talk through how they'd fit on your operation for 2024.
• 7:20
  SPEAKER_01: All right, we'll catch you on the next podcast.
• 7:22
  SPEAKER_01: And thank you to all our listeners.
• 7:24
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 7:28
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 7:33
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 7:39
  SPEAKER_01: See you next time.