Latest / Professional Ag Marketing Podcast / Protecting the wild ride

Transcript

Protecting the wild ride · Professional Ag Marketing Podcast

• 0:18
  SPEAKER_00: Professional egg marketing podcast.
• 0:20
  SPEAKER_00: This is Mike Minor with professional egg marketing.
• 0:22
  SPEAKER_00: The weekly podcast targeting egg producers.
• 0:58
  SPEAKER_00: Today is February twenty fifth, and I've got Lucas Peters with us here today.
• 1:02
  SPEAKER_00: How's it going?
• 1:03
  SPEAKER_01: It's going good, Mike.
• 1:05
  SPEAKER_00: Fantastic.
• 1:05
  SPEAKER_00: Well, we've got some fun things to cover today.
• 1:08
  SPEAKER_00: We're going to do a quick recap on the grains and their crazy week.
• 1:11
  SPEAKER_00: We're going to talk a little bit about crop insurance.
• 1:14
  SPEAKER_00: We're going to talk about the volatility factor, rates, and then uh average pricing here as that gets wrapped up at the end of February.
• 1:21
  SPEAKER_00: And then uh we're gonna talk a little bit about margin protection again, real quick, and then replant options.
• 1:26
  SPEAKER_00: So let's get into it here.
• 1:28
  SPEAKER_00: Uh crazy week, as uh just mentioned here after Russia fully invaded Ukraine.
• 1:34
  SPEAKER_00: Uh this is a major event.
• 1:36
  SPEAKER_00: It has had major implications with the egg markets, and they have been in full effect here.
• 1:42
  SPEAKER_00: The hog market had a$9.33 trading range, corn had a 61 cent trading range this week.
• 1:49
  SPEAKER_00: Soybeans had a$1.80 trading range almost, crude oil was almost$11.5 trading range, and the Dow Jones had a two over a$2,000 point trading range, so it was a crazy week.
• 2:02
  SPEAKER_00: Uh today we closed 35 cents lower on the March contract here.
• 2:07
  SPEAKER_00: You know, we closed 71 cents lower on the soybean march contract.
• 2:13
  SPEAKER_00: That is not a typo.
• 2:14
  SPEAKER_00: And uh on the wheat side of things, we closed about 78 cents lower on the March spring wheat here today.
• 2:23
  SPEAKER_00: Uh to make that even crazier, March soybeans closed today at about a 1590 range.
• 2:30
  SPEAKER_00: Uh yesterday they had a high of about 1765.
• 2:35
  SPEAKER_00: So uh incredible ranges, and uh wow, that that's about all there is to be said about these grain markets in this crazy volatile time frame.
• 2:44
  SPEAKER_00: Uh heavily dependent on the Russia-Ukraine news here through this week, and uh we'll continue to focus on that here in the near term.
• 2:54
  SPEAKER_00: Things like export activity, uh, outlook uh reports, things like that have really got put on the back burner here uh towards the end of this week as this news unfolds and as the uh the trade continues to take uh a little bit of a risk-off action towards the end of the week, but uh some crazy events there.
• 3:13
  SPEAKER_00: So uh, Lucas, let's dive into some of the crop insurance and the volatility factor that has uh implications in that.
• 3:21
  SPEAKER_01: Yeah, so sure thing.
• 3:23
  SPEAKER_01: What a what a week to be averaging pricing for uh crop insurance and also setting the volatility factor uh for the year.
• 3:31
  SPEAKER_01: Um so you know, a lot of us are familiar with our corn soybeans, uh I guess is what we are primarily worried about.
• 3:38
  SPEAKER_01: But wheat and other crops are setting their projected prices uh during the month of February as well.
• 3:44
  SPEAKER_01: Um, you know, so we we track the price, we we've been tracking that.
• 3:48
  SPEAKER_01: You know, as of the close today, uh corn projected price$589, soybeans 1432.
• 3:56
  SPEAKER_01: Uh we still have one day left uh for averaging.
• 3:59
  SPEAKER_01: Of course, Monday is still February 28th.
• 4:02
  SPEAKER_01: Uh so we'll get through Monday and be done.
• 4:04
  SPEAKER_00: Uh no guarantees with that day, I guess, huh?
• 4:07
  SPEAKER_00: Yeah, yeah.
• 4:08
  SPEAKER_00: Well, that's true.
• 4:08
  SPEAKER_00: You're right.
• 4:10
  SPEAKER_01: Nothing's guaranteed, uh, especially after this week.
• 4:13
  SPEAKER_01: But yeah, if we make it through the weekend, Mike, and we make it through the Monday, we'll we'll have this price set.
• 4:18
  SPEAKER_01: And uh, you know, the the corn price is as high as it's been in 10 years, uh 2011.
• 4:23
  SPEAKER_01: Uh we were at 601.
• 4:25
  SPEAKER_01: Uh, I don't think we're going to be able to jump all the way up to six dollars with our projected price come Monday.
• 4:30
  SPEAKER_01: And and soybeans are the highest they've ever been.
• 4:32
  SPEAKER_01: Uh and by a long ways.
• 4:34
  SPEAKER_00: What that's sinking, the highest ever at this time of the year.
• 4:38
  SPEAKER_01: Highest they've ever been.
• 4:40
  SPEAKER_01: Uh, and and I guess I'll maybe I'll reference that during the time of revenue protection, which goes back to 2000.
• 4:47
  SPEAKER_01: So recent history, I'm sure some sort of inflation adjusted number might be higher.
• 4:53
  SPEAKER_01: But uh as as far as I've been uh in the business, it's the highest, and it's by a lot.
• 4:59
  SPEAKER_01: Like the the highest it was before this year, 1349 in 2011.
• 5:05
  SPEAKER_01: Um you know, you're it's 1432.
• 5:08
  SPEAKER_01: That is a crazy high number, uh, Mike, to be setting.
• 5:11
  SPEAKER_01: And and so we we know the price is higher, of course.
• 5:14
  SPEAKER_01: That's gonna cause premiums to go up, right?
• 5:16
  SPEAKER_01: Because every bushel that we're guaranteed on our APH, we multiply it by this price.
• 5:22
  SPEAKER_01: That's what we're guaranteed.
• 5:24
  SPEAKER_01: Uh, we're guaranteeing more dollars uh since the price is up.
• 5:27
  SPEAKER_01: So our premiums are gonna be up, you know, roughly 20 to 30 percent higher on premiums, uh, depending on coverage levels and where you're at and APHs and all that other fun calculations, but that's a rough number.
• 5:41
  SPEAKER_01: Uh but coverages are are up that equally as well.
• 5:44
  SPEAKER_01: So I don't mind paying more for premium when I'm getting something in return with coverage.
• 5:50
  SPEAKER_01: Uh the hard part of the premium calculation is the volatility factor.
• 5:55
  SPEAKER_01: And you know, that really came to light last year.
• 5:58
  SPEAKER_01: Uh, you know, at this time, we're looking at prices that were higher than they had been in the pre previous few years, but our crop insurance premiums were doubling um versus 2020 because the volatility factor uh had jumped up considerably.
• 6:15
  SPEAKER_01: And you know, one thing for 2022, uh, even though the price is way higher, the volatility factor had actually been creeping down uh or or staying pretty flat for most of the trading month.
• 6:30
  SPEAKER_01: And so now that we hit this last five days of the averaging period, which is when we set the volatility factor, um, you know, there was a chance that we could we're gonna have a lower volatility than last year and and save some premium dollars.
• 6:44
  SPEAKER_01: Well, unfortunately, this week came and volatility came back in the market.
• 6:49
  SPEAKER_01: You know, volatility when prices just kind of steadily climbing every single day had been remained pretty low.
• 6:55
  SPEAKER_01: Uh now this week it kind of flipped.
• 6:58
  SPEAKER_01: The last 48 hours.
• 7:00
  SPEAKER_01: The last 48 hours, you're exactly right.
• 7:02
  SPEAKER_01: You know what?
• 7:02
  SPEAKER_01: Just this week uh and our averaging, there was a 31 cent spread from high to low in corn and 74 cents on soybeans from the high on uh Wednesday to the close today.
• 7:16
  SPEAKER_01: Uh kind of a crazy week.
• 7:17
  SPEAKER_01: We are setting that volatility factor.
• 7:19
  SPEAKER_01: Unfortunately, it it looks like it's going to be very similar to last year, so it's not going up at all.
• 7:25
  SPEAKER_01: Um but uh you know they they use this volatility factor, they can track it.
• 7:29
  SPEAKER_01: You can track it.
• 7:30
  SPEAKER_01: Uh, RMA uses barchart.com, it says it right on the RMA website what they use, and then they calculate that.
• 7:37
  SPEAKER_01: Um they kind of they uh time adjust it back to when they set the fall price.
• 7:43
  SPEAKER_01: Uh and of course, RMA sets the fall price in October, so they uh time adjust that volatility back to October, and then they take the simple average of the last five trading days to set it.
• 7:53
  SPEAKER_01: So nothing we can do about it, uh, but that's it kind of an is what it is uh situation.
• 8:00
  SPEAKER_01: Um, so with the high prices, we're covering a lot more dollars, a lot more dollars than last year.
• 8:05
  SPEAKER_01: It's costing us more to put in the crop too, right, Mike?
• 8:07
  SPEAKER_01: Like we've looked at those charts for all spring, uh, but there's still pretty good profit to be had in corn soybean farming, right?
• 8:16
  SPEAKER_01: Even after this week, your numbers still say it we're gonna make some money, right?
• 8:20
  SPEAKER_00: Yeah.
• 8:21
  SPEAKER_01: Yep.
• 8:22
  SPEAKER_01: So when we look at crop insurance, if we've done what we've always done at a 75 or 80 percent level, we're probably protecting all of our costs, and we can we can stick with that plan and and be just fine.
• 8:33
  SPEAKER_01: Uh knowing that if the absolute worst happens, I'll be in business for the next year.
• 8:39
  SPEAKER_01: Uh, but this might be the year to go up in coverage.
• 8:42
  SPEAKER_01: You know, if you've always been 70, look to go to 75 or 80.
• 8:46
  SPEAKER_01: If you've always been 80, look at what it takes to go up to 85, or look at an SCO coverage to go to 86, ECO coverage to go up to 95, or some other private products, because now we we're gonna be able to protect a uh well, a profit.
• 9:02
  SPEAKER_01: Uh, you know, I'm not gonna say guarantee profit.
• 9:04
  SPEAKER_01: I don't like insurance agents when they say that because you'd have to sell your grain exactly at that price to guarantee the profit, but you're gonna protect your profit potential, and uh this might be the year to do it.
• 9:18
  SPEAKER_01: We're kind of we're we're setting this price, we're seeing the volatility in the markets, the craziness of the world.
• 9:24
  SPEAKER_01: Uh maybe that was the year to spend a little extra premium and and put a pretty good floor under price, and also a floor under yield.
• 9:32
  SPEAKER_01: Uh, you know, I forget because locally we're sitting pretty good moisturized, but the more people we talk to uh this week from the Missouri River to the Mississippi River, there's pockets that are pretty dry and guys are worried about drought again this year.
• 9:46
  SPEAKER_01: So uh as you're making your finalizing your crop insurance decision over the next couple of weeks, uh be sure to quote, look at, consider uh going up in coverage to protect some profit.
• 9:57
  SPEAKER_00: That's a great talking point here as we uh as we kind of finish up this uh this point here would be what kind of area area are you in?
• 10:07
  SPEAKER_00: What are you trying to protect?
• 10:09
  SPEAKER_00: And we when you look at making two decisions together, which would be marketing your crop and protecting it, uh, when you're protecting the revenue side of things, if you are in one of those areas into South Dakota that struggled last year with dryness, pretty dry yet, uh, you know, maybe ramping up on something like crop insurance, getting another county county product uh a band higher to try to uh protect a little bit of your price uh versus your just selling uh futures or buying puts, things like that on the marketing side, uh then you're protecting a little bit of your yield as well, and uh not so open to upside losses there.
• 10:48
  SPEAKER_00: So uh just a few things of when you try to combine those two uh together and start making decisions.
• 10:54
  SPEAKER_00: Uh that's how having both under one roof is kind of an important decision to make, or at least be very transparent with one another.
• 11:01
  SPEAKER_00: So what else you got for us, Lucas?
• 11:03
  SPEAKER_01: Yeah, so kind of building off that point, Mike, uh, of you know, one of the advantages of putting these both in-house and and protecting that price is you know, going back to last September, we talked a lot about margin protection and sold a few policies.
• 11:17
  SPEAKER_01: And and me being one, I bought margin protection for my farm for 2022.
• 11:22
  SPEAKER_01: Um, you know, I think that was the right choice at that time.
• 11:26
  SPEAKER_01: Uh, you can say, well, God, we we our margin protection on corn, for example, set a 506 price, and now we're talking, you know, 589 for a price.
• 11:37
  SPEAKER_01: Boy, that was a dumb decision.
• 11:38
  SPEAKER_01: I don't think it was because buying the margin protection helped me put a floor under that price.
• 11:44
  SPEAKER_01: I didn't have to actually lock in bushels uh at any point, and now I'm still open and can take advantage of the higher prices.
• 11:53
  SPEAKER_01: Um, you know, if if you're doing that at separate businesses, separate agencies, I hope you aren't doubling up and buying margin and also buying puts and spending a lot of money to protect the same amount.
• 12:04
  SPEAKER_01: That's one of the key advantages of talking to ProAg and working with us.
• 12:09
  SPEAKER_01: Um, but on the margin protection, you know, when we were looking at that this fall, and I'll be honest, I was kind of thinking, well, maybe I'll drop my uh individual coverage um you know to a lower level, or maybe potentially switch to a yield protection product uh if the price was flat, because the margin is giving me a 95% protection at a county level using that five dollar price.
• 12:34
  SPEAKER_01: Uh, I also get the advantage of uh the higher fertilizer prices are cutting into margin, so kind of eating my deductible away on that product.
• 12:42
  SPEAKER_01: I I like that.
• 12:44
  SPEAKER_01: But the thing with margin protection, if you buy that and an individual product, you get a premium credit.
• 12:51
  SPEAKER_01: Okay, and the premium credit will be applied to the margin premium.
• 12:57
  SPEAKER_01: And the thing is, the the way the premium credit for margin protection is calculated, it's based on the expected amount of indemnity on your base policy.
• 13:09
  SPEAKER_01: Okay.
• 13:10
  SPEAKER_01: So kind of in simpler terms, if your base policy looks like it's going to have a claim, the higher your credit will be towards margin protection because on those policies you can only collect the higher of the two, the margin or the base.
• 13:25
  SPEAKER_01: Well, now with the price being significantly higher on the spring base policy, our RP policy, versus the margin protection policy, our claim likelihood has increased to our base policy.
• 13:42
  SPEAKER_01: So now if you're sitting there and thinking, well, how can I, you know, I don't I'm not looking to spend a lot more money on crop insurance.
• 13:50
  SPEAKER_01: Uh, well, you could, you know, the numbers I was running for for our farm in Clark County, South Dakota, which every farm, every county is different, so I don't want to paint this with a broad brush, but uh our premium credit for an 80% RP policy was uh equal to the premium of the 80% RP enterprise unit, I should just say that enterprise unit policy.
• 14:13
  SPEAKER_01: So rather than dropping my coverage or switching to yield protection, I'm gonna stick to what I've always done.
• 14:19
  SPEAKER_01: Uh so I got really good base coverage for that.
• 14:23
  SPEAKER_01: Uh, I still got pretty good price protection at an 80% level off of the projected prices.
• 14:29
  SPEAKER_01: And at the end of the day, I'm not gonna spend much more than what I was planning on uh spending last fall.
• 14:35
  SPEAKER_00: Can that number go positive or no?
• 14:36
  SPEAKER_01: It cannot go positive.
• 14:38
  SPEAKER_01: In fact, it actually can't be more than like 70% or some weird uh calculation on that I'd have to look up.
• 14:45
  SPEAKER_01: But uh it's chalk that down.
• 14:48
  SPEAKER_01: Yeah, you're not gonna pay for your whole margin policy with the credit.
• 14:52
  SPEAKER_01: But it's uh it is something to keep in mind of if you bought margin thinking, well, I'm gonna cut back on my spring coverage, which you know I kind of thought too uh where we're at today, uh you may want to just consider all the options.
• 15:07
  SPEAKER_01: Uh last thing I got, Mike.
• 15:10
  SPEAKER_01: Awesome.
• 15:10
  SPEAKER_01: Uh is replant coverage.
• 15:12
  SPEAKER_01: Okay, so uh our standard.
• 15:14
  SPEAKER_00: Did you just say replant?
• 15:15
  SPEAKER_01: Yeah, I know.
• 15:16
  SPEAKER_01: We haven't even planted the crap once, and we're talking replant.
• 15:18
  SPEAKER_01: The standard multiparo policy uh has replant coverage.
• 15:24
  SPEAKER_01: Okay, so if you're out there planting and in the standard policy, 20 acres or 20% uh of the unit, whichever's less, if it has to be replanted, uh, you get paid uh an equivalent of eight bushels times the price of corn, three bushels times the price of soybeans.
• 15:41
  SPEAKER_01: Um you only get that if you plant after the initial plant date.
• 15:46
  SPEAKER_01: Okay?
• 15:47
  SPEAKER_01: So initial plant date for corn, April 10th, South Dakota, April 11th, Minnesota, uh, June 21st, or excuse me, April 21st for uh uh Minnesota, April 26th for South Dakota.
• 16:00
  SPEAKER_01: Well, with where we're at with snowfall or the lack thereof and moisture conditions, well, uh so far it looks like we're gonna have an early spring.
• 16:09
  SPEAKER_01: Or we have the potential to be out there early planting.
• 16:12
  SPEAKER_00: And in dry Especially if it doesn't rain again.
• 16:14
  SPEAKER_01: Yeah, if it doesn't rain again, and and in like where you farm, Mike, it's pretty dry, right?
• 16:19
  SPEAKER_01: And you're gonna want to plant your crop, so if it does start raining, your seeds get to take advantage of that.
• 16:25
  SPEAKER_01: And you don't have to run the digger through it to dry it out to plant.
• 16:30
  SPEAKER_01: Uh so if you're out there before the initial plant date, now you're gonna lose your replant coverage.
• 16:36
  SPEAKER_01: So the companies that we work with offer these replant options, uh, you know, relatively cheap, uh, you know, buck to three bucks an acre, okay, depending on where you're at and counties and crops and all that other fun stuff.
• 16:47
  SPEAKER_00: But does date matter on that?
• 16:50
  SPEAKER_01: Well, exactly.
• 16:50
  SPEAKER_01: So that's why you'd buy the policy.
• 16:52
  SPEAKER_01: Okay, so a lot of these extend that initial plant date uh 10 or up to 20 days.
• 16:59
  SPEAKER_01: So I could be planting April 1st in Minnesota, South Dakota.
• 17:04
  SPEAKER_01: And if I have to replant, my malt peril's not going to pay me, but this extra policy would.
• 17:10
  SPEAKER_01: So if you think you are gonna push the envelope early, and specifically the one I'm looking at is soybeans, because you know, you go to agronomy meetings this winter, they say I should be planting soybeans earlier and earlier.
• 17:22
  SPEAKER_01: And I have the potential if we stay dry to do that, uh, you may want to throw that on for a couple bucks an acre and uh just for peace of mind on replant.
• 17:32
  SPEAKER_01: Should we get a frost or just the growing conditions don't work out?
• 17:36
  SPEAKER_00: You have to decide that by March 15th as well.
• 17:39
  SPEAKER_01: Exactly.
• 17:39
  SPEAKER_01: That's why I wanted to bring it up because a lot of times we get to that time of year and we start worrying about it, but it's too late.
• 17:47
  SPEAKER_01: So by March 15th, you have to add these replant policies by crop, by county, uh so you don't have to do it across the whole farm.
• 17:55
  SPEAKER_01: You can pick or choose county or crop and uh get that coverage added to protect you come April.
• 18:01
  SPEAKER_00: Well, thank you for your time today, Lucas.
• 18:03
  SPEAKER_00: If you guys have any questions for us about the market movements this week or crop insurance, please give us a call.
• 18:10
  SPEAKER_00: We would love to chat.
• 18:11
  SPEAKER_00: Uh we appreciate your time this weekend.
• 18:13
  SPEAKER_00: And thank you for all of our listeners out there.
• 18:15
  SPEAKER_00: We love to hear your feedback and enjoy the opportunity to hear your opinions on the vast array of topics that we cover.
• 18:21
  SPEAKER_00: This concludes this week's edition.
• 18:23
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• 18:27
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• 18:32
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• 18:36
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• 18:41
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• 18:48
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