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Crop Insurance Series: RP Basics · 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: Today is February 21st, and I've got Lucas Peters here with me today.
• 0:29
  SPEAKER_01: What are you doing here, Lucas?
• 0:30
  SPEAKER_00: Well, Mike, we are going to kick off our 2024 crop insurance series of podcasts.
• 0:38
  SPEAKER_00: As we approach the end of February, of course, we're right in the middle of crop insurance season, and we thought it'd be good to give a quick update on a few different crop insurance topics for 2024 here over the next few days.
• 0:50
  SPEAKER_00: Awesome.
• 0:50
  SPEAKER_01: So over the next eight days uh or eight business days, we are going to be having one podcast a day, basically, for five minutes.
• 1:01
  SPEAKER_01: Just talk about a very particular uh point about crop insurance on that day.
• 1:07
  SPEAKER_01: So uh over the next eight sessions or so, uh, we're gonna cover things like revenue protection review today, we're gonna cover the SEO coverage uh tomorrow, we're gonna cover the ARC and PLC decision, then next Monday we're gonna talk about ACO, then on the next day we're gonna talk about price modifiers and additional coverages, then the next day we're gonna talk about price or uh private band coverages, then we're gonna wrap up with final price review and the last day decision time, as we talk about uh where average prices came through, uh, what people are doing, how they should do it, things like that.
• 1:46
  SPEAKER_01: So this is one of our first series from professional egg marketing, and uh should be nice, quick little podcast for you to uh hit.
• 1:54
  SPEAKER_00: Yeah, I hope so.
• 1:56
  SPEAKER_00: Uh and as we as you listen to them, please uh offer any feedback or what you thought on them.
• 2:01
  SPEAKER_00: Uh again, like Mike said, we're gonna try to hit on some key topics for 2024 uh that we're talking about with our customers and getting asked about.
• 2:10
  SPEAKER_00: And the first one we're gonna hit off today is on uh revenue protection.
• 2:15
  SPEAKER_00: And maybe this is a good way to start because this is kind of our our basic.
• 2:20
  SPEAKER_00: This is our basic policy, right?
• 2:22
  SPEAKER_00: So revenue protection is the most common policy sold on corn and beans and wheat.
• 2:26
  SPEAKER_00: Uh it's uh revenue protection, RP is how it's abbreviated, or you'll see it on your policy.
• 2:33
  SPEAKER_00: Very popular, very successful program since uh a version of it was released in the mid-90s, and it continues to be that way.
• 2:40
  SPEAKER_00: And so um, when we talk about the month of February, uh course on crop insurance, we talk about the price averaging period, and that uh kind of started with revenue protection.
• 2:52
  SPEAKER_00: So, what we're doing today is we're setting our minimum price for corn and soybeans and other crops, but corn and beans are what we're gonna focus on.
• 3:02
  SPEAKER_00: Uh, and during the month of February for corn, we are gonna average uh the close of the December 24 uh corn contract and the November 24 soybean contract, and average up all those closes uh during the month of February, and that average will become our spring minimum price uh for revenue protection.
• 3:25
  SPEAKER_00: And so when you say revenue, of course, we're we're talking dollars and how each farmer you kind of calculate your minimum revenue protection uh for your crop insurance policy.
• 3:36
  SPEAKER_00: The the first thing we should do is step back and look at kind of the basics of yield protection, right?
• 3:42
  SPEAKER_00: So we all have uh an APH guarantee uh on each one of our sections or our units based from our crop insurance policy, based on four years or 10 years of yield history.
• 3:54
  SPEAKER_00: And so we take that APH times our coverage level, and let's say we're buying 80% uh revenue protection.
• 4:01
  SPEAKER_00: Uh so the first step would be to take 80% of uh of a 200 bushel APH, say that's gonna guarantee me 160 bushels per acre.
• 4:11
  SPEAKER_00: Uh, but with revenue, we're gonna take it times the price, and if we take it times the uh average of February, the the projected price is what they're gonna call it, and that's gonna give me a minimum revenue guarantee uh for the year.
• 4:26
  SPEAKER_00: And this is one of the beauty parts of revenue protection, is because this will be the minimum revenue, and it's not the revenue guarantee, because if the price moves higher uh when we average the price in the fall during the month of October, then we get to use that price and we'll reset our guarantee higher.
• 4:45
  SPEAKER_00: Now, if that price in the fall is lower, uh we are uh locked into our minimum revenue guarantee we set in February.
• 4:53
  SPEAKER_00: So this is a key advantage of revenue protection, and and why it's been popular is I get the higher price of the spring or fall.
• 5:01
  SPEAKER_00: I'm guaranteeing dollars, not just bushels.
• 5:04
  SPEAKER_00: And so, you know, recent history, look back to 2023, uh, when corn price in particular dropped uh from 591 in the spring to 488 in the fall.
• 5:16
  SPEAKER_00: A lot of farmers were able to harvest above their bushel guarantees, but still have a crop insurance claim because of the revenue shortfall due to the price decreasing.
• 5:28
  SPEAKER_00: So uh that's a key point of revenue protection, um, looking at dollars, not just uh bushels.
• 5:36
  SPEAKER_01: So talk a little bit on why this is the most popular plan and then kind of how it ties back into your grain marketing plan as well and the connection there.
• 5:45
  SPEAKER_00: Yep, exactly.
• 5:46
  SPEAKER_00: So the one of the reasons the revenue protection is so popular is because it can complement your revenue protection or your grain marketing plan uh because it does allow for uh movement in price.
• 5:59
  SPEAKER_01: Because like what percent of farmers probably do it?
• 6:02
  SPEAKER_00: So yeah, I would say in in southern Minnesota or our area or listeners area, 80% of the policies are a revenue protection-based policy, right?
• 6:11
  SPEAKER_00: And so the way it works and complements your grain marketing plan is if I sell some bushels, uh, contract them before harvest, and then at the end of the harvest, I'm short, I'm gonna get reimbursed at the fall price.
• 6:27
  SPEAKER_00: Uh for every bushel I'm short, I'm gonna get paid per bushel, whatever that price is in the fall.
• 6:33
  SPEAKER_00: Uh, if it's higher, if it's lower uh in the fall, well, I'm gonna get my spring price.
• 6:38
  SPEAKER_00: And so what that allows is if I'm short bushels, I should have the revenue to go in and buy out my contract or pay the grain buyer uh the difference of being short on the bushels.
• 6:48
  SPEAKER_00: Versus if I had a yield protection plan, uh, I would get a crop insurance claim if I was short bushels, but I would only get paid at the spring price.
• 6:58
  SPEAKER_00: And so obviously, if the price moves up in the fall, that uh that doesn't help me very much.
• 7:03
  SPEAKER_00: Now I've got to take money out of my pocket, and potentially I'd be scared of selling bushels at profitable prices uh throughout the year.
• 7:10
  SPEAKER_00: So that really works well as you sell into those seasonal time frames and take advantage of higher prices.
• 7:16
  SPEAKER_01: How does it look going into 2024 and how does uh the revenue protection look going into 24?
• 7:23
  SPEAKER_00: Yep, so uh 2024 is gonna be a great uh uh kind of reason why revenue protection works, in my opinion, because you know, right now corn and soybean price is kind of on a slide and it's been on a slide for a while.
• 7:37
  SPEAKER_00: Um, so as we look at our our guarantees, they're going to be lower because we're we're gonna have a lower price than last year in the spring.
• 7:45
  SPEAKER_00: Uh, our premiums are gonna be lower as well uh because we're covering less total dollars.
• 7:51
  SPEAKER_00: But what revenue protection is gonna allow us to do uh right now is if you are are need to get caught up on some 2024 sales, uh I can buy my crop insurance, my revenue protection right now.
• 8:03
  SPEAKER_00: I know I got a minimum uh price under my guaranteed bushels, and then I can wait for hopefully a seasonal rally and take advantage of that rally and sell confidently into those rallies.
• 8:15
  SPEAKER_00: Hopefully that price gets to be a profitable for us, and we can use our crop insurance policy to protect a profit uh for 2024, even though there's not one right there now.
• 8:26
  SPEAKER_01: All right.
• 8:27
  SPEAKER_01: Well, thank you for your time today.
• 8:28
  SPEAKER_01: Next up, we're gonna talk about the SEO coverage in the next podcast of the series.
• 8:34
  SPEAKER_01: Thank you.
• 8:35
  SPEAKER_01: And thank you to all our listeners.
• 8:36
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 8:40
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 8:45
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 8:51
  SPEAKER_01: See you next time.