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Crop Insurance Series: Shallow Band 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: In our sixth part of this series, going forward here, we're going to talk about shallow loss band coverages today.
• 0:31
  SPEAKER_01: But Lucas, give us a little recap on what we've learned in the last five podcasts.
• 0:36
  SPEAKER_00: Yeah, you bet.
• 0:37
  SPEAKER_00: So since we we kicked this off last week, uh, you know, we started talking about the basics, the revenue protection policy, the most common policy sold.
• 0:45
  SPEAKER_00: The belly button.
• 0:46
  SPEAKER_00: Everyone's got one.
• 0:47
  SPEAKER_00: Exactly.
• 0:48
  SPEAKER_00: So we covered the basics first, felt pretty good about that.
• 0:51
  SPEAKER_00: Uh next day we talked a little bit about the SCO coverage and kind of why we aren't a big fan of it for 2024, uh, even though we were in 2023.
• 1:02
  SPEAKER_00: Um, then we rolled into that ARC and PLC decision that we have to make uh at the FSA office by March 15th, um, and kind of the advantages that Arc County uh potentially has for 2024.
• 1:16
  SPEAKER_00: Um, you know, uh I think the start this week we talked about the ECO coverage, which is probably the hottest topic on 2024 crop insurance if there is one.
• 1:27
  SPEAKER_00: Uh, really would have everybody consider uh looking at that coverage.
• 1:32
  SPEAKER_00: If you haven't listened to that one, uh take a chance and and listen through that and and kind of see how that might benefit us as we wait for some of these grain markets to to rally back.
• 1:44
  SPEAKER_00: Um, the last one we talked kind of switched gears out of the subsidy uh markets and the government uh insurance products into the private insurance products, talking about the additional price coverages.
• 1:56
  SPEAKER_00: And today we're gonna talk a little bit about these band coverages that are uh really cover those shallow losses.
• 2:05
  SPEAKER_00: Uh, if kind of just like we talked about the additional price, these private products are designed to fill a niche in the market where customers are looking for a specific coverage, but it's not offered at a subsidized uh product, or there isn't a subsidized product uh to cover it.
• 2:23
  SPEAKER_00: And so uh kind of looking at that, and and again, these are available from lots of different companies, they'll all have their own name and their own flavor and a few uh ins and outs of them.
• 2:34
  SPEAKER_00: Uh, the nice thing about them, they there is no farm program tie-ins with them.
• 2:39
  SPEAKER_00: Uh, it's not going to affect uh you can still buy SEO or ECO and add these, so they are complementing coverages that way.
• 2:48
  SPEAKER_00: Uh, of course, when we talk shallow losses, we're talking about the very top end of if I'm in a situation where I can't afford much of a yield or price slip, and I'm looking for that top end coverage of 90-95%.
• 3:05
  SPEAKER_00: That's the niche that these products uh can really help uh producers fill.
• 3:10
  SPEAKER_00: So, similar to the ECO coverage, that can get us up to 95% coverage, except remember ECO was county based.
• 3:19
  SPEAKER_00: It didn't matter what happened on our own farm, it matters what happens in the county uh with the price on the revenue side uh to determine if there'd be a claim payment.
• 3:28
  SPEAKER_00: These shadow loss individual coverages, these band coverages, are your farm based.
• 3:35
  SPEAKER_00: Okay, so so right away they kind of grab your attention.
• 3:38
  SPEAKER_00: I can get 95% protection uh off the yields on my farm.
• 3:43
  SPEAKER_00: Um boy, now I'm I'm I'm really protected against price loss and yield loss, uh, which they do.
• 3:51
  SPEAKER_00: And so if uh I'm gonna pick on uh I'll uh we really kind of maybe use these more in Minnesota than South Dakota or Iowa as well, where the rates are a little cheaper.
• 4:02
  SPEAKER_00: But let's say, for example, I'm buying an 85% revenue protection policy, pretty common in those states.
• 4:09
  SPEAKER_00: I can add a band of coverage from 85 up to 95% with these additional coverage uh policies here.
• 4:17
  SPEAKER_00: And that extra 10% um is gonna cover me off my yields.
• 4:22
  SPEAKER_00: Uh so what happens on my farm, I'll be protected against uh any sort of loss.
• 4:27
  SPEAKER_00: Uh the the only issue with them, or not the issue, just the reality of it, is it does get expensive to insure those top-end bushels.
• 4:37
  SPEAKER_00: And so where ECO is expensive we talked.
• 4:40
  SPEAKER_00: Yeah, so ECO, you know, we were talking 25 to 30 bucks an acre, depending on where you're at.
• 4:44
  SPEAKER_00: Uh, for a revenue coverage on the individual side, you're gonna double that.
• 4:49
  SPEAKER_00: You're gonna be a lot of these are gonna be 45 to 60 bucks an acre, depending on your individual loss history.
• 4:56
  SPEAKER_00: Now that's gonna be on top of your 80, 85 percent uh individual revenue protection coverage, too.
• 5:04
  SPEAKER_00: Now your whole insurance bill is gonna run up to 75, 80 bucks an acre.
• 5:08
  SPEAKER_00: Uh, I'm not saying that's wrong.
• 5:10
  SPEAKER_00: If you need that coverage uh because uh of your the financial position the farm's in, or you you want to protect every dollar because you're in growth mode and you're you can't take a slip on revenue for the year, well these products can help you fit that.
• 5:26
  SPEAKER_01: And then your likelihood of getting a claim is intensely higher.
• 5:31
  SPEAKER_00: I mean, if it's 95%, a five percent deductible off of APH is gonna be a pretty good yield uh or revenue with the price.
• 5:39
  SPEAKER_00: And so that's where these these products can fit and help producers that are trying to protect every dollar uh very well.
• 5:46
  SPEAKER_00: The other thing we can do with these is we can have that top band, like an 85 to 95 percent, for an example.
• 5:54
  SPEAKER_00: Uh, we can have that run on yield protection and and give up the revenue side on it.
• 5:59
  SPEAKER_00: Um, and that's probably where I've used these products the most is on the yield side.
• 6:04
  SPEAKER_00: And partly because the last few years the prices have been high and we've been trying to protect bushels, but also then it becomes a little more affordable.
• 6:12
  SPEAKER_00: And we can cut that premium cost down to an additional uh maybe 20 bucks an acre and becomes a little more reasonable for guys uh on the premium side, still protecting me uh on my operation for for high yields, and then it's up to the individual farmer to get it marketed at at a good price uh to protect the revenue.
• 6:33
  SPEAKER_00: So uh these products do fill a niche.
• 6:36
  SPEAKER_00: Uh, generally, if we do this or or another segment of the pop of the of the customers that we work with, maybe they replace their hail or wind coverage with these products because they're gonna protect maybe a similar dollar amount.
• 6:49
  SPEAKER_00: A lot of times these are hundred, hundred and fifty dollar coverages uh an acre, which is a similar dollar amount of what people buy for hail insurance.
• 6:58
  SPEAKER_00: Uh, and the nice thing is these cover more perils than just hail.
• 7:02
  SPEAKER_00: Yeah, they're gonna cover drought, they're gonna cover flood, they cover hail, they cover wind damage if you don't get the bushels uh at the end of the year.
• 7:09
  SPEAKER_00: So uh really uh good coverage uh to protect uh shallow losses uh across across multiple perils.
• 7:18
  SPEAKER_00: You can make them revenue based.
• 7:20
  SPEAKER_00: The premium gets a little more expensive, but again, in 2024, if it's a tough year, that$50,$60,$80 insurance premium that you have to write uh might not look so bad if it helps you recoup some losses if the price continues to slide or your yields uh go down as well.
• 7:38
  SPEAKER_00: So probably not as widely used uh as some of the other coverages that we've talked about, but uh definitely um they're out there.
• 7:45
  SPEAKER_00: And if you are interested in them for 24, call our office and we can talk through it with you.
• 7:50
  SPEAKER_01: Thank you, Lucas.
• 7:51
  SPEAKER_01: And thank you to all our listeners.
• 7:53
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 7:57
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 8:02
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 8:08
  SPEAKER_01: See you next time.