Latest / Professional Ag Marketing Podcast / Crop Insurance Series: ECO

Transcript

Crop Insurance Series: ECO · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the egg markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:24
  SPEAKER_01: Welcome everybody to the Professional Egg Marketing Podcast.
• 0:27
  SPEAKER_01: I am your guest host today, Lucas Peters, and I'm kicking off our 2025 Crop Insurance Decision Time series, where we're going to take five different topics and record a short podcast on each topic.
• 0:41
  SPEAKER_01: The topics this year we're going to cover changes and updates for the program for 2025.
• 0:47
  SPEAKER_01: We're going to take a podcast and look at ECO coverage in 25, the ARC PLC decision, some add-on private products for crop insurance in 25, and then review some of the government program payments that got announced at the end of the year that will be hitting the farm country here in 2025.
• 1:06
  SPEAKER_01: Thanks for joining us and let's get started.
• 1:09
  SPEAKER_01: Let's take a look at ECO coverage, the enhanced coverage option for 2025.
• 1:16
  SPEAKER_01: This is one of the probably the most popular topic you're going to hear around crop insurance for this coming year.
• 1:22
  SPEAKER_01: Maybe you've read some things about it or seen some information about it.
• 1:27
  SPEAKER_01: And the biggest change on the for this coverage this year is last June the government increased the subsidy on ECO coverage up to 65% subsidy levels now.
• 1:41
  SPEAKER_01: What that did is it lowered premium cost for this ECO coverage.
• 1:49
  SPEAKER_01: Pretty cool deal that they lowered premium cost and didn't change the uh how the coverage works.
• 1:56
  SPEAKER_01: So it is a good example of same exact coverage for uh less money.
• 2:01
  SPEAKER_01: Um that's gonna make it pretty popular this year, uh especially around corn and beans, um and and some of the history we've had with ECO coverage.
• 2:10
  SPEAKER_01: But uh let's first start off looking at uh what is it?
• 2:14
  SPEAKER_01: We know that we got more subsidies, so what should we uh we should know what it is to determine if we want to buy it or not.
• 2:22
  SPEAKER_01: Uh so ECO coverage is a band of coverage from 86% up to 90 or 95%.
• 2:32
  SPEAKER_01: Um, and I'm gonna focus on the 95% uh coverage.
• 2:37
  SPEAKER_01: It seems to be the most popular uh coverage level sold at ECO, and if we're looking at additional coverage, it seems to make sense to go all the way to 95% coverage level.
• 2:47
  SPEAKER_01: Okay, so 86 to 95%.
• 2:51
  SPEAKER_01: So that 9% band of coverage, uh, you're gonna calculate how much coverage it is in your situation by taking 9% of your APH times whatever price we set here during the month of February, and that'll get how many dollars of coverage you have uh for 2025.
• 3:10
  SPEAKER_01: Now the kicker on it is when it determines comes time to determine if there's a claim, ECO is going to use the county yields.
• 3:20
  SPEAKER_01: And the expected county yields uh this year are out in most of our area uh on corn, the expected county yields are the same as last year or slightly higher.
• 3:33
  SPEAKER_01: Um, and the expected yields seem to be realistic.
• 3:37
  SPEAKER_01: Uh the they do have a trend yield uh component that kind of increases the yields and they have in the past, and I feel like the county yields match a lot of producers' APHs in in the the respective counties.
• 3:53
  SPEAKER_01: There are exceptions, and there are some counties we have to watch out for and and consider the yields maybe aren't as high as we would like them, but for the most part the yields are are pretty close.
• 4:03
  SPEAKER_01: On soybeans, uh, if you are in uh eastern South Dakota, they did lower some of the soybean yields slightly uh for 2025, which is a little disappointing, but the yield levels are still pretty high, uh, the expected yields are still pretty high.
• 4:20
  SPEAKER_01: And the the reason I spend some time looking at the expected county yields is because that's going to come into play when we start looking at claims.
• 4:30
  SPEAKER_01: Um, if our expected county yield is high enough where maybe the county has only reached that level one or two years in the past, which is pretty common when I look around uh the our market area.
• 4:44
  SPEAKER_01: Uh, the county yields are high enough where it's not like the county is hitting that level or exceeding that yield level every year.
• 4:50
  SPEAKER_01: And so I feel comfortable using this county coverage for producers, even though it'd be nice to have individual coverage that high.
• 5:00
  SPEAKER_01: Uh, this subsidized product is providing good coverage, a good amount of coverage dollar-wise, and still providing a realistic yield where if everything is right and the county exceeds that expected county yield and price is flat, well then more than likely that producer's farm did pretty well, and uh we kind of got what we wanted.
• 5:25
  SPEAKER_01: We bought protection in case something happened, yields are really good that didn't pay out.
• 5:30
  SPEAKER_01: Uh, the nice thing is uh if it goes the other way, if price slips or the county uh has a little bit of a weather issue, drought, flood, freeze, whatever, and yield goes down a little bit, that ECO coverage can pay, and it's far uh easier to get it to pay since it starts paying at the 95% level.
• 5:53
  SPEAKER_01: We only have a 5% deductible uh for that price and county yield combination.
• 5:59
  SPEAKER_01: Highest level uh of coverage offered uh in a subsidized product, uh, so that gets my attention.
• 6:06
  SPEAKER_01: And with those high expected yields, uh, I really like the ECO coverage, especially now with the extra subsidy.
• 6:14
  SPEAKER_01: So, what did it actually do for premium?
• 6:16
  SPEAKER_01: Of course, we should quote your individual farm and uh um counties for to get specifics, but generally that nine percent coverage ban from ECO is gonna give you around uh eighty to eighty-five dollars of coverage on corn for uh fifteen to sixteen dollars an acre of premium uh generally from the quotes I've ran.
• 6:40
  SPEAKER_01: Uh soybeans is gonna add fifty-fifty-five dollars of coverage for eight to nine dollars an acre of premium.
• 6:47
  SPEAKER_01: These are pretty good uh coverage to premium ratios in my mind.
• 6:52
  SPEAKER_01: Anytime you can get close to five to one, six to one, seven to one in situations, it feels like that's a pretty good deal for the producer to consider uh if your operation needs that high level of coverage, if if you're looking for that coverage this year.
• 7:09
  SPEAKER_01: And one area that uh we in in our office here are specifically looking at using the ECO in 25 is around soybeans.
• 7:19
  SPEAKER_01: Uh, for one, the coverage gets me, you know, let's say$50 of extra coverage.
• 7:25
  SPEAKER_01: Since the soybean price is likely to be about a dollar lower, um, most of my coverage is gonna be around 45 to 50 dollars lower than it was last year if I buy the same level.
• 7:37
  SPEAKER_01: Well, now I can add ECO and make up that coverage difference.
• 7:41
  SPEAKER_01: It's gonna cost me extra premium, it's gonna cost me eight, nine bucks, um, but I feel that's a good uh good return to gain that coverage back.
• 7:50
  SPEAKER_01: The other thing it does on soybeans is the the market hasn't given us an opportunity lately to sell a profitable soybean bushel for most producers in 25.
• 8:02
  SPEAKER_01: So we can buy this high level of coverage, uh revenue-based, and kind of wait for that seasonal rally in the soybean market to get us to a point where we can sell uh some decent uh at a decent price and make a little profit.
• 8:18
  SPEAKER_01: And if that time doesn't come and prices continue to go down, well now I have a 95% coverage product.
• 8:25
  SPEAKER_01: And if if yields are are normal and price goes down significantly, um that high level of coverage will limit my losses uh on soybeans.
• 8:35
  SPEAKER_01: And so I I think uh overall ECO is something that all of us should consider.
• 8:40
  SPEAKER_01: I especially like it on soybeans this year, and the extra subsidy is making that decision uh a little easier.
• 8:47
  SPEAKER_01: Uh a couple things to know on ECO, there is no farm program tie-in.
• 8:51
  SPEAKER_01: Okay, so that uh is a coverage called SEO, where we have to watch out for whether we sign up for ARC or PLC, and we'll get to that uh topic here on another episode.
• 9:03
  SPEAKER_01: Uh but ECO has no tie-in there, which is good.
• 9:07
  SPEAKER_01: But the other thing we do have to be aware of is if there are claims paid on ECO, they will not uh get paid until June of the following year.
• 9:17
  SPEAKER_01: So we're gonna sign up for ECO in March of 2025, and if there is a payment, farmers will not see it until about the third week of June in 2026.
• 9:30
  SPEAKER_01: So that is the and the reason for that is the uh county yields are not finalized uh until uh June, I think the second week of June, uh, and that's why it just takes a while to issue payments.
• 9:45
  SPEAKER_01: So just something we gotta be aware of going into it.
• 9:47
  SPEAKER_01: Uh there is a long legs on on this coverage, um, but you know, the only thing we won't know, we'll we'll set the harvest price in October.
• 9:55
  SPEAKER_01: The only thing we won't know is county yields, um, but we can get a general feel of where county yields were at and the likelihood of of payment on ECO, of course, after harvest, but we won't actually see any money until the third week of June.
• 10:08
  SPEAKER_01: Um, so uh just kind of wrap up in summary, ECO is a 9% band of coverage, 86 to 95 percent.
• 10:17
  SPEAKER_01: Uh the the uh payout is determined on the county yield performance.
• 10:22
  SPEAKER_01: It does match your underlying coverage, meaning that if uh you are buying revenue protection, your ECO will be revenue based.
• 10:31
  SPEAKER_01: If you're buying yield protection, your ECO coverage will only be yield-based and will not have a revenue component.
• 10:38
  SPEAKER_01: Uh they increase a subsidy on ECO this year, so it is uh a little more attractive on premium, roughly half of the cost as it was last year.
• 10:47
  SPEAKER_01: And it's something that uh we should get quoted and check out if it's a good fit for your farm in 25.
• 10:53
  SPEAKER_00: And thank you to all our listeners.
• 10:55
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 10:58
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 11:04
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 11:10
  SPEAKER_00: See you next time.