About This Episode
Recorded Saturday, February 26, 2022, with one trading day left in the projected price period, Steve Johnson and Shay Foulk look at $5.90 December corn and $14.34 November soybeans, the second highest corn price and the highest soybean price on record for crop insurance. Johnson warns that the volatility factors come from the last five trading days of February, which included the invasion of Ukraine, so growers should expect factors above the prior year's 0.23 for corn and 0.19 for soybeans, and much higher premiums.
His case study uses a 202-bushel approved APH with enterprise units. Moving from 85 percent to 80 percent revenue protection saves roughly $12 to $13 an acre, and because projected prices are so high, the lower level can still deliver about the same revenue guarantee as the prior year. He then redirects those dollars into shallow loss coverage. SCO does not trigger until the 86 percent level, so buying 80 percent RP without adding SCO leaves an uncovered gap.
In his example, 80 percent RP plus 86 percent SCO plus a 90 percent ECO runs about $32 in farmer-paid premium. He notes that electing SCO means enrolling in PLC rather than ARC at FSA, that enterprise units settle losses at county lines so hail, wind, and green snap endorsements bring protection back to the section, and that federal support covers 38 to 77 percent of RP premium, 65 percent of SCO, and 44 to 51 percent of ECO.
“Let's take advantage of high prices. The cure for high prices is high prices. They tend not to last for long periods of time.”
— Steve Johnson
Key Takeaways
Projected prices were tracking $5.90 December corn and $14.34 November soybeans, the second highest corn and highest soybean price on record, which raises both the guarantee and the premium.
Volatility factors were pulled from the last five trading days of February, including the Ukraine invasion, so expect them above 2021's 0.23 corn and 0.19 soybeans.
Dropping from 85 to 80 percent revenue protection on a 202-bushel APH enterprise unit farm saves about $12 to $13 an acre while keeping roughly the prior year's guarantee.
SCO triggers at 86 percent, so 80 percent RP without SCO leaves a coverage gap; 80 percent RP plus 86 percent SCO plus 90 percent ECO cost about $32 in farmer-paid premium in his example.
Buying SCO requires electing PLC at FSA, and Johnson says ARC and PLC should not drive the decision, crop insurance should.
Government support pays 38 to 77 percent of RP premium depending on unit structure, 65 percent of SCO, and 44 to 51 percent of ECO; enterprise units settle at county lines, so hail and wind endorsements bring coverage back to the section.
Full Transcript
Narrator: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now here is your host, Shay Foulk.
Shay
Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Steve Johnson, and we wanted to have a quick conversation on Some of the insurance stuff that's going on, we are recording this on Saturday, February 26th, so we do not have our final day of projection in, Steve, but right now what we're looking at is $5.90 on corn, $14.34 on soybeans, and that $5.90, second highest on corn, and $14.34 is the highest ever on soybeans. What are your thoughts on that?
Steve
Johnson: Yeah, of course we've got one more day, so we'll need to average in Monday's futures price closes for December corn and November soybeans. But yeah, those premiums are going to be a sticker shock if you're going to use the same level of coverage as you did in '21 with these record or near record projected prices. They affect the revenue guarantee, but they also affect your premiums. And don't forget, Shay, we've also got the volatility factors, and those are coming from the last 5 trading days of February, and that included the Ukrainian invasion. So don't be surprised that we're going to be higher than last year's 0.23 volatility for corn and 0.19 for soybeans. So we're going to have high projected prices, high volatility factors, much higher premiums, and we're just down to 2 weeks to make a decision for crop insurance.
Shay
Foulk: So you mentioned the higher premiums there. Volatility factor was actually pretty similar compared to 2021, our prices ended up for 2021 at $4.58 and $11.87. Talk to me about the difference in, you know, the volatility this year. People might look at that and say, well, geez, aren't we more volatile right now than we were last year? How does that factor play into this, Steve?
Steve
Johnson: Well, it's the same type of volatility factor that we use to determine those futures options contracts. Yeah, I think what we're seeing is more extreme volatility, and especially when we had prices like we did on Thursday. I, I think you saw the same thing that I saw. You know, we were nearly lock limit up on corn and soybeans on Thursday, and then when we sold off, oh my. That trading range is going to be wide. I still believe there will be a calculation including Monday's calculation. So again, it is a factor, but we'll let the smoke settle. I hope you've got an appointment with your crop insurance agent. It'll probably be Tuesday, Wednesday, maybe Thursday before they've really got the premiums. So get your appointments done and let's get these decisions made.
But the interactions that are coming for crop insurance are the most unique that I've ever seen, and I've been teaching crop insurance for over 15 years. Interesting.
Shay
Foulk: How should a farmer think about that? You know, I mean, should they look at this as a point of opportunity with the volatility that we're seeing? You know, if you put on your farmer hat, Steve, how do you think about what we're seeing in the crop insurance world right now?
Steve
Johnson: Well, you witnessed Thursday and Friday as two of the biggest turnaround days you've ever seen, so you know, you know there's risk that's on the table. I I would look at marketing the '22 crop and getting some of this sold, whether you're using the forward cash or HTA contract. Those are what I call delivery bushels and crop insurance. That's where I'd be right now. I don't know whether I want to chase the futures. Maybe I want to go ahead and make sure I've got my put options bought, I've got something in place to protect the downside and leaving the upside open. So I believe crop insurance is the centerpiece of forward contracting delivery bushels using HTA or forward cash contracts. Let's get 'er done. I just, just think when you see days like that and you can't outguess the market because this is a lot of money flow. This isn't supply and demand.
This is just people moving in and out of the futures market. Let's tie it to these high projected prices. $5.90 December corn, maybe $5.89, and $14.34 November soybeans, maybe 2 cents lower than that. So again, we've got high prices. Let's take advantage of high prices. The cure for high prices is high prices. They tend not to last for long periods of time.
Shay
Foulk: Absolutely. All right, let's move into some actionables on crop insurance decision-making. Uh, first let's look at revenue protection. Talk to me a little bit about the difference, you know, for example, between maybe an 80% revenue protection versus 85%. You know, there might be a significant premium difference. How do you think about that when it comes to your protection levels, Steve?
Steve
Johnson: Well, we've been using a case study farm. That's how I've been teaching over the last 4 weeks. So if you're using a 202 bushel an acre approved APH for your farms and the county trend yield is the same— again, we use county trends in using SCO ECO types of products. I think what you're going to see is if you're going to use enterprise units— I'll just use enterprise units and not optional units— but you decide you're going to save about $12, $13 going from 80% to 85%. So I think that's the first thing you look at, is, you know, I got my unit structure in place. Do I want to go down because the price is high and I don't have to spend quite as much for premium. That's probably the farmer hat on. I'm spending a lot on this crop, I can go down to a lower level of coverage and probably have same revenue guarantee I had last year because the projected prices are so high.
So start there.
Shay
Foulk: So, and then what are you doing with those extra dollars that you just saved, Steve?
Steve
Johnson: Well, there's where I think you can step in and look at these shallow loss products, SCO supplemental or ECO, 90 or 95% trigger. So supplemental or enhanced, you decide. Do you want to add some sugar, some cream to the coffee? That's how I teach. So yeah, I think you can save $12 on average for the farm that we've been looking at in enterprise units. And then maybe I spend, uh, that money on, uh, SEO, uh, because I leave a gap if I buy 80% revenue protection and I don't buy SEO. I leave a gap in my coverage, and that's because SEO doesn't trigger till the 86% level. It's using county yields, but If I go down to 80%, I leave myself exposed if I don't buy SCO. So if I buy SCO and add that on to that 80%, I've got coverage. Uh, below 86%, uh, I'm covered at the county, and at 80%, I'm covered at the farm.
I think that's what a lot of people are going to do, is add SCO if they're going to 80%, or if you're going to stay at 85%, I'd let SCO go. And I go look at ECO, the enhanced products. I just think there's going to be a lot of interest if you understand how these supplementals work. I think there's going to be a lot of interest. So I think it's a combination— is get your unit structures squared away, price 80% and 85% revenue protection, and then look, if you're at 80%, of buying the supplemental product SCO And should I buy the enhanced product, the ECO product? I think there's going to be all sorts of interactions, but yeah, in the example that we discussed, I could buy an 80% RP, 86% SEO, and a 90% enhanced ECO. I got about $32 invested, farmer-paid premiums. So yeah, we could save some money by going to lower levels of RP.
Then we could add that money into buying these shallow loss products. And don't forget that if you're in enterprise units, you probably want to buy supplemental products— hail, wind, green snap— because when you are in enterprise units, you are determining loss at the county lines, and so you're exposed So you might want to look at either going back to optional units rather than enterprise units to start with, or adding the supplementals and protecting against hail or wind or greensnap, because that coverage brings you back to the section line, and that's very important. Work with your crop insurance agent. They're going to be really busy, and they're down to just about the same 10 days that you've got. To make these decisions. So let's not push these any farther. Let's go ahead and do some comparisons. That's what I'm helping farmers do.
They're looking at 80% versus 85%, and then they're looking at, okay, what if I go to 80% then use the supplementals? Or what if I was at 85%, then I could add the enhanced product that trigger losses at 90 or 95% Interesting here, some farmers will say I want the largest revenue guarantee, $50, no big deal. Others will say, you know what, I can probably save some money by going to 80% and then buying supplemental. But remember, if you buy that supplemental product, SCO, you need to make sure that for FSA purposes you can only enroll in the PLC program. So there's the interaction with crop insurance. And ARC PLC. Do not let ARC PLC be your driving decision. Crop insurance is where it's at. That's where you're managing this revenue risk. And I think that you're going to have opportunities to move some money around rather than just stay with revenue protection at 85%.
Shay
Foulk: So Chris and I kind of joke with people that we're not insurance salespeople. We could play one on TV. But a few, a few things that I want to point out here, Steve. The first one is You know, when you're looking at the dollars that you have at risk, you know, we talk about premium per acre or whatever your coverage is. You know, sometimes we encourage people to take a look at it and say, what does it cost on a per bushel basis? You know, tying this back into your cost of production, a lot of times what we see on a per bushel basis, it's a pretty low number. I mean, anywhere from $0.10 to $0.25, $0.30. And with the volatility that we've experienced here recently or in any given year, you know, I think some people including myself, screw up marketing more on a single day, you know. So don't get so caught up on that dollar amount.
The other thing is, you know, your cost of production as a percentage, you might be looking at 4, 5, 6% cost of production overall for what you're spending in this crop. And no other product out there can guarantee this amount or protect— not guarantee— protect this amount of revenue. So, you know, I just wanted to throw that out there. Sometimes we get caught up with what the numbers are. Like you said, Steve, we see some people that, yep, $50, $60 an acre, it doesn't matter, let's have that revenue protection. Other people, maybe there's some opportunity to save some dollars. Any last thoughts here, Steve?
Steve
Johnson: Yeah, I think it's that marketing. It's the pre-harvest marketing that sits on the back side of this, leaving that harvest price on and not being afraid to commit these bushels to delivery. That's using HTA or forward cash contracts. And then my last point is, don't forget the government's probably paying over 50% of your premium. So you're trying to figure out how to save this and save that and understand that if you're using Revenue Protection, depending on your unit structure, you know, the government's paying somewhere around 38% to 77% premium. And then if you add these supplementals, SCO, they're paying 65% of the premium. If you're using Enhanced ECO, they're paying 44% to 51%. So leverage the government money as a part of— putting together your crop revenue risk management plan for this '22 crop. Mm-hmm.
Shay
Foulk: My final comment here, Steve, if you had someone that participated in margin protection in the fall, looking at how things have been here the last little while, how do you think about that?
Steve
Johnson: Well, I think they won't have near the coverage in margin protection because the projected price is going to come in at a much lower level So I'm guessing that group is probably going to leverage revenue protection at a higher level, probably going to buy up to 85%, then use supplemental. So I'm not going to beat up margin protection. It's a great tool, gives you a different projected price. I think we're going to look back and say, you know what, '23, I might wake up in August and say I probably ought to be taking a look at margin protection for this '23 crop. But you didn't know— I think the biggest advantage of margin protection It just gives you a different discovery period for that projected price. But for RP, for SEO, for ECO, it's the month of February and we've got one day left and we'll know the projected price and the volatility factor.
And about the middle of the week, March 2nd or 3rd, we're going to know the premiums. Let's get an appointment. Let's be patient. Let's work with our crop insurance agent.
Shay
Foulk: Steve Johnson, the crop insurance man, thank you so much. Appreciate your time here as always.
Steve
Johnson: My pleasure. Thanks, Shay. Have a good week.
Shay
Foulk: And thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.