Stay focused on risk management

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, Chris Barron.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and today we're going to have a little conversation around crop insurance and some important things to be thinking about here during the growing season. We have with us Steve Johnson, Iowa State University. How are you doing today, Steve?

Steve

Johnson: I'm doing great. We're heading into the last week of May, and I don't think crop insurance is probably too high on anyone's list because we planted this crop pretty quickly.

Chris

Barron: Yeah, it went in quick. But talk a little bit about, you know, some of the things that, you know, farmers should be thinking about right now with regard to crop insurance, just as a starter here.

Steve

Johnson: Well, number one, you can still buy hail or production hail policies. Those aren't subsidized, so contact your crop insurance agent if you're interested in adding hail coverage to what was likely a multi-peril product revenue protection that you made those decisions in March. Number two, you need to submit your completed acreage report to the Farm Service Agency, and that's so they can make sure they've got a Form 578 on hand. And third, think about pre-harvest marketing. You know, we're still almost a dollar above the spring projected price for crop insurance, and you're guaranteed that price. And for soybeans, so we're more than $1.50 higher than the spring price.

So even though it seems like a long time ago in March when we made those decisions, hopefully you're doing some pre-harvest marketing because You're guaranteed bushels, APH times level of coverage, and you're guaranteed those projected prices. Again, $4.58 for corn and $11.87 were the simple averages in the month of February.

Chris

Barron: You mentioned, you know, the acreage reporting with the FSA office doors closed in a lot of the areas and stuff, you know, what are some of the key things to kind of get along good with the, with the county and with the staff? What are some of the points you have there?

Steve

Johnson: Well, I think more than anything, um, a grower should be calling or emailing their local FSA office. They need to initiate, uh, the grower needs to initiate this activity, and then the FSA office is more than willing. They're going to either mail or email you maps, last year's maps, with instructions for completing those, and then the grower is responsible for submitting those maps to the Farm Service Agency. A lot of times a crop insurance agent will come and work with the grower to make sure they've got that information completed. And then signing and dating, once you've submitted that to the FSA office and they've formalized that, you'll still need to sign and date that Form 578. And now we're back to crop insurance.

Your crop insurance agent needs a copy of that 578, not only for crop insurance coverage, but also determine what type of premium will be charged, because you'll be getting an invoice in August for the '21 crop insurance cost. And again, crop insurance is due on or before October 1st.

Chris

Barron: I like the idea of the agent being there and involved because, like you said, they need copies of that information anyway, and a lot of the agents would probably be more than happy— and I want to speak for all of them, but some of them that I've talked to have encouraged their clients to come in and they'd kind of help with the 578, get things organized and put together on those maps, and then they're in the know, the farmer can feel comfortable that things are, are done right. What's your thought on that?

Steve

Johnson: Yeah, over the last 10 years we've just seen that as a general movement across the industry, is the insured grower working with their crop insurance agent in advance, even before they contact the FSA office, and providing that information to the FSA. I think it just goes faster. I think there's a second set of eyes as far as the acreage report's concerned. And yeah, we do see that a lot across the Corn Belt where the agent's actually involved in completing that information that's going to go on the FSA Form 578.

Chris

Barron: Give us a quick reminder here on just how this revenue protection plan works. I know a lot of us have gotten done with that, we're wrapping up, we've wrapped up planning, paying attention to the crops and stuff, but we do need to, you know, just probably have a real quick reminder condensed if you could do that.

Steve

Johnson: Yeah, that was that March 15th deadline. That decision was to determine what product level of coverage unit structure that you're taking for the spring planted crops, and that could vary by crop and by county, but the vast majority, um, over 90% in Iowa take revenue protection. And revenue protection guarantees your actual production history on your farms for those crops on those farms times that level of coverage, probably 75, 80, or 85% level of coverage, times the spring projected prices and those prices came in at $4.58 a bushel on corn and $11.87 a bushel on soybeans. That determines your revenue guarantee and it also determines your premium. Now there's a volatility factor that came in that was extremely high and that's part of the reason that these premiums were much higher, but anyway that's it.

You simply multiply your APH times your level of coverage times the spring projected price But with revenue protection, if the harvest price, simple average December corn, November soybeans in the month of October is higher, then you get to adjust the revenue guarantee. Then once we get into harvest, you still have to provide your actual production to your crop insurance agent, and it's your actual yield times the harvest price subtracted from your revenue guarantee, that determines whether there's an indemnity claim on the '21 crop.

Chris

Barron: All right, so that's '21. Let's shift over to '22 for a second here. We've seen these really strong prices that, uh, you know, have come our way, including the '22. You know, we haven't been as high as, as what we've seen for the '21 crop, but we've seen some pretty attractive prices. So can you talk about you know, some possible products to maybe lock some of that stuff in from the insurance side. What, what products do you, do you see that might be useful for '22?

Steve

Johnson: Yeah, there's a crop insurance product. It's been around for about 5 or 6 years, hasn't got a lot of traction. It's called Margin Protection, or MP. It literally lets the grower make an early decision for the '22 crop in this case The crop insurance agent needs to know that you're interested in margin protection. It's margin, so it's going to be December corn $22, November soybeans $22. Those prices are reflected as well as the cost, um, fertilizer as well as fuel are a part of the cost. And again, you in essence can lock into some of these higher prices earlier. You don't have to wait until next March and reflect only the February price.

I think there's going to be a lot of interest in this margin protection product, and I think it's going to be challenging to get your head early around margin protection because there is a September 30th deadline, and the price discovery for both the prices as well as the costs are mid-August to mid-September. But Chris, here's the interesting thing, you don't have to wait to see what those prices and costs and premiums are. There are actually some products out here that some crop insurance agents have available that you can lock in on those prices now. This product margin protection is subsidized, but these additional components that allow you to lock in on prices, I've got some farmers already locked in on $5 corn for the '22 crop. Those are not subsidized. So again, I think it's important that you build your knowledge.

Margin protection is available for the '22 crop with a September 30th deadline, but it does require a little bit of cognitive skills because it's got some moving parts.

Chris

Barron: So, you know, if one of the listeners here is interested in this margin protection, you know, what should they do as far as, you know, what, what are some steps to make sure that they're investigating this? The way they should?

Steve

Johnson: Well, number one, talk to your crop insurance agent. There's just not a lot of information out there. If you searched online for margin protection, most of the Risk Management Agency information that I'm reading is probably dated '17 or '18 when the product was created. There are some tools, some online tools to do some comparative pricing, but if you thought those products like supplemental coverage option, enhanced coverage option, area plans think through that. That's what margin protection is. It's going to use your county yield, it's not going to use your actual production history. But I think margin protection is very complementary to a revenue protection product. You've got to have that base plan in place as well. So it's not going to be like you're going to have margin protection, that's it.

You're going to add margin protection on to your revenue protection product that you're going to purchase next March., but in combination those two could provide a much higher projected price than what we might see next February. Simple average for December corn futures, November soybean futures. Let's contact your crop insurance agent.

Chris

Barron: I like that. That's a good comment as far as, you know, involving the insurance agent and all this, all the above that we've just talked about. The last thing I want to just hit on is just risk management in general. You know, we're doing this podcast now, and like you said, you know, a lot of operations are still, as we record this, are still spraying. There's a little bit of wrapping up, probably with some planting in a few areas yet, and then also, you know, getting the crop pretty much laid by here in the next several weeks. But it's always important to be thinking about this risk management and being directly connected to the agent. Any final things that, that you would like you know, the listeners to be aware of or to be thinking about?

Steve

Johnson: You know, I interviewed a couple crop insurance agents last week as I start working on margin protection, and I think crop insurance education is becoming year-round. It's not just going to be a February, March, right, and/or turn in my yields in November and see if I collect. I think you're gonna have to build your knowledge, especially as we see these products start to come online that allow you to determine a projected price much earlier than that typical 2 weeks of March that we've used before, and then we can complement pre-harvest marketing strategies that comes with that. So yeah, I think crop risk management is more important now than it ever has been. And again, I think the stakes are higher with these higher prices because now here come the higher costs.

Chris

Barron: Exactly. Well, hey Steve, uh, really appreciate your time today. And, uh, if people want to, uh, get a hold of you, what's the best way to, uh, if they, if they have a specific question need to get an answer on something, what's the best way to reach you?

Steve

Johnson: Yeah, well, I'm retired from Iowa State, but I still have an email address. So just search online for Steve Johnson, Iowa State University, or my email address is sdjohns@iastate.edu, and I'd be glad to answer those questions. So I want to wish all of your listeners best of luck with for this '21 growing season. And don't lose track of '22. Those are some pretty attractive prices out there.

Chris

Barron: Awesome. Thanks, Steve. Really appreciate it.

Steve

Johnson: All right, my pleasure.

Chris

Barron: Sounds good. Steve Johnson, retired ISU Extension Farm Management Specialist. And we appreciate everybody listening, and we will catch you again next time on the Ag View Pitch.