Will crop insurance save the day? Weekly market outlook: Sept. 25-29th

Chris

Barron: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com. Hey everybody, before we get going with the Ag View Pitch Weekly Market Outlook, just want to give everybody a heads up. This is about an hour-long podcast. We'll also be on YouTube. A great conversation with Jared Creed. We talk about markets in the front half of the conversation. The back half is a lot on risk management. I would suggest you get a pad of paper out and take some notes. We also have on there with us Joe Paulsen, who is a farmer in DeKalb, Illinois, and it's just an excellent conversation. You may even want to catch this one a couple of times, uh, especially the last half of it where we're talking risk management.

With that said, be safe out there during harvest, and we will catch you on the podcast here. Enjoy. Welcome everybody to another episode of the Ag View Pitch. We're heading into another marketing week, actually the last week of September, the first week of fall, and another harvest week hopefully for a lot of people. There's been some areas that have been getting some rain and a little bit of dryness still in a lot of areas. So there's, there's a lot of different things going on everywhere. But before we get going, I do want to remind everybody about The Ag View Executive Business Conference, it is filling up. We're getting down to, I think Alyssa said somewhere around 25 to 30 slots left. So if you are going to go, seriously, you get a little break in the harvest action. Get, get signed up January 24th, 25th, 26th in Phoenix, Arizona.

So with that said, we are lucky enough today to have with us Jared Creed, and we also have a guest host with us, Joe Paulsen out of Illinois. And so, Joe, Jared, how are you guys today?

Jarod

Creed: Doing well. Appreciate the invitation as always.

Joe

Paulson: Doing fantastic.

Chris

Barron: That's good. That's good. Well, Joe, I was out doing some exercising the other day and we were talking on the phone and I said, hey, do you want to, you want to be on the Ag View Pitch with us to talk markets? And you didn't turn us down. So welcome. Glad to have you here.

Joe

Paulson: Thanks for having me.

Chris

Barron: Yeah, you bet. Well, you'll have some good questions. You always, you always throw, throw a lot of good questions my way, so that'll make the conversation interesting here today. So Jared, let's start out and then I'm going to hit Joe on this. But what are you hearing on early harvest stuff? I'll just tell you, you know, I'm hearing a lot of variability. I've heard 92-bushel field averages on soybeans so far is I think the highest I've heard. And I've heard some 42, 43. We're way better than I thought we would be in our area. We're super dry. We had 8 inches of rain during the whole growing season and we had a field make 70 and we had, which probably would have been 85+ bushel beans if we would have had rain in August, which we didn't. And then we've had some fields in the low 60s, but that's quite a bit better than I thought.

I mean, we were hoping for 55 to 60 and we're going to beat that on beans, on corn. We're coming in about 20 to 25 bushels below APH. And that's just kind of my report for our farm. What do you, what are you hearing from people?

Jarod

Creed: I think you hit the nail on the head on soybeans. I'm far cry from an agronomy expert, but a common theme is that the potential for a massive crop was there, just needed that one more rain.

Chris

Barron: Yeah.

Jarod

Creed: Now with that said, the individuals that did get that rain have a big incoming to them. That goes both on corn and soybeans. And I can, I can echo what you said about $90 to $40. That's pretty much a very fair range that we have seen across our client base. I'll tell you, the majority of that soybean harvest that I've seen so far is primarily in Iowa. It's pretty slow outside of there. I'll tell you that east central Nebraska maybe a little bit of a surprise. There's definitely some 40-50 type of stuff. But the places that it did not stop raining, kind of from Lincoln and east on up into Fremont, and to a certain extent, places on up into Sioux City, some tremendous bean yields. Guys that a couple of weeks ago maybe would have sold that crop for 50 and pulling off 70 to 75. And that's well above average for them.

And I'll tell you, just like when you start thinking about the state of Iowa, If you go to basically Highway 20 and Interstate 35, so north of Ames, and you take that rectangle from there north and west, that crop looks pretty darn good. And the reports that are coming in are pretty darn good. We have a few producers that are over 1,000 acres in beans harvested, averaging over 90, and a few producers with over 1,000 acres of corn harvested already. Pushing close to probably as of Friday, probably a touch over 250. And all that is, is just a sign of where it rained and where it didn't. You get east of there, it drops off very quickly, just north of us. You know, on our farm here, I would echo, as like you said, the beans could have been a lot better, but they are certainly nowhere near as bad as what was feared. Just a short couple weeks ago.

We've got a few tough farms right just here at home right along the Black Hawk River. And it's, it's kind of surprising to say that they're averaging over 60 at this point. And I'm pretty sure I would have said 50 would have stopped it just a few weeks ago. On the corn side, it's just, it's a little too early. The only places that are really running in earnest would kind of be west central Iowa. And that is somewhat dependent on the processor. That is taking that corn. I'm a little surprised as you drive across the countryside that there's not more corn harvest taking place.

Chris

Barron: Yeah, me too.

Jarod

Creed: Either I'm mistaken that the corn is not as dry as what some others are finding, but I don't think that's the case. I think there's a lot of folks just sitting on their hands, letting the corn dry down naturally. Again, they don't want to dry it, the processor doesn't, and just waiting for bean harvest to start., and just very, very little amount of harvest done in South Dakota and Minnesota and North Dakota at this point. Uh, but there's been a far cry from any disappointment there to this time.

Chris

Barron: Mm-hmm. The scary part with the delayed or delaying to harvest in some of these areas where it was drier and you're thinking, well, I mean, yield's not that great. I'm gonna let it dry down in the field and get what I get or whatever. But man, the stock quality is, I mean, the, the plants just,, you know, took, took everything out of the stalk. I mean, any, most of our fields, if you go and you do a push test, you know, all the stalks, you can just lay 'em down, you know, so we can catch a big storm or something. There's some danger, I think, and especially in these dry years, I think where, where Joe's at, you know, where they've had more rains in August and stuff. Um, it's a little different. Joe, what's your report?

Joe

Paulson: Well, we haven't done, there's nothing going on around here yet. Um, We were really dry and we had a really good rain the 1st of August, and then about the 14th we got rain again on, uh, September.

Chris

Barron: I should make sure everybody knows where you're at too, not to interrupt, that you're, you know, explain exactly where you're at in Illinois.

Joe

Paulson: I'm about 70 miles north and west of downtown Chicago. I'm just right on the edge of, uh, the suburbs here in north central Illinois. Um, DeKalb County is kind of my home county. And, uh, but things have been, you know, we, we've had a little bit of rain, but the last 8 days we've had probably about 8 inches. It's been just every day it rains almost an inch. The other morning we had 3.5 inches in an hour and 45 minutes. I, uh, our crops are, uh, just black layering. Last week we didn't have anything black layered. This week we have a little bit. Beans are about, I would say about 50-60% turned. So I don't know how much this rain is helping. We're thinking the stuff that's got a little green left in it, we're, we're, you know, probably adding, adding to the bottom line.

Chris

Barron: Yeah, you guys, you guys might be, hopefully anyway, for your case, you'll be the, towards the 90 on the beans and the 250s on the corn, hopefully, huh?

Joe

Paulson: The corn, the corn looks good. I'm really optimistic on the corn. The beans, I'm still out to lunch on those. I mean, the pod counts just aren't, aren't what I'm used to seeing.

Chris

Barron: Yeah, the, the biggest thing here and the message I wanted to, you know, just make sure we all are constantly thinking about and talked about this last couple of weeks on the Ag View Pitch about just the tendency for backyarditis for all of us. I'm guilty. We all are. We all drive around and see stuff in a 100-mile radius. But you get outside of the 100-mile radius or you, you know, see, you know, how big the Corn Belt is and how massive and expansive it is. You know, we can all yell and bitch at the USDA, but, you know, it still is a, is a big area and there's a lot of, a lot of differences, that's for sure. So So Jared, let's, let's start down the path of some market stuff. And then we're going to get into crop insurance and some risk management stuff with you while we have you on here today, too.

But before we do that, talk a little bit about, first of all, I'm going to hit soybeans because we always seem like we talk about corn first. Soybean market's been taking a hit, man. What would— talk about that. What's going on?

Jarod

Creed: Kind of a twofold piece. Obviously, we're still well behind on where our export sales need to be, albeit they're trying to do their thing. But with the low Mississippi River, you know, we're pretty much dependent on PNW sales at the moment. So that's not helping. Another situation, obviously, harvest is starting in different parts of the world, and the US farmer— or not different parts of the world, but in the US, farmer hedging pressure, no secret. Farmer went into harvest massively undersold, which is historical. And then probably on top of all of that, soybean oil has been taking it on the chin, kind of an opposite direction of what crude oil has been doing here lately. And, you know, this, this renewable diesel space, it's coming, but it's not going to just be some smooth line trajectory and never have any type of hiccups.

And you can't take bean oil down in the fashion that we have here recently without having some type of, you know, impact on, you know, the overall soybean complex. And just telling you, soybean oil here in the last— let's just say in the last month has dropped to the extent of, you know, close to 15%. That's not a good, um, that's not a, that's not a win behind the bean market's back. And I think there could be a little bit— this is a little bit of tinfoil hat with the fears of government shutdown, we might not have an October WASDE. It wouldn't be the first time that that's happened. And if you fail to have a new data point for the market to quote unquote trade from the USDA without any type of yield adjustments, that leaves everybody at the mercy of just anecdotal yield reports and a lot of questions around what really is that crop production size.

And I should also add that It's crazy. Here we are getting into soybean harvest. And early this last week, you started to see the reports come in of bean planting beginning in Brazil, and some of their early, early estimates on area and production. It's kind of mind-numbing. You know, they raised over 150 million tonnes last year. Some of these estimates are pushing as high as 164, 165 million tonnes. Keep in mind, 40 million bushels per million metric tons. So you're talking about a 6.5 billion bushel bean crop potentially out of Brazil next year. That's— and we're going to raise 4.2. They're going to raise 50% more than us. That's— it almost, you know, we're just talking about yields. Yeah, it matters domestically on what our domestic balance sheet is. But we can continue to afford to cut our soybean exports and have more domestic consumption.

But that only goes so far at a certain amount of time. And also at the end of the day, look, we've been between $13 and $14 on beans for the better part of the last 6 months, had a few weeks outside of that range. But in all reality, the last dollar setback in beans for our average producer, I don't know if I even care about the bean market dropping a buck. As long as our yield is good, I would every year I'd rather take 70, 75 bushels at whatever price you give me versus a low yield and kind of just being SOL.

Chris

Barron: Yeah, that always is what we see is the, the bushels are what count on the bottom line. You know, if you don't have the bushels, it's pretty hard to take any kind of price. So any, any thing on corn as we've, you know, come through the last few weeks, we've just seen kind of a slow leak or whatever there price-wise. I think there's a lot of question and we're going to get into the insurance here in a little bit, but in the price discovery period. But, you know, we've seen this leak. You know, you always see these seasonal lows kind of tend to come in this week, this last week of September. Are we going to— are we going to see a harvest low before October? What's— what do you think? And what do you— what's your crystal ball telling you?

Jarod

Creed: Well, another twofold answer here. Markets have been incredibly quiet for the last couple of weeks. We have traded $4.80 Dec corn every single week with the exception of one dating back to the second week of August. And we really haven't gotten out of like a $4.70 to $4.90 range. That might seem like a lot, but in all reality, a $5 commodity, that's, that's chump change, the range that has been trading. And at the same time, with what interest rates are doing in the greater economy and you start to think about the managed money that can put capital at risk in the commodity space, it's hard for them to make any money in the space. I mean, they have no conviction higher or lower, and they'll have a lot of different contacts in that space that their, their capital is not being put at risk in any way, shape, or form in the commodity market, especially corn.

So when you have that you got to start thinking about what's the path of least resistance, not bullish, not bearish. But the path of least resistance is that you're on the doorstep of harvest, and the farmer can't store everything. And there's going to have to be stuff that goes to town. And we know that we're obviously undersold. So to answer your question of can— have we seen our harvest low? I don't think so. Absent of somebody being willing to step in and own equivalent of 4 or 500,000 contracts from the farmer that they're going to have to sell in the next 60 days. So I'm a little leery that we're stuck kind of in this $4.75 December corn range. We've rejected the idea of staying above $5 numerous times now. And I'm kind of wondering if we got to go test that $4.50 area before we do anything else.

And I would imagine that that probably doesn't really come to fruition until closer to the halfway mark of harvest. And obviously all that is at the mercy of some type of headline risk, particularly Ukraine and Russia, which seems like those tensions continue to build. But as we've talked about numerous times, the fundamental situation on grain flow out of Ukraine is just— it's, it's for nothing. The only caveat to all that is you destroy any type of ports that impact Russia's ability to export wheat, that's a game changer. But we haven't seen it happen to this point.

Chris

Barron: Joe, I can see gears turning there as you're listening. You got a question there?

Joe

Paulson: Yeah, I don't know if we're jumping ahead here, but like the basis outlook on corn, you know, I've been having that, that discussion as we come into harvest here with my dad and you know, you mentioned the interest rates, you know, getting like the carry isn't really attractive to store anything. And to me, basis is going to have to do the heavy lifting to help us get to make it, you know, profitable to store out until, you know, May or July or whatever. But the only really way to capture that basis would be to probably sell the July because by the time we get out there, you know, it's the flat price isn't going to change a whole lot. What is, what is your thoughts on what do you think is going to happen with basis? You know, my elevator thinks that maybe we're going to see a little bit of a pop here for December.

I think that everybody's going to be in the same boat, that everybody's going to try and move this as fast as possible, that You know, it isn't going to take much basis here the first, you know, December, January to get things moved out. So what are you thinking?

Jarod

Creed: Space is demand. What I mean by that, we just came off of a couple years of inverted markets, and the elevator's job was to get rid of that grain as fast as they possibly can. So you got a lot of space open, and everybody's going to want to fill that space within reason, because not only the farmers exposed to interest rates, there's plenty of challenges that the commercial grain handler is going to face over the next several months. And I would have a little bit of concern that the commercial elevator in both corn and beans are going to be not forced, but a little bit more urgent on turning their own stocks quicker than normal, not holding on for a 7, 8, 9 month period for some type of carry. Because quite frankly, 5 years ago, the carries that we have now, we would have loved them. Now they're terrible from what we need.

Now, I do think that we will see some ebbs and flows in basis here between now and say, you know, middle of January, maybe beginning of February. There will be some places that are just going to have to flat out reach out for corn. Maybe they don't have the coverage they need. Maybe they don't have the space to store a month's worth of demand. You know, places just down the road from Chris, they can only hold less than a week worth of crush. That's going to keep a bid under the basis market. But I still feel that the commercial elevator is going to be the first one that's willing to step up and, and cover that. I just think that that's probably the, the biggest catalyst. And the second catalyst is if we don't have any export demand growth, we're just keeping that much more supply local. And that makes it that much easier for your local crusher to acquire what they need.

And Mississippi River situation looks very, very dire. I mean, you think about it, how much possible export capacity are we going to lose at the Mississippi River in the next 60 days absent of a big rain event? Because the northern half of the Mississippi is going to be closed in— I mean, some of these forecasts come true and we really see some type of quote-unquote Arctic blast the last part of October and beginning November, that river could be closing a lot sooner than what we would typically see. And here we are left with not having squat for corn to move down the river in the northern half of the Mississippi. And again, that just means that more local processors have an easier time acquiring what they need. And you're going to have more sellers, in essence, of available supply than what we have for ready demand.

And that's, that's just your sign of we're going to carry 2 to 2.2 billion bushels into the 2024 crop year. So yes, basis is going to have its pops, but long term, better be very, very careful. I could actually see, let's just put it this way. When you lose your export demand, just take a peek at some of your basis levels in Minnesota, South Dakota, North Dakota, there are plenty of markets up there that are sub-$4 cash already because basis is 60, 70, 80, 90 cents under on the corn market and every bit of a dollar or more in soybeans.

Chris

Barron: Part of it's gonna—

Jarod

Creed: you don't have the demand. We just don't have the demand that we need to move it out of the US.

Chris

Barron: Part of it's going to be too— I mean, I keep hearing from some of the elevators and, and things that they're just not much priced either. I mean, doesn't that— I mean, that's just going to really super pressure things. I mean, guys can hold so much and they can sit on it so long, but with interest rates where they're at, and I don't care. I mean, there's people that have been able to go all year without borrowing money, but if they're going into next year, I don't know if most people can go 2 years without borrowing money. And, you know, the grains got to move. I mean, but I think farmer is going to sit there. I mean, there's operations now that you just described that are, you know, maybe close to a dollar away in terms of what they need just for a breakeven selling price.

And so there's going to be some blood in the water potentially if we don't get some demand, you know, export demand or something here. Any comments on that?

Jarod

Creed: We're not going to get the export demand. Yeah, Brazil's too cheap for now. We have to, we have to do one of two things. We need to get a lot cheaper here and, and/or have Brazil get more expensive, which now you're just talking about them being, uh, having a crop shortfall next year. And keep in mind, they overtook the U.S. as the top world corn exporter this year as well. That, that's never happened before. It's the first time ever. Decades ago, if somebody wanted corn, they'd call the US. I want 1 million metric ton of corn. Well, here's the price. Well, I don't like that price. Well, too bad. Hang up and then they'll call you back. Okay, I'll take that price. Now, just like this last week, Brazil corn prices continue to come under pressure. Now you're talking sub-$2 a bushel in places in Brazil.

Now when you, when you break that all out to a landed price in, say, China, it's a, it's a gross competitive advantage for Brazil at this point versus the US. And they have so much supply from last year's crop that it's going to take a long time for us to work through that. And then on top of that, we're just talking about export growth from where we're already estimating. And right now we probably need to be concerned about exports reduction. Because USDA has been very, very slow on that, and rightfully so. The September WASDE, an increase in acres and a cut on yield, our supply stayed flat. They didn't need to adjust any type of exports. But there is every bit of possibility that our corn exports are still 200 million bushels too high, if not greater than that.

And combined corn and soybeans, I would, uh, I'll bet you a steak right now that versus 2 years ago, we're gonna export 1.5 billion bushels less of corn and soybeans combined than what we did 2 years ago.

Chris

Barron: Awesome. Thanks for the great news.

Joe

Paulson: We appreciate that.

Chris

Barron: I was just gonna say that. Let's see, where's my knife?

Jarod

Creed: If you're, if you're in a market that is heavily export dependent, can be tough. Think about last year, what happened in Western Corn Belt. We didn't have a great river program, but we had such a short crop in the West. That all that crop was being pulled from the east to west. Chris, your farm was doing that. You were shipping grain in a— yeah, non-historical fashion.

Chris

Barron: Yep.

Jarod

Creed: All of a sudden, you fast forward to this year. If the west doesn't have that shortfall and the river can't export it, where's the stuff going? It kind of goes to the local market, and it's that much easier. There's no logistic gains going east to west, east to west, or west to east.

Joe

Paulson: Well, none of my corn has been exported in probably, I bet it's been over 10 years since my corn's been exported. You know, we have the Illinois River and, that when I first came back to the farm 20-some years ago, that was the heavy hitter, man. That's, that's where everything went. And then, you know, then we ended up shift, you know, the ethanol plants came on board. We got ingredient corn products there in Chicago. That's where everything of mine goes. In there, and they take a tremendous amount of rail that comes out of Nebraska. And, uh, you know, so when, when Nebraska sucks, then, you know, our basis gets better. But with the river levels being low, you know, what corn they do draw there close to the river, you know, that's gonna— some of that's gonna be coming north. And, you know, so we could see some softer basis out of Chicago.

Jarod

Creed: And you bring up a great point there. What I just talked about, if the West has the product, you would never think about a good Nebraska crop or a good enough impacting in north central Illinois farmers' basis levels.

Chris

Barron: Yep.

Jarod

Creed: But it is what it is. Because last year we were taking shuttle trains from Illinois and shipping them to the Panhandle of Nebraska, southwest Kansas, Panhandle of Texas. It's not going to happen this year. Not in the same size that we did last year. So is there any good news, Jared, before we get into, before we get into crop insurance? I mean, Chris, the good news is beans are still $13. Yeah. I mean, we were, I was on, you got to sell them, right? Mason here a couple of weeks ago said, what's, what's the concern? Beans are $13.50 to $14. Corn is still a $5 commodity. And we went into the growing season and we better figure out a way how to make money on $5 corn., and probably a little bit cheaper than $14 beans. So here we are, we're on the doorstep. And the good news is that a guy should probably be thinking about operating in 3-year terms.

2023 margins might not be all that special. But if you lump in the view of 2021 and '22 and '23, I guarantee you most guys, if you went to them 5 years ago, said you're gonna make this much money combined in the next 3 years. They would take it in a heartbeat, right? Take it in a heartbeat. So we have to kind of keep things in context. The good news is that we get to live to fight another day if you make money. That's, that's the good news.

Chris

Barron: Before we transition, I want one other thing on the marketing side. 2024, you talked about, you know, figuring out how to, how to live on $5 corn and $13 beans, which I think it's going to be doable next year based on the, on the '24 budgets that we've ran so far this summer because of where fertilizer's at and some things. I think land is going to be a concern for '24 yet until that is all kind of goes through the channels of communication and stuff. Equipment, there's been a lot of money spent on equipment and stuff. So talk a little bit about '24 and then we're going to roll into some, some risk management stuff.

Jarod

Creed: So there's a little bit of have and have not perhaps on the budgets for 2024 that you were referring to. I'll break it up in two buckets. Late July, early August was a tremendous opportunity to get your hands on fertilizer and get some corn sold for next year. And it was literally like a week-long window, $5.30 to $5.40-something 2024 corn futures. And 10-year low in Hydrus prices, urea down in the, you know, I don't think it went sub-$300 a ton, but awfully close. And there was great opportunities there. But since then, fertilizer has rallied about 20%. And since then, corn price has dropped about 8 or 9% for next year. So there's still probably some more cushion to next year's crop than what we went into on a 2023 crop. But I still say, Chris, that is probably the second or third most expensive crop that we'll ever plant, which is still kind of risky, right?

It's not going to be as high as the 2023 crop. But I don't know if we'll have a lot of producers that find themselves more than $100 an acre cheaper. We'll have some, but it's still kind of a, a hard stretch. And I'll, you know, we have clients like this and, you know, they know I'll speak my mind to them, but the depreciation chaser just pisses me off that we're spending money to avoid Uncle Sam and ultimately putting ourselves in a situation that our costs for next year are still going to be high. And a lot of that is because of interest. I mean, just, I can't believe how many times we're having this conversation with guys. If a guy's got $1 million borrowed and you're paying, let's just say 10% now, and you got $1 million borrowed on a monthly basis, you're burning $8,500 a month of interest. And $1 million borrowed, let's just say that that's across a 1,500-acre farm.

Wouldn't you say that's probably pretty reasonable? Anymore, uh, all of a sudden you light on fire $100 grand of interest a year. That could very well be your profit for 2024. And I think there's just things to be considered into the end of the year, within reason, in communication with your banker and your accountant, not separately, to consider how do I not save my way to prosperity for next year, but be a little bit more diligent on what I'm actually doing with whatever capital I do have instead of just trying to avoid Uncle Sam.

Chris

Barron: Yeah, I like that comment you made too about not separately. I'm a big proponent of, of all of us, and Joe's well aware of this, but of us as producers at the end of the year doing a state of the business address. And sometimes we may, we may have to do that before we have all the information. But the key is to bring all of our support systems, whether it's the lender, the CPA, even an attorney, even, you know, whoever are the people that really help with decisions just to make sure everybody's hearing the same thing at the same time and can be sitting at the table and having a conversation about how do we deal with, you know, a whole entirely different environment going into '24 than what we have had in the last few years.

Jarod

Creed: For sure. You know, one other comment on that real quick. I'm sorry if this one's going to run long, but that's fine. Think about a situation that you have a farmer that took a lot of income in this last calendar year, and a lot of that was higher price crop from 2022. Now they get to this year's harvest and they're already finding themselves in a situation of, well, I got to defer income very, very quickly. But in the background, they still have a significant amount of money borrowed because there's that clear disconnect that, again, like talking about, talking with the banker and the accountant at the same time. Yeah, it drives me nuts. To think about, well, I can't take any more income, but I'm going to carry $500,000 of debt every month between now and January. Something doesn't, something doesn't add up there.

That's not a healthy, that's, that is a not a healthy business whatsoever.

Chris

Barron: Business practice. Yep. So, um, I'm gonna, I'm gonna share so you guys can both see at the same time. But, um, Jared, we're in a transition now into crop insurance and Does it matter? I think it's, you know, in a lot of operations, um, it does matter, right? It is something that we need to look at, we need to review and say, okay, what were the decisions we made in '23? What are some of the things we may want to be thinking about for '24 in risk management? We just had a conversation about a lot of negative things, but on the positive side, we can protect ourselves, at least to a pretty large extent, on some of the risk that is out there. And so I'm going to just kind of turn it over to you to have you kind of talk through some of the stuff that, that, you know, you, you did an example of Buchanan County, which is where my farm's at.

You did one in DeKalb County where Joe's farm is at. And so people can kind of take that logic and think about it in their own. And if they want to get a hold of you, I'm sure you're okay with, you know, somebody reaching out and saying, hey, can you help me run my numbers in my, in my county? Is that right? Sure. Yep. So, so all right, with that said, let's, let's, let's take a look at this and kind of have you talk through it. And for those who are listening, kind of talk through it so people can kind of understand what you're talking through and the logic.

Jarod

Creed: Okay, real quick before we jump into the image that you have pulled up is for 2024 corn. I want to make two quick comments on 2023 crop. What I was just talking about in regards to the banker and the accountant, keep in mind that there could be a substantial increase this year of revenue insurance claims that the farmer receives. An accountant can't defer that income. Right. So once you're done harvesting and you turn your production in, if you find yourself in a revenue claim, the RMA is going to cut you a check. And when that check is deposited, you're not going to be able to defer that income like a yield claim. So again, it's been a while since we had a revenue claim, but that's just for multi-pearl. So there's one comment. The other piece is soybeans, multi-pearl, not going to be a lot of situations there.

It'd probably be more driven from areas that do have a substantial drop-off in their yield. But again, probably more few and far between. Corn is important though. I want to— two things for the farmer to understand. First off, if you take the $5.91 insurance price, multiply that times the insurance policy that you are carrying, so 75%, 80%, 85%, whatever that number comes out to be, if the price of December corn is lower than that during the month of October's average, That means you have to yield your APH or higher. Simple as that. Or another way to look at it, especially if you carry an enterprise unit, highly encourage you, if you get a rain delay or you're not harvesting yet, grab your schedule of insurance, find the total liability you have for your corn crop, and divide that by today's price. That's going to tell you exactly how many bushels you have to raise.

And you can take it one step further, take those bushels divided by your acres, and that's going to tell you what your average yield has to be. Understanding that that average is 50% done halfway through the month of October, right? Pretty common knowledge there. Once that average is 50%, if you have a safety net today, you better be very aware of what can possibly happen from that point forward. Market has an uncanny ability to inflict as much pain as possible. An average US farmer is probably somewhere around an 80% average policy, and will probably raise right around an APH crop, which means they have next to nothing for coverage. And then all of a sudden, if the market slides even more through the month of October below $4.70, now the pain really starts to start. It, it gets bad in a hurry.

So very important to just understand that, yeah, you might have a floor for the next 2 to 3, 4 weeks, but once you start getting into the last half of October, better be mindful of what could happen. So shifting gears to 2024.

Chris

Barron: Can I ask— can I ask a question there, Jared? Not to interrupt, but the— you know, I've heard some people talk about, well, you know, you can protect because, you know, the I think I'm going to say protect an insurance indemnity.

Jarod

Creed: I'm going to stop you there politely.

Chris

Barron: Yeah. Now what I'm, what I'm getting at is, so what is there, 22 days of—

Jarod

Creed: 21 days in the average this year. And I think we're only like, what, 12 business days away from being halfway done. 12 business days.

Chris

Barron: Right. So by like by the middle of October, you pretty much know you're not— I mean, it's not— the odds are it's not going to change very much one way or another. And you have a pretty good handle halfway through October. What, what's your thought? I mean, you know, we talked about this in the market, market thing. I mean, if, if we, if we stay in the, in the 470-somethings, 480, 490, even there's going to be a massive amount of indemnity payments going out, wouldn't you think?

Jarod

Creed: No, you don't, because Let's just do simple math there for a second. 200 times 80% is 160 bushels, right? And our insurance price, uh, was $591. That means $945 an acre guaranteed. And divide that by 470, that's a 201 yield.

Chris

Barron: Okay, here you say 80% instead of 85.

Jarod

Creed: 80%, yeah. If you have 85% policy, 105% of a crop. Yep. If you have an 80% policy,, you basically got to raise your APH. If you got a 75% policy or even lower. And what I'm, what I'm getting at there is there is more farmers that carry 75% insurance than carry 85%. And then there is the majority that are carrying 80%. So the average is probably somewhere just below 80%. So as a whole, you know, if I had, if Joe was the one farmer in the US and he had 94 million acres of corn and he yields 173, 174, and his APH is 177, and he's carrying an 80% policy. There's very, very minimal amount of insurance coverage there. You're talking less than $20 an acre, if that. And if you just sneak above— my fear is that the market could stall out longer in this $470 to $480 range. And then it doesn't bounce after October, then it takes another leg lower.

If we go from $4.70 to $4.50 after the October average, not enough indemnity payments and a lot of false hope in saying that I've got a floor already. So I think maybe a strategy to at least consider— again, I'm not a broker, but something that we're going to probably employ with anybody that doesn't have any grain sold is come the second week of October, we're just going to we're going to spend some money on some short puts. Just— okay, now you put us to get us through the end of the year. Yeah. In case we do take another leg lower.

Chris

Barron: Okay. That was kind of the question I was getting to and then you answered it and I asked it in a crappy way. So good. All right. So last thing then, let's, let's talk insurance. 20, you know, we just come off the price discovery period for MP. Have you talk a little bit about that for '24. I think this is an important topic.

Jarod

Creed: Yep. So very quick background. Margin Protection, area-based program using an expected county yield, allows a producer to carry a 95% coverage level with a protection factor up to 120%, meaning if a dollar is claimed, you're getting 120% of that dollar. In addition, it sets the corn price and the soybean price for next year's crop. In the period of August 15th to September 15th. So as you referenced, Chris, that price is done on corn and ended up being $5.09. On soybeans, it ended up being— I should know this. I think it was really close to $12.90.

Chris

Barron: Sounds right.

Jarod

Creed: Sorry.

Chris

Barron: It's okay.

Jarod

Creed: Yeah, $12.95. So $5.09 and $12.95, which that bean price is actually higher than what it was last year. The corn price is about a— is $1.02 cheaper than last year. Anyways, it sets the price earlier. Your regular multi-peril insurance doesn't set the price until February. In addition, August 15th, September 15th, they're taking an average of input prices, primarily urea, DAP, MAP, potash, diesel, and interest rates. And in that factor, you think about the program called margin protection. If input prices go up between now and the month of April, when they take another averaging period, in the terms of margin protection, the government would see that, that higher inputs, it cut into the margin of the farmer. If input prices go down, the margin for the farmer got greater.

And that's all before considering the corn price, because the corn price doesn't get established again until next October, same time as revenue protection. So from starters, 95% coverage level, expected county yield as RMA numbers, already got the averages of the corn price and the input price. The next average period in April, if inputs are up, your coverage level goes up. If inputs are down, your coverage level goes down. For most counties anywhere that have a 200 to 210 expected yield for next year, input prices have went up since the average by about $5 an acre. So the screen that you have pulled up here, I apologize, the column on the right is DeKalb, Illinois. Column on the left is Buchanan, Iowa. Buchanan, Iowa County, 199.8 expected yield in '22, up to 205 in '23. 2024, it's increased to 212. So this is where the simple math kicks in.

If I take a 212 yield times 95%, that tells me the county's guaranteed 201 bushel an acre. I multiply that times the spring price for margin of $5.09. Means the county's guaranteed 1,025 an acre. Inputs have went up $5, meaning now my true guarantee as of today is at $1,030. If inputs go up $50 between now and April, we would add $50 to that $1,025. If they went down $50, we would subtract $50 from $1,025. And then the math is incredibly simple from that point forward. All I have to do is take that guarantee. Right now we're using $1,030 and I just said let's divide it by $4.75, $4.50, $4.25, and $4. Meaning if the October average next year is one of those prices, it's telling you what your yield has to be. Now, keep in mind, the Buchanan County record yield was 219.4 set last year.

And you look at what those yield situations are, you go down to $4.75 corn, you're already on the doorstep of a record yield. So take a step back there for a second and say, that's a pretty salty safety net. The market's at $5 today. For next year and 25 cents lower, the county's already got a yield record, assuming that input prices stay where they're at between now and April. Where else can you get that type of a floor, let alone if corn goes to $4.50 or lower? There's so many counties that it's just almost— it's mathematically impossible that we actually yield that high. So many counties would have to be close to 300 bushel an acre if we went down to $4 a bushel. So when you start thinking about what the record yield is and what that means to my farm, if the county yields go up, I hope my yields go up. Like, that's what you hope to see on your history.

If the county yield goes down, you hope that you don't go down as much. So it's not a great fit for a farm that doesn't have a decent footprint in the county. It is a great fit for a farm that has a larger footprint and trends with the county. Again, not what the actual yield is, but the fact that they go up together, they go down together. So if you jump over to the right column, looking at DeKalb County, pretty much similar, 214.3 expected yield for this year, 203.5 guaranteed bushels times 509,036. Costs also up $5 an acre. At $4.50 corn, county's got a yield 231 and the record's 229. And Joe, you probably remember what year that 229 was. It was 2 years ago, right? Huge. Yep. So I want to take it a step further here and guys get caught up in, well, what's the cost per acre? At the very, very bottom, Buchanan County running $59 an acre, DeKalb County running $52.

And that is before any premium credit from the multi-peril policy that you carry. So it's a little bit cheaper than that. But if you look at an at-the-money put for next year's corn, a $5 put is going to run a guy about $0.37 a bushel as of this last week. $0.37 a bushel times a 212-bushel yield in Buchanan or 214-bushel yield in decalb, you're running $78, $79 an acre of expense to have that deductible be from $5 minus $37 down to $4.63. And you can see the prices that we're talking about on yield situations and what the yield would have to be. A put, you're just protecting price. Margin protection, you're protecting price. Yield, and to a certain extent, input price increase. So I, I have tried and tried and tried in the last couple of years to remove the idea of this being an insurance policy. Yes, it's from the RMA. It's a crop insurance program.

What you're doing is you're buying a hedge. I shouldn't even say buying. It's a hedge. You are accessing a program that is heavily subsidized from the government to give you 95% coverage and you are hedging in essence your entire crop, but you pick a number in here, call it $4.50. There are probably a 90% of the U.S. counties would not be able to outproduce the yield requirement of corn with sub-$4.50. So what does that make you think of your farm when you start to combine your costs and then you compare what your forward contracting situations might already be. Just because you enter into this program does not mean that you lose a focus on marketing your crop.

But when we talked about this last year at the AgriSolutions meeting in Florida, they had this exact conversation that how many bushels do you need to sell in conjunction with your crop insurance policy to move the price that you need on the balance of your crop below where your insurance will kick in. And that means that you break even at worst, and the lower the market goes, the more money you're making because you're double dipping. This year, I'm not saying that next year will repeat itself, but 2023 producers who are at least 50% sold and carrying margin protection versus the guy that probably doesn't have much sold and 80% multi-peril insurance policy, there will be every bit of a $200 to $400 an acre, um, benefit to the guy that's carrying MP. The lower we go, the wider that range gets.

We're in a competitive landscape, and I think that every one of your listeners is probably a competitor in their heart. Um, guess what? This is a competitive advantage versus your neighbor, even if it doesn't work, because you're gonna stay whole no matter what happens. Your only risk is that your farm has a bad crop and the county doesn't. And I am willing to go on the edge and say that is a hail or wind event that we can still insure separately. So when you think forward to next year, a combination of having a few sales in place and being able to buy margin and understand where the yields have to be on a lower price, you're covered. And if I want to take it one step further, it's not an easy conversation to have, you know, over a podcast.

But there will be a point in time that the producers that are booking this, this year, if we have a dip in price, we will be sellers of $4 puts in a big, big fashion. Because I understand that at $4 minus what I sell that put for, now we're talking $3.75, $3.80. That's again astronomically impossible that the yield goes down that far. And at prices at that point, if I have some grain sold, I'm so close to 200% sold, it's not even funny. I have the opportunity now to lighten the load a little bit and almost sell my policy back to the market. I don't need it anymore because I've locked in what I needed, so I'm selling it back. I'm going to collect some premium back from this program. Any questions from either one of you?

Chris

Barron: A quick comment, and Joe's probably got a question, but, um, I like what you said about you're going to be whole anyway. You know, I've had this debate a few times with, you know, in-house, our own operation, and with others sometimes on the price of the insurance, you know, or the cost. I look at it as an investment in security. And so, you know, and it's a philosophical thing, and some people listen to this and disagree, and that's totally, totally fine. But I do, I do just want to echo what you said that, you know, you have to ask yourself, can I afford $50 or $60 an acre? Or can I afford $200 an acre of loss, you know, or $300 or whatever the number is? You can, you can budget, you know, you can budget this cost, or this investment, but you can't budget you know, a loss that you don't have protected that you otherwise could have.

Jarod

Creed: That's just a comment. If you go to the Board of Trade and you hedge 10 contracts, 50,000 bushels, does that cost you anything?

Chris

Barron: Yeah. Yeah. And that's the thing, too. You know, it's, it's, you know, this is, you know, this is basically, you know, your ultimate hedge. Like you said, I mean, it's your ultimate protection.

Jarod

Creed: So it's a subsidized hedge, right, that pays you 120% if you have a loss. And if it doesn't pay, what's that mean? Yields are up and prices are up.

Joe

Paulson: Yeah.

Jarod

Creed: Shucks.

Chris

Barron: What, what's the— so like for people listening to this and hopefully their insurance agent is very versed on all this stuff. If they're not, then I think, you know, it's going to sound bad, but, you know, you probably should fire them and find somebody that does. Understand all of this and can explain it well. And if they don't understand it and can go get it figured out quick and, and give you the support that you need. But when is the deadline to be signed up for MP?

Jarod

Creed: One week for— well, basically the end of September. Got to be all done by midnight October 1st.

Chris

Barron: Yeah. So, so the timeline is, is tight here. For people to do this. And I know we've got people listening. I've got— we've got clients that bought it. I know, Joe, you bought some last year too. So I think it's just something that we wanted to make sure we got out there with you today, Jared, just to make sure that people are aware of the opportunity that's there and the option. And it's not advice, but it's perspective and people need to run their own numbers and that kind of thing. Joe, did you have any questions?

Jarod

Creed: Before Joe asks a question, this go around, I'm going to tell you that it is advice and it's advice that I feel that people should adhere to. Yeah, because if I could go do this program on my business, I would do it.

Chris

Barron: Oh yeah.

Jarod

Creed: I don't have access to that. Tell me another Fortune 500 company in the US that has access to a subsidized program to pay them 120% of a loss.

Chris

Barron: Nobody. The airlines are the only one I know of besides— No, that's an egg.

Joe

Paulson: I just wanted to comment on— I'm, I'm a believer in this as well. I mean, I'm unique in that I have 5 different counties that I farm in. I'm not a super big producer, I just happen to be in the corner of 3 of them. And so not all counties are the same price on margin protection. As you can see here, and out of my 5 counties, this one that I'm going to have about a third of my corn crop in next year, it was after the discount for the RP insurance, it was like $36 an acre. Well, on 201 bushels, I mean, that's, that's a 17-cent put for next year. It was like a no-brainer. I mean, it's a, it is what it is. It's a risk management tool. And, you know, to be able to do it on a portion of your crop, it makes me sleep better at night for sure.

Jarod

Creed: Joe, DeKalb County this year has to yield 236.5 at current corn price if we stay flat on that price going into the month of October. And what do we say? The record's 229. Is DeKalb County going to be a record this year?

Joe

Paulson: It is not going to be a record this year. Absolutely not. I mean, it's going to be decent, but I don't, I don't see it being a record.

Jarod

Creed: No.

Chris

Barron: Sure. Anything we didn't hit on as far as any other questions, Joe, or anything we didn't hit on here on, on the importance of this? I think the key thing too is if, you know, if you're listening to this and Jared, If, if people have questions, what's the best way for them to get a hold of you if they, if they need to, you know, make a decision or want to understand this better? What's the best way to reach you?

Jarod

Creed: Just phone calls. Always easiest. 402-680-1744. And keep in mind, this is just math and it's the exact same type of math for every single state in the U.S. Anybody that has access to this, it's the exact same. It's not an Iowa program, it's not an Illinois program. It's everywhere.

Chris

Barron: Yeah. And I'll have Mac put this, this podcast on YouTube so that it's on there so people can actually look at the math and see it too.

Jarod

Creed: Well, I want to throw one other piece to this. You know, you rewind to last year, it's pretty obvious that there's been a lot of payments this year. I want to run an example of Crawford County, Iowa, last year. Its expected county yield was 225— no, excuse me, 219. The county yielded 224. Inputs went up, price rallied a buck 30, right? No, a buck, a buck 70. And guess what? The put option for that county was still in the money. County yielded the second highest yield ever. And guys still got about half their premium back. And that's not the goal, it's not to get your premium back, but the put option still had value. And how many times do we hear decade after decade, uh, options always expire worthless, put options always expire worthless? It just had a $400 increase in margin, give or take, for that county of revenue, and the put option still paid.

Chris

Barron: Interesting. Any final questions, Joe?

Joe

Paulson: No, I think we pretty well covered it. Great conversation.

Chris

Barron: Yeah. Well, I really, really appreciate you being on, Joe, and, and participating. Jared, any final closing comments?

Jarod

Creed: I think I'm good.

Chris

Barron: Okay. Well, if anybody has questions, we, you just heard Jared's comments. This might be one you go back and, and rethink and, and consider. Oh, one, one last thing I want to ask Jared. I'm going to throw this out there even though I was getting ready to close up. Does this, does this allow people to slow their roll a little bit on making sales as they go into a potential weather market in the summer? So it gives you more staying power too. But I think you got to be careful because you don't want to use this to not make sales either, right?

Jarod

Creed: It can impact the way you go about managing your position. When your insurance is in the money, you have less dependency on being— or less— what's the word I'm looking for? Not dependency, urgency. You have less urgency to be doing something. When your insurance is out of the money, you have a greater urgency. Yeah, that's why I was talking about with you that risk is both good and bad, and you have to define what your risk is at any point in time. Joe's risk today— this is a bold assumption, but I guarantee it's the case— Joe's risk today is that the market goes higher, not that it goes lower. Yeah, because Joe's going to carry margin protection next year as well. His risk is not that it goes lower. He's short a lot of corn. Not a client, but he's short. Is short a lot more than he thinks. If a guy is 50% sold and has margin protection, he's probably 170% financially sold.

I have less dependency on having to sell something in the middle of the summer. Market rallies, weather situation. If my insurance is out of the money and I've got nothing protected from it, I'm only percent sold of what I have done on my physical grain. And now I have to go back to the blocking and tackling on my simple multi-peril policy that I'm guaranteed 80 or 85% of my crop. And I need to be taking that risk off the table. And no different than this last summer when you all of a sudden start talking $5.50, $6, $6.20, not even all the way up to $6.40. Guys had the necessary reasons to get all the way protected up to their insurance guarantee, whether it was cash sales, HDAs, hedges in a hedge account, or options.

Chris

Barron: Something. Gotcha. Well, I think this has been probably about the longest weekly market outlook we've done. But I think, you know, and Jared, you and I talked about doing a two-parter, doing it all in one. I think this worked really good just to kind of, you know, this is, you know, part of marketing and part of business management is the risk side of the equation. It's not just, it's not just, you know, trying to hit a home run. It's trying to protect some things along the way. And I've always noticed with Profit Manager over the years is that, you know, if you invest in things that either enhance yield or protect— or excuse me, enhance income or protect income— those are always good investments in the long run. So again, Joe, thank you very much. Jared, thank you very much. We're going to wrap this one up. People want to get a hold of Jared, give him a shout.

And we want to wish everybody a safe harvest. If you're not running yet, get going. Be safe out there, and we will be back again next week with the Ag View Pitch. We'll catch you again next time.

Jarod

Creed: Thanks.