Use Your Crop Insurance for an Edge in Grain Marketing
Crop insurance is an important tool to improve your margins. It gives you freedom to market your grain at the best possible price, which typically occurs early in the crop year. As a safety net for both crop failure and declining markets, your policy helps you protect a price well beyond the guaranteed minimum—critical in today’s tight farm margins.
We owe it to farmers to help you understand how crop insurance works. Are you using your policy to its full advantage? Find out more in our latest podcast. Doug Roose, V.P. of Producer Marketing at ADM, talks with two guests: Nate Brabec, ADM Integration Manager in Nebraska, and Steve Maulberger, V.P. of Crop Risk Services (CRS).
Here are key points in the discussion:
Roose: Can you point to years when crop insurance has really paid off in combination with grain marketing?
Brabec: We had a big opportunity in 2019, with prices well over the spring price guarantee and an early look at crop conditions. Crop insurance is a revenue guarantee, which is price and yield. So if you have a peril on either, you’re covered. As the market goes up alongside of production concerns, the crop insurance guarantee rises as well. We could have really put those pieces together and taken advantage of that to lock in margins well in excess of the spring guarantee.
Maulberger: Another example is the drought year of 2012. We issued $20 billion in claims. Farmers who’d forward-marketed had their number-one year of revenue through a combination of higher prices and indemnity payments. We proved that crop insurance works. Revenue protection gives farmers the proven confidence to maximize their P&L.
Roose: Farmers are beginning to think about 2020. How is the spring price guarantee established for that first revenue benchmark?
Brabec: The base price will be established off of December corn futures in the month of February. If it’s at $4, that’s the revenue guarantee for the crop portion you insure. Then marketing comes into play. If the $4 price works for you, have a conversation with your crop insurance agent about locking in that guarantee, then talk to your grain buyer about forward marketing above it. That way, if you grow the crop, you’re farther ahead, and if you don’t grow the crop, your indemnity payment keeps you whole.
Roose: Farmers often say, ‘If my revenue guarantee is $4, I’m selling at $4.” How is that a misunderstanding?
Brabec: Crop insurance allows you to buy a portion of that revenue guarantee. Let’s say I buy a policy at 75% of production and raise 200 bushels an acre. If the revenue guarantee is $4, my guarantee is $600, but my actual revenue potential is $800. You don’t buy crop insurance to earn the minimum, just like you don’t buy car insurance intending on an accident. Look for ways to do better than the guarantee. On my farm, I want to grow the crop and forward-market it, because that’s my best potential.
Roose: Crop Risk Services has a tool called RevNet to help farmers improve upon the spring revenue guarantee or the fall price. What is that?
Maulberger: RevNet allows you to add a third guarantee. In standard policies, the spring price always establishes the first guarantee and harvest price sets the second. With RevNet, you can lock in another price in the summer, when growing issues might be driving the futures price up. You choose a two-week averaging window. Let’s say that in the first two weeks of July, the price is $4.25. You can say, ‘I like that price. I’m going to lock it in.’
Roose: Am I correct in saying there is no revenue price protection once you get past the end of October for corn and beans?
Maulberger: That’s accurate. At harvest, work with your crop insurance company and your grain originator at the same time to make sure that you’re not leaving anything on the table during harvest. Farmers don’t always grow exactly their actual production history (APH), so that’s where working with both parties is important in the fall.
Roose: We’re probably in a bigger claim year because of the spring flooding. Are crop insurance companies responding?
Maulberger: Our goal at CRS is to get that claim check out and to win on service. Crop insurance is a public-private partnership: The government is the backer of the program and we administer it, so there’s no incentive to not pay a claim. This year we have about 20 million acres of prevented-planted grain, and our industry will probably be paying out $6 to $7 billion of indemnity claims for farmers. Those checks are rolling out the door as fast as possible.
Contact Your ADM Representative Today
Need assistance with crop insurance? See “Crop Insurance: Just the Facts” or call 888-523-6277 to talk with your Crop Risk Services agent. To integrate your grain marketing and revenue protection in 2020, contact your ADM representative. We can partner with CRS to protect your revenue!
Past performance is not indicative of future results.
ADM is providing this communication for informational purposes, and it is not a solicitation or offer to purchase or sell commodities. The recommendations in this communication do not take into account any particular individual’s or company’s objectives or needs, which should be considered before engaging in any commodity transactions based on these recommendations. The sources for the information and recommendations in this communication are believed to be reliable, but ADM does not warrant or guarantee the accuracy of the information or recommendations. ADM or its affiliates may hold or take positions for their own accounts that are different from the positions recommended in this communication. The information and recommendations in this communication are subject to change without notice.