Crop Insurance Strategies for

2018

Why is Crop Insurance Important for Risk Management?

Creates a Foundation to build upon

Makes a big impact on marketing throughout the year

Changes your Risk/Profitabil ity outlook

Helps determine marketing tools to use

• Prevented Planting Buy Up lowered to 5%

• Can now pick different unit structure by practice

• Redefined Practical to Replant to up to 10 days after the final plant date

Changes in Federal Crop Insurance for 2018

• Approved yield cannot decrease more than 10% from the prior years APH. Must be elected! (YC)

• Indemnities can offset premiums even before premiums are billed. Replant, Hail

Changes in Federal Crop Insurance for 2018

Traditional Insurance Products

Crop Insurance

• Acres to each crop and how many acres are flexible?

• Cost of Production for each crop. Estimate High!

• Cash sales made and average price.

• P/L on marketing already done for the crop year.

• Current Fall Basis and historical basis at harvest.

• Is it possible to grow a third crop?

Pre-Decision Information Needed!

• Yield Risk: Yield Policy/Yield Private Products/ICE

Harvest Max

• Price Risk: RP/RPowerD/RAMP/ICE

• Cash Price Risk: Whole Farm/PCI

Determine Risk

Traditional Insurance Products

Corn

• You should be able to cover costs at the 75% TA or the 80% deductible.

• Hail Insurance for top dollar loss.

• Take advantage of the low premiums to try and reduce risk or lock in more profits. Private Products, Hedging.

• Consider Basic or Optional Units

• Buy Up Replant Option in fringe states

• Downside Price Risk - Whole Farm

Thoughts on Corn (High APH)

• Consider the 80% or 85% policy.• 75% TA if others are too high• Hail Insurance for top dollar loss.• Look at private products either with 10% bands of

coverage • Alternative Spring Price opportunity over the summer

months. (cheap call)• Buy Up Replant in fringe states.• Downside Price Risk – Whole Farm

Thoughts on Corn (Low APH)

Traditional Insurance Products

Soybeans

• MPCI cannot cover input costs.

• Stick with the 85% TA which provide limited risk

• Manage with future or options

• If you go 80% or want to cover all your input costs consider a higher band of coverage

• Maybe capture some of this recent rally in soybean prices to get a higher Spring Price.

• Downside Price Risk – Whole Farm

Thoughts on Soybeans (High APH)

• MPCI alone has a big cap trying to cover input costs• The risk profile is high for a producer that does not get

big yields. Significant downside Price Risk• Consider going with 80% or 85%. Usually the 80% TA

have better coverage than the 85% and it is cheaper• By Up Replant in fringe states• Consider a higher band of coverage.• Consider Harvest Max• Maybe capture some of this recent rally in soybean

prices to get a higher Spring Price.• Downside Price Risk/Bushel Risk – Whole Farm

Thoughts on Soybeans (Low APH)

Traditional Insurance Products

Wheat

• Cannot cover input costs

• Best ROI is likely 80% TA

• Tons of risk that needs to be addressed

• Consider 85% Yield Protection. Decent Spring Price

• Look at Price Flex, Yield or Revenue RAMP/ICE

Thoughts on Wheat

Whole Farm Revenue

Whole Farm Revenue

Protection against loss of Gross revenue that a producer expects to earn.

• Worried about significantly lower cash sales opportunities throughout the year (NAFTA)

• Have crops generally subjected to dockage.

• Tend to store unpriced bushels into the following calendar year to attempt to catch a carry in the market.

Whole Farm Revenue

• Utilize to protect cash prices which we have not been able to “insure” before.

• Protects against loss or revenue expected to earn, including animals and animal product.

• Has one of the longest insurance periods of any insurance product.

• Enable producers to grow new crops or crops with low APH yields.

Whole Farm Revenue

• Affordable option in areas where 80% and 85% MPCI is to expensive.

• Can be a way to reduce your insurance bill and still satisfy your lender.

• Can be considered a hedge against bad cash marketing.

Whole Farm Revenue

Whole Farm Revenue

Coverage Level 50% 55% 60% 65% 70% 75% 80% 85%

Commodity Count: 1

67% 64% 64% 59% 59% 55% N/A N/A

Commodity Count: 2

80% 80% 80% 80% 80% 80% N/A N/A

Commodity Count: 3+

80% 80% 80% 80% 80% 80% 71% 56%

Whole Farm Subsidy Rates

Whole Farm Revenue

Whole Farm Coverage Example – Grain Farmer

Cov Level Liability Tot. Premium Subsidy % Pro. Premium Rate/[$] Prem/Acre

85% $2,848,418 $122,482 56% $53,892 1.89% $9.13

80% $2,680,864 $103,213 71% $29,932 1.12% $5.07

75% $2,513,310 $86,709 80% $17,342 0.69% $2.94

70% $2,345,756 $70,373 80% $14,075 0.60% $2.39

WFRP Historic Avg. $3,800,000

Total Expected $3,351,000

MPCI Liability Total $2,200,000

# of All Commodities 3

Acres 5,900

Qualifying Threshold $371,000

WFRP Example Quote

Whole Farm Revenue Protection Quote Agent:

Phone:Notes:

Simple Average

Index Average

Expand Op Avg

WFRP Historic Avg

# of All Commodities 2 Total Expected

Qualifying Threshhold $150,508 Approved Amount

Eligible Commodities 2

Grouped Commodities 0

Commodities to Count 2

Cov Level Liability Tot. Premium Subsidy % Pro.Premium Rate /[$] Prem/Acre

85%

80%

75% $680,006 $28,560 80% $5,712 0.84% $3.64

70% $634,672 $22,214 80% $4,443 0.70% $2.83

65% $589,339 $17,091 80% $3,418 0.58% $2.18

60% $544,005 $13,056 80% $2,611 0.48% $1.66

55% $498,671 $9,475 80% $1,895 0.38% $1.21

$1,000,000

$1,000,000

$0

$1,000,000

$906,675

$906,675

$725,340.00MPCI Liability Total

Whole Farm Revenue Protection Quote Agent:

Phone:Notes:

Simple Average

Index Average

Expand Op Avg

WFRP Historic Avg

# of All Commodities 2 Total Expected

Qualifying Threshhold $150,508 Approved Amount

Eligible Commodities 2

Grouped Commodities 0

Commodities to Count 2

Cov Level Liability Tot. Premium Subsidy % Pro.Premium Rate /[$] Prem/Acre

85%

80%

75% $680,006 $14,280 80% $2,856 0.42% $1.82

70% $634,672 $11,107 80% $2,221 0.35% $1.41

65% $589,339 $8,545 80% $1,709 0.29% $1.09

60% $544,005 $6,528 80% $1,306 0.24% $0.83

55% $498,671 $4,737 80% $947 0.19% $0.60

$1,000,000

$1,000,000

$0

$1,000,000

$906,675

$906,675

$725,340.00MPCI Liability Total

• Buying MPCI gives an additional subsidy to WFRP.

• Allows for Individual crop coverage if that is a major concern.

• Utilize MPCI to capitalize on a much higher harvest price.

• MPCI pays in the fall. WFRP pays the following April.

Whole Farm Revenue + Crop Insurance

• In 2017 any indemnity you made Hail and Private Product counted toward the Whole Farm Revenue Guarantee.

• In 2018 only the portion of the indemnity that is over the deductible is counted towards the Whole Farm Revenue Guarantee.

Huge Change for 2018 Whole Farm Revenue

• Brings High Insurance Cost States into Play• i.e. Nebraska tends to buy a lot of hail insurance

• Whole Farm + MPCI + Hail + Buy Up Replant

Huge Change for 2018 Whole Farm Revenue

Non-Traditional Insurance Products

Crop Insurance

• Addresses many different perils.• Usually will end of being top dollar loss opportunities.• Highly customizable.• Underwriters make them very attractive in order to

get your book of business.• No subsidy. Compare Prices• Not available for every crop in every state.• 2018 – Bands of Coverage and Spring Price

Adjustment

Non-Traditional Insurance Products

PriceFlex & Price Flex Prime (Hudson, ProAg, G.A)

Crop

InsurancePriceFlex

• To Generate higher revenue protection

• Uses daily monthly or bi-monthly averages

• Consider if Spring Prices cannot cover BE

• March-August must be done by MPCI SCD

• Soybeans, Wheat, Corn, Cotton

PriceFlex

• 85% RP

• 85% RP + PF

• 85% RP + PF Half Month

Comparing

Side by side - Farmer with, and without PF Matrix (only the matrix box).

Net Profit + PriceFlexNet Profit

RPowerD (Hudson, ProAg, Great American, RCIS)

Crop

InsuranceRPowerD

• Coverage up to 95% and/or:

• Buy additional discovery month

• Buy Yesterdays Close – Maybe?

• Additional Price Coverage – Up to .25 for

Corn and .50 for soybeans. Buy early!

RPowerD (Hudson, ProAg, Great American, RCIS)

• If you select zero for APC, no Market price and no alternative month’s you can

buy up to 95% using the Spring Price.

• Unit Structure different than MPCI

• Coverage by Practice

• Sales Closing Date is April 1

Base Price Modifier (NAU)

Crop

InsuranceBPM

• Increases the Spring Price based on a factor.

• Mirrors level of MPCI coverage

• Unit Structure can be different than MPCI

• RP, RPHPE, YP

• Corn, Soybeans

Max Price (Ag Armour)

Crop

InsuranceMax Price

• Increase your Spring Price guaranteed

• EU, OU, BU

• Corn $.25 or $.35

• Soybeans $.50

Added Price Option (RCIS)

Crop

InsuranceAPO

• Higher bushel price protection (TA Yield)

• Unit structure different than MPCI

• Yield loss payment even if HP is higher than

the Spring Price

• Yield or Revenue Policy

• Price elected by Producer

• Corn, Soybeans

RAMP (Farmers Mutual Hail)

Crop

InsuranceRAMP

• Covers up to 95% TA Yield

• RAMP Revenue or RAMP Yield

• Optional or Enterprise Units

• Can build or strengthen coverage

• 10% Bands of Coverage

• Corn, Soybeans, Winter/Spring Wheat,

Popcorn, Barley, Grain Sorghum

Increased Coverage Election (ProAg)

Crop

InsuranceRAMP

• Covers up to 95%

• Revenue or Yield

• Optional or Enterprise Units

• 10% Band of Coverage

• Corn, Soybeans, Winter/Spring Wheat,

Sugar Beets

HarvestMAX (AgArmour)

HarvestMAX

• Protects Shallow Bushel Loss

• Very Customizable

• Protects up to 95% of your APH

• No MPCI Needed!

• Corn, Soybeans, Sugar Beets, Fall Potatoes

PAR (ProAg, Great American, Hudson)

Crop

InsurancePAR

• Provides Area Revenue Coverage

• RP + PAR generally less than ARP

• Use County or Crop Reporting District

• Coverage up to 95%

FCIP (NAU)

Crop

InsuranceFCIP

• Take advantage of market conditions as

they happen. Encourages profitable sales

• Protects your forward contracts

• Has Prevented Planting protection

• Receive price protection at time of sale

• Yield or Revenue policies

• Corn, Soybeans

Lodging Loss of Production (RCIS)

Crop

InsuranceLLOP

• Top Dollar Loss

• Covers direct peril of wind (lodging)

• Corn Only

Weather Insurance (www.eWeatherRisk.com)

• Temperature

• Heat or Cold

• Precipitation

• Too much rain

• Too little rain

Risk Management

Risks Tools

Minimize Risk, Maximize Profit

Risk Management

Risk Management Tools We Consider

Federal Crop Insurance

Hail Insurance

Basis Contract

Forward Sales

Hedge To Arrive (HTA)

Private Crop Insurance

Futures & Options

Weather Contracts

Over The Counter (OTC)

Commodity Programs

Risk Management

Where Visibility Meets Clarity

HOW WE DO IT Software

… Summary of projected profitability

HOW WE DO IT Software

Profit Matrix

• Total Risk Management

• Insurance + CBOT + Grain Sales +

MONITOR, EVALUATE, EXECUTE

HOW WE DO IT Software

When producers see their risks, they make better decisions.

THANK YOU