Ep. 10 Price Risk Protection for the 2025 Crop Year Using Margin Protection Crop Insurance

00;00;08;08 – 00;00;31;15
Riley Smith
And how I think about things, but anyway will move on from that, will get this thing cranked out. Yeah. Good morning. Good morning, and welcome to another episode of Morning Coffee and AG Markets with Riley Smith in the studio today, we, put down the mobile equipment, got in here where we could we could, bounce off the walls a little bit quieter.

00;00;31;17 – 00;00;35;03
Dr. Hunter Biram
There’s a lot of padding on the wall, so it wouldn’t hurt if we bounced off of them.

00;00;35;05 – 00;00;57;18
Riley Smith
Yeah, a little a little padding on them. But we got Doctor Biram in here with us today. Going to be talking about some price risk management, for 2025, talking about using crop, for the 2025 crop year, using margin protection crop insurance. Fairly new to the, insurance world as well as, the farming world.

00;00;57;18 – 00;01;07;17
Riley Smith
So we’ve got the Mister Insurance himself in here to going to discuss. We’re going to talk about it a little bit today. So. Yeah. How are you.

00;01;07;20 – 00;01;29;20
Dr. Hunter Biram
Man? I’m just dandy. I’m happy to be here. I’m glad that, we’re getting some rain. Although I do hate it for our farmers out in East Arkansas and even those in the Delta, Mississippi. I think most of the rainfall is happening in Mississippi, more so than Arkansas, which is a little bit of a change from original from the original forecast allows me more and, you know, east central Arkansas, but it looks like it’s shifted more to the.

00;01;29;26 – 00;01;53;00
Riley Smith
So for those listening, we’re recording the the previous Thursday. So when this releases on Monday morning. So yeah, when you’re going of we got rain the other day and and it’s not adding up. Well, we’re we’re in here for what. We’ve been watching it rain, doing the dance. I know some farmers are upset because they’re trying to get the rest, you know, rest of the rice out of the field.

00;01;53;00 – 00;02;14;05
Riley Smith
And I know a couple boys around the house that are dealing with moisture issues. And, trying to get just one field cut alone. And, and a lot of guys are out in the middle of getting ready to cut beans, too. I saw a lot of the defoliated beans yesterday. And, then our east, our guys over in East Arkansas, it looks like,

00;02;14;08 – 00;02;33;05
Riley Smith
Francine. Francine, Francine. She’s, It looks like she can might, may do some wind damage over there, which is not good. But we are we are happy for for. I’m happy for the rain. We’ve been in a pretty dry spell. For what now? Four weeks. About four weeks. Three weeks.

00;02;33;07 – 00;02;43;06
Dr. Hunter Biram
A long time. And hopefully this will even help out the the Mississippi River. You know, we’re not gonna talk about that today in great detail. We were talking about that. But I know in your market report you’re going to mention the the levels hopefully the level to come up.

00;02;43;06 – 00;03;07;15
Riley Smith
And oh well the so the predicted right now is a little low. But I might go in and adjust that, after this big rain. I’m hoping it goes up. But right now the current river levels at -7.9, which is the year end, is still better than a year ago. Is that -9.39? But that’s that’s still affecting basis right now.

00;03;07;17 – 00;03;09;02
Riley Smith
Oh yeah.

00;03;09;04 – 00;03;10;29
Dr. Hunter Biram
Anything below negative five guaranteed.

00;03;11;04 – 00;03;12;02
Riley Smith
Guaranteed.

00;03;12;02 – 00;03;13;29
Dr. Hunter Biram
Guaranteed to impact anyway.

00;03;14;06 – 00;03;15;01
Dr. Hunter Biram
Margin protection.

00;03;15;01 – 00;03;16;26
Riley Smith
Right. Let’s get on the track.

00;03;16;28 – 00;03;29;05
Dr. Hunter Biram
We got a real spike in. Those are all great things. Now don’t get me wrong. I can get on just as much of a tangent as anybody said, but I think just for the for the sake of our listeners and their time, we’ll focus on margin protection. So I’ll just open it up and talk about what it is.

00;03;29;05 – 00;03;49;09
Dr. Hunter Biram
And I mean, it is what the name says it, it protects against, margin risk. And what is the risk? It’s the risk of the margin getting smaller than what you had expected it to be. So, you know, at the most core level, think about if your expenses margin is $100, you know, and you want to insure 95% of that, you’re going to insure $95 margin.

00;03;49;11 – 00;04;11;14
Dr. Hunter Biram
And then it’s going, let’s say that input prices go up, crop prices fall, and that margin shrinks to about $30. You know, then effectively, you’re still guaranteeing yourself the $95. And that’s a very crude example. But fundamentally that’s what this product does, is it protects against the risk of thin margins. And so it’s kind of interesting because we really haven’t talked much about it.

00;04;11;16 – 00;04;29;06
Dr. Hunter Biram
But I think that’s largely because it’s a relatively new product. I mean, the the first introduction of it would have been in 2018 and, you know, so now we’re six years out from that. And, Arkansas producers, for the first time last year, our Arkansas corn and soybean producers for the first time last year gained access to it.

00;04;29;09 – 00;04;49;22
Dr. Hunter Biram
They they’ve, rice producers and short, medium and long grain rice producers, have had access to it, since the original introduction, but, corn, soybean producers for the first time had the opportunity to buy it. Had a first opportunity last year. And this is, I guess, the second year that they could buy it.

00;04;49;25 – 00;05;05;28
Riley Smith
So, so why haven’t we heard much about margin protection? I understand that’s a relatively new protection tool, for farmers, but what what brought this to light?

00;05;06;00 – 00;05;22;02
Dr. Hunter Biram
Yeah. I think what brought it? I think what really brought it to light for me, was just having farmers asking me about it. I mean, that’s the beauty of extension is, you know, farmers feeling are full of great research ideas. And so I decided to go back to the lab, aka my computer, pretty much for an economist.

00;05;22;02 – 00;05;37;17
Dr. Hunter Biram
And I actually got a graduate student to do some research on it in his thesis. And so, at Arkansas, we we’ve done a lot of work looking at margin protection. And I think that initially is what peaked my interest in that is visiting with crop insurance agents about it, you know, here in Arkansas and across the country.

00;05;37;17 – 00;06;01;15
Dr. Hunter Biram
I was at a conference, the national conference, this past April and taught some folks about it. So, you know, it is young. Well, like I said, but I think, there may be some there may be some interest starting to brew up, especially given what happened in the Russia Ukraine conflict and the increase in input prices. And in Arkansas, the fact that rice is such an input intensive crop margins are very important, to protect for rice farmers.

00;06;01;15 – 00;06;04;19
Dr. Hunter Biram
So I think in Arkansas, I know there’s some, some special interest for.

00;06;04;22 – 00;06;20;25
Riley Smith
So does this, so you said it was on, yield protection as well as revenue protection, but is that so? Let me ask this question first. Is this margin measure, farm level returns?

00;06;20;27 – 00;06;41;10
Dr. Hunter Biram
Short answer is no. It does not measure farm level returns. It does not measure farm level margin. What it does though is it uses county level yields. It uses futures prices which are traded globally. So futures crop prices county yield. So there’s your revenue component. What about the cost component. Well what is the risk being measured in cost.

00;06;41;10 – 00;06;58;21
Dr. Hunter Biram
Well it’s price risk. The quantity risk is not there because farmers choose how much they’re going to assume that that assume that they can buy it and get access to it. They’re going to apply, they have more control over how much is applied versus on the production side of things. They don’t know how much they’re going to harvest at the end of the year.

00;06;58;24 – 00;07;20;22
Dr. Hunter Biram
So really the input price risk is what’s being protected. So the price, is based on that futures price. That’s a global price. And then the quantity is fixed so that quantity is fixed. And it’s based on a regional measure or regional estimation of about how much pounds of urea, pounds of DAP, pounds of potash that would typically be applied, in a growing season.

00;07;20;22 – 00;07;26;13
Dr. Hunter Biram
So not farm level, but at its highest core is a county level product.

00;07;26;16 – 00;07;38;24
Riley Smith
So you’re, you’re covering. And so that’s based on the, the yield prediction is on the county level, kind of kind of like ARC-CO. It’s it’s a area specific.

00;07;38;29 – 00;07;43;25
Dr. Hunter Biram
That’s that’s a good comparison to make. And because it’s based on that county level yield and not a farm level.

00;07;43;25 – 00;08;02;05
Riley Smith
Right. But it’s also on the relevant futures price for the in not for the county, though. It’s for just for the relevant futures price for that crop as well as the relevant price for futures price for inputs. Now is that individualized on the input side.

00;08;02;08 – 00;08;23;10
Dr. Hunter Biram
No it’s a short answer to that. So we have for quantity for the quantity side of that. You know the prices again that, that futures price of futures price for urea, that FOB urea futures price the Nola FOB urea. There’s also a a Nola that price that that’s traded fun fact potash price.

00;08;23;10 – 00;08;43;23
Dr. Hunter Biram
There’s no risk in it in this product because they use the same price at plant. It’s the same price at purchasing as they do at harvest. So really your input prices, the risk being protected is urea. It’s DAP. It is not potash. Diesel fuel is protected. And the interest rate actually is also protected, in this.

00;08;43;26 – 00;08;57;09
Riley Smith
So. All right, that my next question, I have. So how is the cost determined? And I’m assuming this is, the cost determined for this protection tool, for this protection premium.

00;08;57;11 – 00;09;26;10
Dr. Hunter Biram
That’s exactly right. That’s a good way to think about it because this cost is not necessarily going to reflect what your cost is going to be on the farm level, the way margin protection determines determines cost is but the, the well we’ll start from yield and work our way through to input cost. So yield is going to be determined by our may determine county yields.

00;09;26;13 – 00;09;48;29
Dr. Hunter Biram
The crop price is determined by that for corn for instance that December corn futures price for 2025 okay. So there’s our revenue component moving into the cost again the price component is based on that global futures price for the inputs that I just mentioned. And then on the quality side, to me, that’s one of the most interesting parts about this is because it’s not a county level quantity that’s fixed.

00;09;49;01 – 00;10;20;27
Dr. Hunter Biram
That’s not even a state level quantity. It’s a regional quantity. So I mean, there could be counties from Arkansas and Louisiana, Mississippi that are all lumped into one, quantity usage region. So the assumption that the people who wrote this once and associates what they what they make and that assumption, the assumption that they make, there’s that across this region, farmers generally use about the same amount, of the input, which I’m sure is based on recommendations from extension services, from agronomist, from soil fertility specialist, and so on.

00;10;20;27 – 00;10;38;25
Riley Smith
Like, yeah, like this is I’m not a farmer, but, farm for a lot of life. So, from that standpoint, a lot of times you’re going to take a solid test soil sample and you’re going to figure out exactly what you need. So, I mean, the rule of thumb, there’s always a rule of thumb. You’re always going to put two 300 pounds to the acre of.

00;10;38;25 – 00;11;01;16
Riley Smith
Sure, most everything except outside of lime lime you’re usually on the tonnage per acre. So I mean that quantity I could see where it would be the same. Yeah for sure. For all across the board. You’re not saying everybody is the same, but across the board you’re going to put out somewhere around the same quantity. But that price for input, the input price is just globally right.

00;11;01;16 – 00;11;08;14
Riley Smith
It’s not for like a state. So that’s right. You’re talking about coming off the golf port. Yeah. What they determine that price to be on your FOB.

00;11;08;14 – 00;11;10;12
Dr. Hunter Biram
The free on board price.

00;11;10;14 – 00;11;12;04
Riley Smith
Free on board. Freight on board. Yeah.

00;11;12;04 – 00;11;14;29
Dr. Hunter Biram
For your friend on board I think is what it is for free.

00;11;14;29 – 00;11;16;04
Riley Smith
It’s free. Okay.

00;11;16;05 – 00;11;19;28
Dr. Hunter Biram
Cool. I got my words mixed up there. Yeah.

00;11;20;00 – 00;11;31;01
Riley Smith
So why is it important now to have margin protection. And then on a side note what don’t we buy crop insurance like January February?

00;11;31;04 – 00;11;50;21
Dr. Hunter Biram
Yeah, that’s a really good point. I mean, why are we thinking about this now? Because normally we’re buying insurance in January and February. You know, the in Arkansas, the sales closing date for yield protection. Revenue protection is from on the 28th. So why is it why March protection now. So the sense closing date, just to be clear, is September the 30th.

00;11;50;24 – 00;12;15;08
Dr. Hunter Biram
For I know for sure for Arkansas, I think it could be, it may actually be across the whole U.S, I know for sure. In Arkansas, the sales closing day for March protection is September the 30th. We’re actually ramping up the price discovery period right now. And so next, next week. So on Monday, whenever you’re listening to this, the, all the prices for, my corn, soybeans will be determined and finalized.

00;12;15;10 – 00;12;36;26
Dr. Hunter Biram
Now, back to the whole point. Why why, why now? Why not? And and January. February. Well, Riley as you and I were talking about earlier. A lot of farmers are most likely determining their, how much fertilizer they’re going to buy now. And so I, I think margin protection’s special in that we’re trying to protect margin. And so it’s not just about yield and crop price.

00;12;36;26 – 00;12;55;19
Dr. Hunter Biram
It’s about the price of the input and the quantity used in the input. And so farmers need to know our farmers are going to start booking now. They’re starting to book prices now and talk with their input suppliers now about about about the inputs. I think that’s the only thing that’s unique about margin protection. That’s not going to be unique about your protection revenue.

00;12;55;19 – 00;13;24;00
Riley Smith
Right? Most of your most of your growers are going to are going to put a bid on a barge or put a bid out on their fertilizer. I’m not going to name months, but they always, for the majority bid out theirs the fall before the crop. They’re for the next crop year and then if they get short or they think they’re going to be short or whatever, then they’ll go pick it up, you know, a truckload or something off of off a port like here at the Arkansas River or something like that.

00;13;24;02 – 00;13;29;20
Riley Smith
But so is there a link to a web based decision tool that’s,

00;13;29;22 – 00;13;30;08
Dr. Hunter Biram
There is a.

00;13;30;08 – 00;13;36;29
Riley Smith
Strong. But there’s my question. Is there is there what is there a way to get they can get to this web based decision? Yeah.

00;13;37;01 – 00;13;57;00
Dr. Hunter Biram
Yeah. So there is a, link to a fully web based decision tool in the newsletter. And so this decision tool has, different tabs and it’s for much protection. So it’s a, it’s decision tool for market protection. So she’s you open it up. You’re going to have some instructions on how you can use it. There’s a tab where you can conduct what if analysis.

00;13;57;00 – 00;14;18;19
Dr. Hunter Biram
And you can look at what your indemnities or their called margin losses is, how much protection defines it. So you’ll see what your margin losses are relative to your producer premium. So that’s one type that you can play around with across all those coverage levels. You can look at margin losses relative to producer premiums. The next part is looking at the break even price.

00;14;18;19 – 00;14;36;22
Dr. Hunter Biram
And so the breakeven price, the way I’m defining it is what does the futures price have to fall to, given that you’ve chosen a coverage level for margin protection. So say 95%. What does that futures price have to fall to in order for you as a farmer to not pay your producer premium? That is your indemnities cover your premium.

00;14;36;24 – 00;14;59;18
Dr. Hunter Biram
And so that’s what I’m calling the breakeven price. So currently if you buy 95%, margin protection for corn in Arkansas County, Arkansas, that December 2025, futures price would have to fall below 398, in order for you to, actually not pay the premium, assuming that yields remain constant and those input prices remain relatively constant. So you can look at the break even prices.

00;14;59;18 – 00;15;25;03
Dr. Hunter Biram
Then there’s the last time on the protection factor. And you I talked a great length about this too. But the protection factor for farmers who perceive that they have, higher or lower yields on the farm relative to the county, they can buy, more or less protection. So hear me out. The first part about this is if you’re going to buy, margin protection, 95%, you’re going to use a protection factor of 100%.

00;15;25;06 – 00;15;44;28
Dr. Hunter Biram
There’s effectively no change in that producer premium. It’s going to remain the same. But if you choose a protection factor of 120%, you’re going to pay 20% higher premium. But when that indemnity triggers, you’re going to get 20% more indemnity as well. So if you get 80%, it’s it’s a similar way of thinking about it. You’re paying 20% less on the producer premium.

00;15;45;00 – 00;16;12;04
Dr. Hunter Biram
But you’re going to also get 20% less indemnity should the indemnity trigger. So if you think that as a farmer, you think that your yields typically perform, excuse me, relatively higher than that of the county average, consider getting a protection factor more than 100%. If you think it’s less than, consider getting protection venture less than 100%. But there’s a whole tab that shows what that indemnities do across, varying levels of the protection factor.

00;16;12;07 – 00;16;34;26
Riley Smith
What sounds like a, it sounds like a tool that a lot of growers and producers, should be interested in as far as, like, especially like marketing year, like we’ve had right now, especially with corn being below $4 means being below $10, input prices being extremely, I mean, it’s like we talked about, you know, a couple podcasts ago.

00;16;34;26 – 00;17;04;04
Riley Smith
It’s the perfect storm. Unfortunately, River river’s down, basis is high. markets low, input prices are high. This would be a good time for them to be, be covered in that margin protection, not just in revenue or in their yield protection, but this offers an all around look as to, be able to maybe, maybe even save their, their operation or save the farm.

00;17;04;07 – 00;17;18;24
Riley Smith
So this is something that, our listeners, if you if you’re a producer slash grower, you probably need to go take a look at it and see if it might be able to benefit you in the short term and, and long term. Do you have anything else for us?

00;17;18;27 – 00;17;31;21
Dr. Hunter Biram
I think that’s it. There’s a lot of information there. Obviously. Reach out to me or Riley if you have any questions about this and, yeah, hopefully, hopefully this tool can provide some, some help. In a really tough time.

00;17;31;28 – 00;18;01;18
Riley Smith
Yeah. Well, appreciate you guys. Stay tuned for my market report. Thanks. All right, guys, back with you. Market report September 24 Corn. Current prices at $3.91 per bushel. A month ago, price is at $3.73 per bushel. That’s up $0.08. Year agos price was at $4.63 per bushel. That’s down $0.82. September 24. Rice is at $15.36 per cwt , months ago was at $15.36 per cwt.

00;18;01;18 – 00;18;35;10
Riley Smith
There’s no change. Year agos prices at $15.81 per cwt. That’s down $0.45. November 24, Soybeans is at $10.01 per bushel a month ago was at 9.86 per bushel. That’s up $0.15. Year agos prices at 1347 a bushel, $13.47 per bushel. That’s down $3.46 July 25. Wheat is at $6.14 cent per , $0.14 per bushel. my bad. A month ago, price was at $5.96 per bushel.

00;18;35;10 – 00;19;04;05
Riley Smith
That’s up $0.18 year agos price was at $6.40 per bushel. That’s down $0.26 December 24 Cotton is at $0.69 per pound. A month ago was at $0.69 per pound. There’s no difference. No change. A year agos price was at $0.88 per pound. That’s down $0.19 per pound weekly U.S. average. Peanuts is at $504 per ton. Month agos price is at $528 per ton.

00;19;04;05 – 00;19;35;16
Riley Smith
That’s down $24 a year agos price is at $510 per ton. That’s down $6. That’s yours commodity futures prices this week. Your input prices this week urea $465 per ton UAN. That’s 32-0-0 shows at $400 per ton. DAP is at $720 per ton. Potash is at $420 per ton, AG lime at $60 per ton, and your diesel price weeks at $2.37 per gallon .

00;19;35;19 – 00;20;00;15
Riley Smith
Your Mississippi River level this week at Memphis, Tennessee. The river at current river levels at -7.9. Year ago. And this may be updated in the newsletter since we are doing it doing this recording on Thursday, I’m looking at the predicted river level. So after this rainfall, it may be adjusted, for the current river level, but a year ago was at -9.39ft.

00;20;00;18 – 00;20;14;10
Riley Smith
Want to thank you all again for listening to another episode of Morning Coffee and AG Markets, and we hope you enjoyed your morning cup of Joe. Enjoy the rest of your workweek. Other than that, we’ll catch you on the flip flop. Bye bye. Now.