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well good morning welcome i'm university of illinois extension's todd gleason farm broadcaster here on campus with another in our winter webinar series from the farm doc team today final look at the commodity title and crop insurance decisions will be joined by nick paulson gary schnitke and bruce sharik to talk about some of those decisions i took a quick look at the powerpoint gary i believe how we're going to go through the arkhan plc decisions first uh just a reminder that if you do have questions that you're going to want to put those in the question box and we'll get them answered along the way actually we're going to start out with market prices we would like to thank our sponsors for the day as well they include tiaa the center for farmland research that's at farmland.illinois.edu and is housed right here in the college of agricultural consumer and environmental sciences com peer financial thank you so much farm credit illinois grow mark the illinois corn growers association and the illinois soybean association so market prices the commodity titles and a whole bunch more today so let's begin i think gary is it starting with you on crop insurance acronyms or somebody else for the day oh well nickel started off here oh i get to talk about acronyms well um good morning everybody jim uh jim always reminds us that not necessarily everybody listening always knows exactly what all these acronyms stand for and we can get lost in a lot of them so um on the crop insurance side of things we'll be referring to the the combo product policies uh revenue protection revenue protection with the harvest price exclusion and yield protection as the rp rp hpe and yp acronyms then we also have the um area planned version of those products as well so arp arp hpe and ayp and then we have the the supplemental programs uh eco being the new one this year that we'll also talk about uh so those are the enhanced coverage option eco the supplemental coverage option seo and then of course our commodity title acronyms that we've got the the plc and arc plc and arc program options there with with uh county and individual coverage versions of those so there is our our acronym introduction so first topic today is market prices so we've seen a rally in markets uh going back to last august so things are a lot different right now than we thought they might be a year ago for sure um and what that means for uh crop insurance uh guarantees is that uh we've got a higher projected price for for the commodities we'll be talking about today than we've had in a number of years so uh the price discovery period ended uh with with the end of february uh so on monday the projected price for corn was announced at 4.58 cents per bushel again that's the highest we've had um since uh since since 2014. um compare that with the projected price last year of 388 and if you're looking at a 200 bushel aph yield you can see that that's over a hundred dollar difference in in the level of revenue that you might guarantee within with an 80 coverage level so significant increase in the uh guarantees that you can get at different coverage levels with with crop insurance because of the price side um the other factor that's at play here and we'll talk about how premiums are higher this year the other factor beyond prices driving that is we're also seeing higher volatility factors so the last three years we've been around 15 percent or right at 15 percent for corn uh this year it's at 23 again levels we haven't seen um since uh since we were back in the high price era 2012 2013 um and then that volatility measure is a measure of the possible uh prices we might expect the variation we might expect around that 458 average and so with higher volatility comes more potential variability and um and uh and that's also going to drive an increased cost of cost to insure across across the uh particularly for the for the revenue products that that cover price risk as well um so you know again both that price projected price and volatility effect are going to tend to increase premiums uh for the for a given situation for the same policy so again if we're comparing things back to last year's projected price and volatility numbers you can see here just the difference in what the same rp policy would cost you this year versus last year uh basically doubling the premium at the 85 percent level and 80 level and similar increases at some of the lower uh coverage levels that you see there on the charts as well uh similar story on the soybean side of things so again a projected price level of 1187 this year compared to 917 last year again if we're looking at uh just an example of a 60 bushel uh trend adjusted aph at the 80 coverage level that effect alone would would increase your guarantee on an 80 uh revenue product from from 440 last year to 569 just completely driven by that increase in the projected price um similar on the on the volatility side of things for soybeans we've got a 19 volatility factor this year relative to 12 last year and and lower levels we've had more recently so both of these factors are going to drive increases in soybean products policy premiums and so i think on our next slide we've got oh going in to market your average prices so similar to what we've seen with futures markets our market your average prices are also up relative to what we've had the last few years um current projections now uh from usda 430 for the 2020 year market price 11 15 for beans and five dollars for wheat and then looking ahead for 2021 usda had their ag outlook conference last last week or the week before and they released estimates uh for the 2021 marketing year of 420 for corn 1125 for beans 550 for wheat so these market year average prices are up as well um these are the prices that are used for the commodity programs arkan plc that we'll we'll talk about this morning as well um so insurance prices are up market your average prices are up that's increasing uh the guarantees and costs of insurance for arkham plc that's going to tend to uh reduce the likelihood of receiving payments and the potential size of payments um just based on how those those programs are designed all right so arc and plc we got a poll question todd do you want to you want to run the poll question well yeah by the way we just had a question here what caused the rapid drop in prices from 2014 to 2015. my answer to that would be two things uh one we stopped seeing the ethanol build in corn so we've reached a plateau of corn use and ethanol and we began seeing above average yields every year so since 2013 if you're looking at illinois you're looking and pretty much all over the over the us and the world we haven't had a yield sharp fall is the revenue guarantee real it is real the one thing i would say about the revenue guarantee is it's based on a futures price so uh cash prices would be would be generally lower if you're looking at typical basis but it is a real guarantee it's calculated with a projected price futures price and the harvest price will also be taken to the projected price so so here are the answers 21 20 21 decisions uh 57 say gary that they've already made this decision and 43 percent say they have not i guess 57 percent of the people that have responded want to make sure that they that your decision matches their decision there's 43 that were just like my students that said they hadn't started their paper yet let's do this i'm sure local regional fsa offices would like to see a like to see that number a little bit smaller on the no decision yet all right so we've we've talked about this a number of times uh throughout the the late winter and into the early spring here i guess it's technically not spring yet but um the arc plc decision deadline is coming up very quickly now on march 15th and just like last year and in in years earlier uh prior to that um since really the 2014 farm bill the the programs that we're looking at the names of the programs are our options our ag risk coverage program both uh county-based and individual farm yield-based options for arc and the price loss coverage program plc both the art county and plc programs are made at the commodity and fsa farm level so fsa farm units are where this decision is made and you can split the decision within a unit across the base that exists for the commodities you have on that unit so you can do mixing and matching arc individual if you do elect it it is going to pull in all of the base acres for that crop in the county um that is in the state excuse me if you're farming across multiple counties it pulls in everything across the state um all those all the the the acres in in base in that crop so arc individuals uh more of a more of a crop level decision whereas we've got the fsa unit and crop mix that that provides some flexibility with art county and plc decisions by program so again reminders um we've got an effective market price for for the 2021 year of 370 for corn 840 for beans 550 for wheat that is what the plc program will guarantee on the marketing year average prices fall below that falling below that for the 2021 marketing year will trigger plc payments on the arc side of things it's it's obviously a revenue program so you're going to have a county and or a farm yield involved in calculations but on the price side the benchmark price that goes into the to the revenue guarantee calculation for your program is going to be 370 for corn 550 for wheat same as the reference prices effective reference prices and then soybeans it's 8.95 slightly above the effective plc reference price uh comparing those to market prices 21 2021 forecasts uh latest estimates on those 420 for corn 1125 for beans 550 for wheat so for corn and soybeans expected market prices uh above in the case of soybeans well above the effective reference price for plc and the arc benchmarks for wheat coming in right at the right at the same level so if you don't listen anything else we say about arc and plc in the next few minutes i think we're kind of at the point where our suggested choices are leaning towards plc on corn for most situations uh soybeans is really more of a toss-up and and probably really depends on on more individual situations and then we'd be we'd be leaning uh probably more heavily towards plc maybe the easiest decision of the three for most situations on wheat now you know even for corn there are situations where you know you could make arguments in in favor of our county um i think the one point we would emphasize here is just to provide maybe the most flexibility possible given where we're at with market prices and price expectations moving forward is that you know choosing plc the one one decision factor may be that it does leave you eligible to use the supplemental coverage option whereas if you choose one of the arc options those acres could not be uh could not use the the supplemental coverage option on the on the insurance side of things so you know one more thing that that might might might push you towards plc for for any or all three of these crops um as a reminder of how these programs work um you know plc is is a is a is a fixed price coverage program so if the market your average price falls below the effective reference price that payment rate is made on your plc yield which is going to vary by commodity across your fsa farm units and you receive that payment on 85 of your base acres plc payments are maxed out if uh if and when prices uh get down to loan rate levels hopefully we're not looking at likely scenarios they're seeing 220 corn 620 beans or 338 wheat but there is a there is a technically a cap on on plc payments payment rates that can be received again on the market your average price this is a different price than we'll be talking about for crop insurance this is a market year average and the time period over which that is measured is also much different than what we're talking about for crop insurance for 2021. this national price the marketing year for corn and beans goes from september through august so we have not even started the september or the 2021 marketing year yet that will not begin until september of this year and it will run through august of 2022. uh for wheat we are in the 2021 marketing year that started in june um or excuse me it starts in june so we're still not in 2021 it starts in june it starts earlier and that will go through may of um of 2022. all right effective reference price um so again this is what is covered in that plc program for 2021 the relevant figures are 370 for corn 840 for beans 550 for wheat um technically again this effective reference price can move um there is a minimum reference price to find for each crop it can come up if we do have market prices over a five year period that have an olympic average above above that uh or 85 percent of the olympic average above that we are not in a situation where that's going to be relevant for 2021 and will likely not be relevant for the rest of this farm bill we'd have to see significant increases in prices for that to even be mathematically possible at this point um increases above even what we've seen and so 370 840 and 550 are the are the figures that are relevant um you know at least for the 2021 decision which is what we need to be worried about here in the next couple of weeks art county again is a revenue based program it guarantees 86 percent of a benchmark revenue that is measured at the county level that benchmark revenue uses uh the arc benchmark prices that we referred to on the a couple slides back uh so for corn again that was that was 370 for beans it was 8.95 for wheat it was 550 and then your benchmark yield is going to vary by county this is going to be based on fsa yield data an olympic average of a five year period leading into uh the current year for 2021 we'd be looking at uh what 2014 through 2019 2015 through 2019 would that be the it's five right yeah 2015 through 2019 would be the five years that matter um and the olympic average of the the product of those numbers 86 of that is the is the guarantee for ark county all right these are some snapshots of some of the payment scenario tables that are now included in the excel spreadsheet version of our arc plc calculator that's available on the farmdoc website and so what we're looking at here is plc payment scenarios um across a range of prices from 275 to 525 yields from 302 down to 152. um and you can see here that it takes pretty low prices to start triggering payments we need to get prices below 370. so if we looked at a price situation in 2021 at 350 for this case a let's see what's our plc yield is 185 we'd be looking at a plc payment of around 30 per acre increasing to 70 at 325 and larger payments at some of those uh much lower price levels uh you know again the key thing with plc is you need a price below 370 for corn to trigger a payment uh if we look at kind of the same setup for art county same range of prices same range of yields this is an example for an art county situation in macon county illinois macon county has a benchmark yield of just under 227 bushels per acre for 2021. couple that what the benchmark price of 370 gives you a guarantee of 700 and just under 722 revenue um here we see uh kind of a different range of payment scenarios so there could be payments triggered at prices even exceeding four dollars if we see very low yields in the county um or obviously a combination of low yields and prices would be looking at payments as high as 71 dollars per acre which is where uh the payment cap is hit for our county uh uh in macon county um and then here we're kind of putting the two comparisons together so the areas in in red are um i guess the the types of situations where you might see art county trigger a larger payment than plc so kind of in that range of prices from 325 upwards of 450 but you know relatively low yields uh relative to what we would expect on average in macon county those are the the combination of price and yield outcomes where art county might might trigger a larger payment all right and then uh we also wanted to highlight some of the results from the uh the web-based uh stochastic uh calculator that we also provide to compare art county and plc and so this is another ool that's available uh through through uh either the farmdoc or farmdoc daily site and you can do some analysis here it's got actual payments that were received for 2019 projections still for 2020 because we're not done with the marketing year yet we we don't have final yields and then projections for 2021 uh so here again if we're looking at macon county um you know we've got expected payment levels slightly larger for plc for corn in this case um and the likelihood of payments there you can interpret those as there's maybe a a one in three chance of a plc payment uh being triggered for plc this year uh that meaning a one in three chance of seeing a marquee in your average price below that 370 level um or uh maybe a one in ten or a little bit better than one in 10 chance of a price and yield combination that would trigger an art county payment uh soybeans it's um you know we've got a market your average price projected well above the uh the effective reference price um so we have to see prices below um below 8.40 to trigger a payment here so um in the in this range of scenarios there'd be no plc support if we look at arc county um again some combination of low prices or low yields or both uh could trigger payments here um and then if we uh take a look at our again the the online calculator uh the situation for plc is uh you know virtually zero chance of plc payments for 2020 but looking ahead to the to the year we're making the decision on not only a very low likelihood of conditions where we'd see support from either program but low expected uh payment levels uh coming from those programs as well um and then for wheat again wheat is kind of the the one that is in a bit different situation we've got projected prices that are basically right at uh the arc benchmark and the the reference price or the effective reference for price for plc so we see kind of a more likely range of outcomes that might trigger payments here we're just looking at the comparison between plc and art county so the areas in green in this table um are are are outcomes price and yield combinations that would result in plc support exceeding what our county would trigger and those outcomes in red so again higher prices but lower yields would be situations that would result in art county triggering more support so again you know easier decision i think on the on the wheat side of things uh higher likelihood of plc based on what we think could could happen in the coming year and that's reflected here in the in the online calculator as well um so over an 80 chance four and five chance that that plc would trigger a payment um versus more of a coin flip situation whether we'd see price and yield combinations that might trigger um an art county payment arc i see gary do you want to say anything about arc i see this has been your kind of your your baby of the last uh so i i guys see we have a little different situation than last year we don't know what our yields are and we don't know if we're prevent plant here's what i would suggest if you if you have a farm it might be a good idea that to put one farm or maybe two in arc i see and the reason why only one is because the more farms you put in here they they aggregate them together and generally speaking the more farms you get the more they even out the yields pick the farm with the most variable yields and if you have a farm that has a history of prevent plant it's a river bottom ground and it has total prevent plant that is a good choice for our arc i see so yeah again again the big difference with arc i see this year you know leading into the when these programs were created arc i see we didn't think made a lot of sense in most situations last year was different just because of the timing of the decision and we knew what had already happened in 2019 when we were making the decision about it that is not the case this year so we are making a decision about 2021 um which we're just starting the crop year and we're we're you know three or four months away from the marketing year starting on the price side and so it's it's a much different situation this year than we were in last year where arc i see you kind of knew that it was a good choice on some farms already because we had the widespread prevent plan experience in 2019 that it occurred so we've got another poll for you before we and now we're switching gears to crop insurance so we were just curious are you thinking about revising your crop insurance decisions in 2021 from your 2020 level so um and actually you could do a number of these things but uh we decided not to give you too many options so doing more than one pic pic pick the one that you want to tell us about uh this is an unscientific poll so anyway we'll share the results but you could add our yeah you could add eco and be which is the new product this year and also lowering and raising coverage levels but uh got to pick one so make your choice if you're doing more than one most important to you i suppose right gary what's that whichever one they think is the most important part of their sis yeah whichever you think is the most important part of your decision so ah and this isn't actually all that surprising here we're showing the results of our poll uh i think we're showing ourselves here's what you said 50 4 are not changing thirteen percent add cdco that's actually we're coming down in probability from our earlier uh lowering our coverage levels on rp 24 raising is nine percent so that'll give you a feel for what people are thinking might be a sticker shock issue sticker shot i think didn't i ask you gary the about history of how much producers are willing to pay and the no would be going right along with that history right yeah so there's research and we'll come back to that here in a little minute most farmers appear to want to pay something in the 15 ish 15 if you get over 20 there's a lot of resistance i'd say that so all right well we'll see in a bit all right bruce is going to take us through our tools yep thanks gary and good morning everyone or afternoon to those of you in the eastern time zone i guess i want to walk through some of the tools that are now live given that we have crossed the end point of the determination of projected prices and nick gave a nice presentation of the history of those and again it's it's the case that we are way up prices are way up compared to even the projected price that what happens is that during the month of february futures prices trended up so we ended up with an average price that was below the actual price that we're facing and that substantially changes the the actual question or the the determination of what you should do whoops i guess we're both oops you take it away we're all three in studio today and it's uh we we can all move our own slides i guess yeah but what i want to do is kind of like we did a couple weeks ago on a different webinar i want to talk a little bit about the price distribution tools so that you can see where it does feed into the crop insurance decision it's actually pretty critical um if prices were you know two dollars higher still now but your insurance price were two dollars lower of course it creates a lower effective coverage level but you're really getting a lot of insurance for that a lot of money so we're kind of kind of try to demystify this question about what to do the prices are really high volatilities are really high but coverage values are also really high uh the location of the tool was shown on the previous slide and i'm just going to demo this one really really quickly the price distribution tool this one's live all the time on the web i did this yesterday to get the slides ready um and prices are about 20 cents above last i checked is around 478 for corn and 12 36 12 37 uh for soybeans so we're 20 cents above we're roughly 20 cents above the actual projected prices of the year and so our effective coverage in a sense is lower than the elected coverage you elect 85 percent you get 85 percent of 458 but prices are really 475. you could undertake some marketing actions to begin to lock that in of course volatility likewise is high which means the spread in those distributions is extreme and the likelihood of getting really high or to some degree lower prices although they're not symmetric distributions we are really spread out this year so there's a great deal more uncertainty about the crop decision crop insurance decision i just showed the soybeans here corn looks very similar but of course at a different scale moving on to the crop insurance payment evaluator this is a kind of a tool that we built through time to try to look at a case farm in every single county for corn and soybeans both by basic options basic and enterprise unit level that overlays the actual underlying market conditions with the offer of insurance that rma provides for the next couple weeks here everything has to be done by march 15th as you know we'll probably have around 120 billion in liability this year as our guests at this point maybe a little higher than that in fact because the prices are up so high so it's a pretty critical year to get insurance right so what this tool lets you do is go in and pick your state we have most of the states in the midwest that grow corn represented a couple others on any point any point in time most almost every single county is listed chose to do one in the northern part of illinois this time and one in the southern part instead of just focusing on mclean champagne pie and the christian sangamon county right in the middle but the the state is kind of organized where higher yields occur at the top of the state lower yields and higher variability yields at the lower part of the state and so the patterns i think can be understood by looking at a couple of different points in the state and kind of in your mind filling in in between or just go online and pick your own your actual own county again illinois indiana iowa minnesota south dakota we have most of the states that you probably are concerned about for electing corn and soybean crop insurance in this case there's a little bit of information to choose state county crop and acres uh does affect the difference between enterprise and basic combat um we'll show you that in just a minute the first thing it does is give you case farm information when you hit run the insurance evaluator and i want to kind of focus on the case farm information this is a high producing county about 200 bushel average yield and the farm yield and the county yield those two little sections clear over on the right are really important thanks jim to sort of see how the difference in farm risk and county risk materialize so a farm of course has more variability than the county because you have the effect of sort of evening out across all the farms but we would say 30 percent of the years given an average of 19803 30 of the years is 182.4 these seem overly precise and they are but it's it's the way we've done the estimates so that they stay exactly on the right numbers in total county yields of course are not as variable in total so we would expect that 30 percent of the time the county below 186 all the way down to we'll go to what we'll call a five percent var or 137 62 means five percent of your years when you have a 198 average you would expect 138 effectively or lower um trend adjusted yield and county ta rate and pharmaph are to show uh the other elements that you're probably used to seeing on your agent's sign up sheet when you go in and do this and also then the current futures price at 474 this was yesterday uh you know quite a bit above the 458 but what it means is we're simulating the revenue based on the actual underlying futures price even though the insurance is tied to the 458 underlying price we have a question coming in we'll kind of hold off on that until we get to the end uh moving on the the evaluator has a bunch of sections and we'll go through this in a couple of ways to kind of show the layout and then zoom in on the actual values but they are presented when you click this for all possibilities and so when gary said in the poll we're only asking you for four questions the average farmer has around 150 to 160 different combinations of coverage level product type and supplemental options at this point in time so it's become an absolutely bizarre number of things you can choose so we've tried to organize it by coverage level 50 to 85 percent 50 cat or 50 buy-up all the way up to 85 for the individual level policies and the county products from 70 to 90. left-hand side revenue protection middle revenue protection without the harvest price option in other words if prices go up between now and october you get the higher guarantee under the federal crop programs for the average prices during october of the december futures contract for corn in the november for soybeans that's of course incredibly valuable and much more valuable now because the starting futures prices are so far above the pp prices that the likelihood of hp triggering is actually quite high that means this year the products that have harvest price exclusion are probably much less attractive to most people and then yield protection on the very far right yp essentially just the yield variability that determines the payoff times the price fixed price and down the county level products instead again i'm going to spend the most time on this slide and then kind of zoom through some of the results but the orientation i believe is fairly important to get right so the the elements within each of the shaded groupings if you will give you the premiums per acre so in this case if you focus on 85 rp you would see for kane county it would be a 37.89 premium per acre but the average payments would be 4426 meaning that on average you earned back 637 per year by buying this insurance now why does it pay back more than it costs you uh i know we would all like our homeowners and house insurance and life insurance and everything else to work this way it doesn't but that's because of these subsidy rates you see uh from 50 to 85 if you have optional units you have a declining uh subsidy rate the part that the government pays for declines from 67 to 38 on enterprise declines from 80 down to 53 the enterprise always carries a higher always carries a higher subsidy rate uh now it's it does get confused i'll have to put a little bit of a stake in the ground here i do find that it gets confused in the popular press to say that the government automatically pays this fraction of the premium this is the subsidy rate and if the loss rate in other words if it was sort of a mutualized insurance idea and the government paid back out exactly as much as it took in then the subsidy rate would be a direct translation but think about it this way if i charged you twice as much for insurance as it was worth on average and then paid half your premium you don't actually earn money vice versa if i charge you less than it's worth and then subsidize your premium the subsidy rate actually understates the effective subsidy i know that's a lot to kind of take in and where we're all kind of you know drinking from the fire hose in this two week period got to make all these decisions but generally enterprise units will have a better performance financially just based on the higher subsidy rate even though that does require it does mitigate some of the volatility or the individual unit payments that you might get again continuing across the columns we have the premiums the average payments the payment frequency net cost and average gross revenue with insurance that's an important one the average gross revenue is with insurance on average how much would you get and then we have to think about how variable it is around that value so again we'll go down and look at the actual outcomes here in a second at this basic level of insurance let's just focus in on this one um let's focus on the 85 row again and just say 37 premium 44 on average and about 36 percent of the time you get a payment and on average is 637 more than over all these simulated outcomes with an average gross revenue of 860 dollars breaker now you might care whether that could go all the way down to 850 and or up to 870 or if it could go down to zero or up to 900. again thanks jim helping helping us steer here while we're all on different devices um the question came in how many years were used to get the data um the equivalent of millions actually so what we do is we fit to a continuous distribution using a fairly complex system and it's not just an historic evaluation this has to be re-um calibrated every year because the underlying price distribution changes every year and the relationship between the pp the projected price and the starting price changes there would not be any number of years in history that we could average across to get to these numbers so it's a it's a much larger scale effort than that we run these uh in conjunction with the national center for super computing applications um and do this in a complete i think as complete a way as possible moving on want to look at the county level products really quickly one of the things you'll notice is they often pay back a lot more than the individual farm products they pay about the same frequency one and three one in four times but the premiums are extremely high and when they pay they pay a lot of money but they don't always pay in the year that you need revenue so the way they work you could have a terrible year but your county would be have a good year and you don't get paid or your county can have a bad year but you happen to be in the corner of the county to got the rain or have you know good land in a certain way you didn't need the payment so they pay more on average and we've discovered this through time and it's true but they don't necessarily have much correlation to the actual revenue that you're trying to insure so depending on your risk tolerance they may or may not make sense moving on just flipping over to enterprise i want to look at this one now because this is kind of the one i like to focus on anyhow in this case what you see is the the premiums a bit less the payment's a little higher and the net cost of insurance being negative is a good thing that means it's paying you back more than you paid and the average gross revenue is quite a bit higher as well so you know one of the things that we always say is anytime you bet against the farmer you've admitted that you've lost already farmers already have figured out what the best coverage is through time and highly highly focused on rp and at the higher coverage levels the real question i think this year really is the kind of sticker shock as nick put it whether or not the high prices dissuade you from the highest coverage level highest um sort of protection levels continuing moving on again we have a lot of slides to get through today sorry that we've sort of uh all submitted more than a third of our allotted time here and we'll speed through them and have all the slides available for your download if you wish afterward anyhow county level products again very high premium pretty high payment rates a little bit lower gross revenue protection and you'll see that coming up in a picture so i want to remind you of a couple of things too the county products as i said have higher premiums and they pay back more than they cost but generally don't do as good of a job at reducing risk and have a good picture and a a great big grid that we'll walk through in a second very very quickly just to kind of hammer home that point but sometimes you have to use them when you don't have good aph information or if your aph you think is somewhat inconsistent with your actual yield risk because of changing footprints of your farming operation through time and changing control or lease structures through time uh county yield variability likewise as we said and could see could be seen on the setup page is much lower so if you have a single farm you end up with this idea of basis variability or your yields aren't going to match up with the counties very well down to jefferson just focus on soybeans great question charts look a lot like voodoo how can you net more but pay more premium than average payments it really does work this way if you pay thirty dollars for premium but on average that policy pays you forty dollars back that's like a negative ten dollars per year on average now again this is this is um really important to look forward and we don't know what's going to happen in the summer we're going to have great yields and good grain are we going to have a drought we don't know what's going to happen in the fall prices are we going to keep shipping soybeans to china and completely run out or what so what we have done is come up with the probability weighted outcomes the best estimate that one could form of these final numbers and because the government does subsidize the premiums and they try to get it to the point that it's actually fair or on average they net out they take in all the money on premiums pay that money basically back out and then pay part of the farmers cost of insurance the reason for this again not to diverge too far from script but crop insurance is very counter-cyclical and so think about 2012 when people had fairly good crop insurance and one of the biggest droughts we've had maybe in 100 years there was no real demand for ad hoc disaster payments because crop insurance already worked without crop insurance you end up with much more haphazard payment systems under generally disastrous style assistance and they don't it doesn't work as well to help farmers who actually need it if you just kind of scatter them out randomly down to jefferson county focusing on soybeans premium rates in the south premium rates by the way not necessarily premiums for premium rates are the fraction of the liability that you guaranteed that you have to pay as the premium go up where the county yields are more variable and if the county yields are lower but more variable the premium rate can be higher but the premiums adjust down for the amount of coverage you get so again in this case farm in jefferson county we have about a 43 bushel average yield price is 12 23 yesterday again up a little bit today pretty good actually today so the expected revenue is even climbing further still but the farm yield and county yield risk you can see the differences are not as great in soybeans because they start at lower numbers and the uh actual variability as a fraction of the mean is not as great as it is with corn moving into the county level products we'll just skip right down to the answer uh you see in this particular county uh soybean insurance of course farmers have proven that they're incredibly smart don't tend to buy it as high of a coverage level the net cost of insurance in these cases is a little bit positive not too much we'll get the yeah we'll go to the line graphs in just again thank you um so i'm reading questions off one of the screens and looking at another screen and seeing my colleagues in studio here pointing at things and trying to keep up here uh the 488 491 higher insurance in this case actually doesn't result in the highest expected gross revenue and again if we see anything we see that election levels for soybeans do tend to be a little bit lower so again these are outcomes that we think are incredibly predictable so enterprise pays a little bit better you'll see those are negative numbers and again negative cost uh for net cost breaker we might take a while to make sure that that feels natural that a negative number is a good thing it just means it's paying you back more than you spent your payments on average are higher than your premiums on average again these are all available online uh so you can kind of go through these uh for your own situation just wanted to give kind of an orienting high-level flyby on all the elements that you'll discover when you get into that again uh just to compare revenue risk we have two ways of doing this we have a big grid that we can look up the probability of hat being at or below a certain revenue level or coming up i'll switch straight to the graphs because i think they're a bit more intuitive once you see how they work to understand which provide the best risk protection so on this one we're going back up to kane county corn and the graph at the bottom is really critical to understand what we want is more revenue more revenue occurs to the right what we want is a higher probability of getting to that revenue so i'm going to focus on the blue line first which is no insurance and what we've done is summarized all of the risk reduction uh sort of features of the different insurance products and put them on a single graph so the blue line no insurance says that look at the 10 probability line on the left 10 of the time you're going to end up with less than 575 dollars of revenue and that's about right and 50 of the time you're going to end up with about 8 20. so you can just kind of look at the probability of times work across horizontally till you hit the blue and you'll see that every now and then you just have a disaster a one in a hundred or a ten hundred or five and a hundred is down in the four hundreds that's a real bad outcome and then if you put insurance what happens is the ones that pay back more push your revenue to the right so the probabilities that move to the right are a good thing but you also want to cut off as much of the lower tail as possible so rp85 and rp hp e85 almost lie on top of each other you'll see but it's the steepest graph that kind of cuts off the tail risk the easy way to think about this is to say with this insurance no insurance would have at this target revenue i typed in 670 671 rounded two on the graph because it snaps to the grid on the graph so 671 without insurance at all 21 of the time you would end up with the revenue below that so one in five times you'd be under 671. with rp you have a zero chance there's the question about um are these revenue guarantees real yes they are there's still some basis risk in the determination of your on-farm final revenue but the government has never defaulted on an insurance product and as you move further down the list here uh with just yp or yield protection about a one and a little less than one and five seventeen percent with arp 90 about a one in 20 arp hbo and ayp you see the different numbers so the point the takeaway point really is that the rp insurance provides the best cutoff of the left-hand tail or the reduction in catastrophic revenue risk of any of the products that are available the the last couple things just to point out that the grid is also provided in number form if you prefer that over the chart lower coverage levels may be less expensive but they also provide a lot less protection so one of the questions early on are you going to drop your coverage because the price well you you get less you kind of get what you pay for in insurance if you do drop the coverage you don't have this valuable protection and county products are a whole lot less correlated with your own crop revenue but if you simply don't care about the revenue you have in any given year some folks use those because over the long run they kind of mutualize their own products through time uh last points and i'll hand it over to gary um this is a strange year projected prices are quite a bit higher than they have been for quite a while so we saw those graphs the the coverage that we get from crop insurance this year is substantially higher than it has been since about 2013 2014 in many cases but the price pattern that resulted in those higher averages was an increasing price during the month of february so the actual starting prices that you are exposed to the expected price you're going to get for a bushel of something you grow is already above the insured level about a 50 chance that hp will be higher or lower than the numbers we have now historically we've discovered that futures prices are extremely good predictors on average excuse me so we have a different starting point than just being able to point out the insurance value and say that's our guarantee we have a marketing option to lock in higher prices now and we have a much higher likelihood of the hp option embedded in rp style insurance to trigger sales closing date march 15th if we have a massive move in the uh futures prices between today and march 15th uh soybeans you know keep bouncing up and pulling back a little and bouncing around but we're kind of moving around at this point now um i think if they don't come down you're going to have a really good year for making a decision probably have to kind of squint a little bit and close your eyes and make the decision to pay more but it's really good coverage this year and of course our final disclaimer you always have to talk to real qualified agent we're not allowed to sell and so we have a zero commission on all the advice we've given you today so see a crop insurance agent before making your final decision all right we're going to do our last section which talks about managing premiums uh to do that let's start out with a pro here how much are you going to spend this year this is what we're not asking you what you want to spend but what you're willing to spend this year and you could get something over in all these ranges so if you would take our poll and then we'll we'll show you what what uh what uh what what are your alternatives and we're gonna show you some of the alternatives for northern and central illinois here our pole has about uh so all right here's our poll results and over 20 are over 30 20 54 in the 25 each range 15 percent 20 in the 15 each range and 7 less than 10. all right so here we go so if we're looking at premiums this year again i'm we're going to focus moment mainly in those rp policies again that's where we see most of the people 93 percent and as you can see 841 and 3133 are in that 85 and 80 percent coverage levels there is one percent margin protection we had a question about margin protection if you signed up for that in september you can add a uh put an rp policy on that top of that this year you might want to do that because your projected price used on margin protection is considerably lower than it was now all right so we again are going to focus on these rp policies and you'll see in each one of these that we're going to look at rp policies and then add to it scl and ecl so an aco is our new policy this year and those eco and seo you can add a county level coverage on top of the rp policy if we add those uh policies up there we are going to increase the cost now we're going to look at this from a central and northern illinois perspective you would have to be lowering coverage levels if you were in southern illinois probably about 10 percent to be talking about the same sort of items we're looking at 25 issues per acre farmer premium and you're using rp you got three alternatives rp at the enterprise level if you add basic and optional units you're going to add more to that cost so we're looking at these the examples we're showing are enterprise levels you can add sco to it 86 to 85 percent and then you can also option three for 25 each premium is to drop your coverage level from rp 85 to rp 80 and add ecl 90 so those are your three for 25-ish 15-ish will get you rp 80 percent at other price levels and you can add seo to it and you're not concerned about premium do it all rp 85 sco and eco we'll show you all those starting out first 25 each premium and just to give you a feel we're going to do this run this example mclean county uh 85 rp 2254 um and again this was with with a 100 acre enterprise unit 2254 that's 10 or so dollars higher than last year we can add ec or s excuse me seo seo supplemental coverage over option 86 to the coverage level of the rp policy and those premiums go up as you lower the rp policy because you're providing more county ban there so there's your total and then we can add eco on top of any of those eco 90 to 86 percent is 10.93 and 95 to 86 percent so eco 95 to 86 29 dollars and 20 cents and and those will change with your aph shield by the way because it because the payout varies by aph shield but you can add those to any of those policies any of those policies so let's go here 25 each premium rp 85 it will provide a minimum guarantee of 7.79 you saw and it will over time or corn have a net cost below zero so where you're over time you will make money you probably need a drought year for that to happen every now and then there's a potential for a 428 per acre prevent plant payment and over time premium premium payments will exceed the farmer pay premium and you need a drought year uh the cost of that 23.54 all right there's option one good option if and again you'll pay 10 more for it if you were happy with 85 last year good place to be you have a hundred dollars more in minimum guarantee option two adds seo coverage to that for 86 to 85 and we'll add 1.38 38 cents of of premium to that here's what sco does in this case it takes county coverage available from 86 percent to if you bought 85 it's a one percent range again you have to select rp rp hp and yp and it and the coverage mimics if you selected rp it's going to have a guarantee increase in it if you don't it won't all right here's what seo in this case would pay you pay 138 and if the harvest price is below the projected price you'll get a nine dollar payment in the situations you see listed there you can get higher and at a 550 price all the way over to the the right hand side of the screen you could get 11 payment over time we would expect 40 percent of the years to make payments so 40 and over time you would expect to make about have an average payment of 347 and again there's a 65 subsidy associated with sco so um 138 gets you that coverage so a little bit more coverage there and over time um two dollars all right there was option we talked about option one added seo the other option that sort of gets you the 25 each premium is to go rp80 so you were lowering the rp product we lower our minimum guarantee on our farm level from 778 to 733 we lower our potential prevent plant payment from 408 403 this is with the standard adjustment again over time premiums will exceed farmer pay premiums need drought years to happen and we'll have county coverage from 90 to 80 percent so we'll get the county coverage and our premium will be a bit higher 28.76 and that would include their lowering our our rp premium from 23 54 to 11 adding a seo which now goes up in cost to 651 and our eco of 1093 that gets us to this payout this is for seo this is the sco 55 per acre is the maximum payment when we're below the projected price again 40 of the time you're paying 651 and you will get 16.37 on average that's the sco portion of it here's the ecl portion of it 50 of the time this eco we would estimate would make a payment at the time not 1093 expected payment of 1718. if you're looking at this compared to rp 85 this policy will probably pay more often but it's uh and it will pay at higher at a 90 county level but you're getting county level coverage in that 90 to 80 per band all right now let's go to 15 uh 15-ish premium you're going to be in a rp-80 situation in the in northern and central illinois and over time our premiums would be 11 32 we can add uh sco to it to get 1783 and that sco is going to do the same thing it did in the other example 1783. again adding sco you get sued from 1132 to 1783 unlimited budget rp 85 percent plus seo plus eco 95 uh you get the maximum payment over time we're going to see payments exceed that and now you're going to get county coverage from 95 to 80 and it's going to cost 54 so and here's what eco not payments at 95 uh does it has a maximum payment in this case of 85 it will pay in two-thirds of the years and you would expect over time to have a 46 dollar payment 29 of of premium put and 15 average over app but again one third of the time you're gonna pay uh 28 dollars for this 29 for this premium and get zero so there you go is it correct that rp payments get paid in december and you have to wait till june for eco and seo payments rp payments will be paid after after the harvest price is determined if it's a crop loss claim and you turn in your yield so yes you could be paid in december or november eco and seo will be paid in june um so but if you're looking at rpo ec on seo it comes down to a large extent to uh what you want to pay in premium if you're in that 25 ish range rp 85 with or without seo and rp 80 seo and ecl 90 percent will be in that range and in some cases it re really revolves around what you're concerned about you can either do 85 percent get more farm coverage or you could go 90 percent on the eco and get higher price and county revenue protection but you do give up time level protection so we appreciate your time and we have a few people we need to thank gary they include the tiaa center for farmland research compure financial illinois soybean association farm credit fs grown mark the illinois corn growers association and of course uh the department of agricultural and consumer economics along with the college of agricultural and consumer and environmental sciences are there questions carrie that you didn't get to that we should still answer for the day um [Music] let's see um actually we we have a quality loss of endorsement should a grower consider that yes and we don't know what the project got i'm sorry we don't have that number in front of us um right one of the things we'll mention is that we do have a upcoming one webinar next week our last one of the winner series budget yeah so folks can find that that's the fast tools webinar that's uh coming up next week a week from today it's the last one in the series if you're here you're already signed up for it so no worries on that end thanks for joining us by the way and don't forget to fill out the survey on your way out and that you can find the archive of this particular webinar up on the website soon enough at farm.daily.illinois.edu or at farmdoc.illinois.edu just look in the webinar sections for the archives we do appreciate you being with us thanks gary schnicke for being here bruce eric and nick paulson uh and on behalf of jim boltz who's behind the wheel there on campus i'm university of illinois extension's todd gleason i'd be glad to have you along with us for the ride today