Crop Insurance–What should Impact your Decision?

It’s crop insurance decision time again—are you prepared? It’s another year where the market is expected to provide low prices for corn and soybeans, which means you’ve been scrutinizing every expense and input cost for your operation as you prepare for your 2018 crop. Likely, your crop insurance decision has been no different. When it comes to insurance coverage, it might be tempting to drop your coverage level to save on your premium, but is this the best risk management decision for your operation? The GrainBridge Matrix can help make this decision easier by illustrating what crop insurance decision is best for your operation.

The reason crop insurance is purchased is to help limit risk exposure in the case of unforeseen circumstances that cause a change in yield and/or prices. However, a benefit many overlook when purchasing a higher coverage level is the confidence and ability to forward market your expected production up to that insurance level. Without insurance, or high enough coverage, you’re forced to be a conservative marketer knowing there’s always a chance of a crop failure and you don’t want to be stuck with contracts you can’t fulfill. In the six years from 2012 to 2017, 2012 was the only year where prices at harvest were higher than the spring price. When you consider this—isn’t it better to have the ability to market a majority of your production during the time of year with historically higher prices? While purchasing insurance coverage is a good first step in managing risk, be sure you’re taking advantage of what you’re buying by executing a marketing plan in conjunction with your crop insurance coverage.

Take a look at the scenarios below to see the impact that both the insurance coverage level you select and the level to which you forward market against that coverage can have on your bottom line. Since Revenue Protection (RP) crop insurance is the program used on over 90% of the crop acres insured in the corn belt, it’s the insurance program used in the example below.

Scenario Background:

You are farming 900 acres with an APH of 170 bushels/acre. You’ve decided to insure using RP, but are trying to determine if 60% coverage at $8/acre is worth the savings compared to 80% coverage at $27/acre. Assume the spring price (February average) for crop insurance is $3.90 in 2018. Since insurance is purchased to protect against the worst cases, let’s look at a potential scenario where the market falls $0.80 from February to harvest and your crop only produces 110 bushels/acre. See Figures 1-4 and Table 1 below.

Scenario 1: Using Revenue Protection (RP) with 60% coverage, projected spring price of $3.90 and forward marketing 10% of production at $3.70 cash. Premium for crop insurance = $8/acre. Est. Yield= 170. Breakeven= $3.2725/bu

Figure 1
Matrix1

Scenario 2: Using Revenue Protection (RP) with 60% coverage, projected spring price of $3.90 and forward marketing 60% of production at $3.70 cash. Premium for crop insurance = $8/acre. Est. Yield= 170. Breakeven= $3.2725/bu

Figure 2
Matrix2

Scenario 3: Using Revenue Protection (RP) with 80% coverage, projected spring price of $3.90 and forward marketing 10% of production at $3.70 cash. Premium for crop insurance = $27/acre. Est. Yield= 170. Breakeven= $3.3843/bu

Figure 3
Matrix3

Scenario 4: Using Revenue Protection (RP) with 80% coverage, projected spring price of $3.90 and forward marketing 80% of production at $3.70 cash. Premium for crop insurance = $27/acre. Est. Yield= 170. Breakeven= $3.3843/bu

Figure 4
Matrix4

Table 1: RP Coverage Scenarios
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In summary, whether investing in 60% coverage or 80% coverage, it was best to have forward marketed up to the coverage level. In the 60% coverage examples, you lost $65.24/acre less if you forward marketed 60% rather than forward selling only 10% of your expected crop.

While increasing your coverage to 80% and doing minimal forward selling was still better than the 60% coverage due to the higher indemnity payment received, the best case scenario by far, was to purchase the 80% coverage for a $27/acre premium and forward marketing to the coverage level. Taking advantage of the insurance coverage and limiting risk exposure allowed for a profit of $37.45/acre, where all the other cases resulted in a loss.

With historical data pointing to lower harvest prices than spring prices in 5 out of the last 6 years, I’d argue that spending the money for a higher insurance coverage level is money well spent.

 

It’s easy to run these scenarios in your GrainBridge account using the Matrix! Simply change a few variables to see how changes in your crop insurance coverage and forward marketed contracts will impact your bottom line.

RUN SCENARIOS ON MY OPERATION

Matrix Report in GrainBridge:

MatrixSummary

Questions?

Contact your GrainBridge provider or support@grainbridge.com.

GrainBridge 4.5 Release

GrainBridge is pleased to announce the release of GB 4.5 with several new enhancements, many of which have been requested by business clients and producers in the field. We hope you take the time to review these key functionalities and see how they might help you organize and manage your business more effectively. From all of us at GrainBridge, enjoy this winter season and don’t forget to take some time to prepare your production and marketing plans for 2018!

What-if Matrix
  • Incorporate marketing strategies into the Matrix including cash, futures and options positions. Learn what impact these strategies have on your overall business if markets move in your favor!
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  • Export to excel, save and/or print multiple strategies!
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Cash Document Attachment
  • Attaching any documentation to a cash transaction is now as simple as viewing the cash transaction and selecting the “Add a new file” at the bottom of the page.  Any type of files, including PDF’s, word documents, or images can be uploaded.
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Cash Section Improvements
  • New sort/filter options allow you to sort by the Futures Month column and by delivered or undelivered bushels
  • When managing “deliveries” of a cash transaction, the delivered column shows delivered bushels in GREEN, partial deliveries in YELLOW and undelivered bushels in RED
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Crop Insurance Override Entry
  • Prior to the projected price being established, you can enter a what-if projection to use for personal scenarios prior to the average price release.
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Print the Balance Sheet & Cash Flow Directly from GrainBridge
  • Two options are now available for printing the balance sheet and cash flow including:
    • Export to Excel to print
    • Print directly from GrainBridge in a formatted PDF version
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Risk Management Report Improvements
  • From the Reports section, select “summary” to provide only the bottom line estimates for each commodity.
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  • When managing multiple profiles (fields) for planning purposes, yet marketing the production as a whole, we now give you a weighted average of the percentage hedged, target price, and current revenue.
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Productive…or Profitable? Know your Breakeven by Field

By: Britany Seda, GrainBridge Account Manager
Which of your farms are the most profitable? I can venture to guess you know exactly which acres are your highest yielding. High yields are exciting to see on the combine monitor, but those high yielding fields may not be the ones providing the most to your bottom line. Each field rarely requires the same prescription for inputs, irrigation, dirt work, farm practices, etc. If you aren’t tracking your expenses by individual farm, you may be missing valuable information to help you make decisions on the fields you’re farming.  

If you rent ground, understanding your profitability by field is especially important this time of year as rent negotiations take place. For the last two years, some farmers have continued to rent at high levels in hopes the market would turn around and they could make it work. Rents have failed to lower in relation to the market in recent years, which has caught many in a hard place—either continue to rent at high levels and potentially lose money or refuse to pay the high rent and lose the ground to someone else who is willing to pay, leaving you without those acres if the market rallies. As banks scrutinize operations and you start feeling the impact of a couple of years of expensive ground and low prices, it’s time to determine exactly what you can pay for rent and still make a profit in the current market.  

Having hard numbers to provide your landlord on projected expenses and projected revenue on specific fields may be exactly what you need to renegotiate rent to a level you’re comfortable with—and able to be profitable at. Additionally, you should feel confident in how different market prices and yields will affect your bottom line. But how do you get this level of financial clarity? That’s where GrainBridge comes in—which is exactly what helped these producers go into their lease negotiation armed with the profitability information to make the right decision for their business.  

Click the following link to read the article: http://www.cornandsoybeandigest.com/precision-ag/improve-financial-clarity-farm.  

field profiles corn  

If you’re overwhelmed thinking about tracking your farm by individual field instead of by commodity, don’t be! GrainBridge makes it easy to set up your 2018 operation by farm, even if you previously had your 2017 profiles set up more broadly by commodity. The ‘Copy Expenses’ function is where you are going to save the most time, either setting up your operation from scratch or using it to bring in expenses from your 2017 profiles.

CALCULATE MY BREAKEVEN BY FIELD

View this article for instructions on how to set up your GrainBridge account by individual fields or contact your local GrainBridge provider or support@grainbridge.com.

Evaluating “Carry” in a strong production year may squeeze some profit out of a tight margin year!

The “Carry-Basis” feature within the GrainBridge cash section helps visualize what the potential value of carrying grain out to the summer months is worth. 

CaptureCarry2

For a quick visual in GrainBridge, select “add basis” levels for future delivery months to illustrate the bottom line value per bushel.  The carry from DEC 17 futures to SEPT 18 futures of $0.33 today plus a $0.25 potential gain in basis appreciation provides a total value of $0.58 per bushel.  A $0.58 gain against a harvest price of $3.00 today is a return of 20%.
 
Take some time to run your own scenarios and understand how you might benefit from carrying a percentage of your grain into the spring and summer months.  In the current Ag economy, every penny helps.  This could be your way of making a profit in a tight margin year!

Questions?

Contact your local GrainBridge provider or support@grainbridge.com.

Manage the stress and unpredictability of the commodity markets with the What-if Matrix

Will we get the acres planted? 

Will we plant more corn acres or fewer corn acres? 

Will Mother Nature help or hurt this crop during pollination? 

No one knows the answers to these questions, but to help relieve the anxiety, take advantage of the GrainBridge WHAT-IF MATRIX to understand how potential price swings might affect the profitability of your operation.  Preparing for the “unknowns” will give you confidence in making the right decision when executing a plan!

matrix

Connect the columns between the futures price and yield to view the net value per acre for your entire operation including, sold/unsold grain, gain/loss from futures, options and any potential indemnity payment (expressed with an umbrella).  At today’s price of $3.96 and a current yield estimate of 180.45 bushels, there is a $2.75 per acre gain above my target goal. Creating scenario’s for your operation is as simple as selecting:
  1. the commodity,
  2. price & yield increments,
  3. your crop insurance program,
  4. “Run Report”
Take the stress and anxiety out of the potential “unknowns” and run your own scenarios to help understand your potential risk exposure.

For questions about the “What if Matrix” tool, contact your local GrainBridge provider or support@grainbridge.com.

How will the Planting Intentions Report affect your bottom line?

The fireworks have just begun!  Understanding your potential risk exposure amidst the market reaction to the USDA planting intentions report can be beneficial to your bottom line.  The GrainBridge Platform What-if Analysis and Matrix Report help provide a clear picture of your potential exposure if markets make a major move. 

The market is expecting a large switch on acreage from corn to soybeans, but how much is anyone’s guess.  In each of the following scenario, we are factoring corn to be steady to down $0.30/bu. at $3.50 Futures.  Soybeans could see a potential drop of $0.50-$1.50, so we’ll focus on the extreme low at $8.20 Futures.

Here is sample operation: A row crop farm is producing 1,100 acres of corn and 720 acres of soybeans, a typical two-thirds corn one-third bean split, with a breakeven for corn and soybeans at $3.45 and $8.75, respectively.

The GrainBridge Matrix demonstrates what this operation looks like if soybean acres increase beyond the 88 million projection and 50% of soybeans are sold for $9.50 cash to-date, a conservative to aggressive marketing approach. Additionally, there is 80% Revenue Protection. At average yields of 53 bushel per acre, there is a small profit of $17 per acre, even if prices fall to $8.21 Futures.

pi1

Now, look at this operation if soybeans get the 88 million plus acres, and in addition to being sold 50% soybeans for $9.50 cash, the producer also has 50% protection with a 10.00 Nov 17 PUT option for approximately $0.65 as of March 20. This provides protection at the current break-even level of $8.75 cash, calculated by a 10.00 put – 0.65 cost of put = $9.35. Taking into account local basis, at -0.60, the cash price equates to $8.75.  Adding a simple put strategy to the mix provides some downside protection on the unsold and uninsured bushels.  At harvest and expiration of the put option, there could be considerable value.

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There are obviously multiple scenarios that can take place and the outcome of each operation is different.  Take time to run your own scenarios to help understand your potential risk exposure.  Other questions and factors you might consider include:
  1. What if I sell more aggressively against my crop insurance guarantee of 80%?
  2. What if the acreage shift isn’t as dramatic as some think? What if it’s only a couple million acres?
  3. What if I have NO beans sold to date?
  4. What if the market has an 88 million acre bean crop factored in already?
For questions or interest in learning more about the “What if Analysis” tools, contact your local GrainBridge provider or support@grainbridge.com.

March 2017 Special Release

Introduction of Flexible Carry + Basis

An enhancement to the Cash sales section in GrainBridge will help producers more accurately value unsold bushels at any given point. The introduction of flexible carry and basis now allows producers to allocate their production using varying futures months and basis levels to reflect when the producer anticipates moving their crop. This feature helps producers see the spread between futures months and calculates a weighted average cash price to accurately value all unsold bushels. If the user chooses to do nothing, the value of the unsold commodity will always be valued against the nearby or current futures month and the default basis entered.

To make adjustments to the price of unsold bushels, click on the Cash sales tab to take you to the Cash Summary. Near the bottom of the summary is a box that reads carry and basis. Select the blue change link to edit the basis and futures month for unsold bushels.

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Select the futures month, basis level (if basis is negative, place a minus sign in front, i.e. -0.20), and percentage of total production that reflect the producer’s sale and delivery intentions.

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Select Add basis until the percentage of total production is equal to 100%.

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GrainBridge calculates the weighted average cash price to value all unsold bushels.

Quarter 4 2016 Release

Introduction of the GrainBridge Matrix

The Matrix will greatly assist producers in their risk management planning as market or yield conditions change. As soon as the producer has created their individual grain profiles and respective plans, they can simply input incremental changes to yield and/or price along to see the impact of meeting both break-even and target revenue goals.

In addition, a producer will be able to estimate the impact of crop insurance by selecting the type & level of coverage to determine the estimated amount of payment they would receive.

By clicking on each individual cell within the Matrix, the producer will be able to see a complete breakdown of the revenue, including: cash sales, value of unsold inventory, brokerage positions, crop insurance, and payments.

q4-matrix-introduction

New Commodity Types Added

Multiple Non-GMO, Food Grade, and Seed commodity types have been added to the “Crop” drop down selection in the “Add crop profile” page. The new commodity types are:
  • Non-GMO White Corn
  • Non-GMO Yellow Corn
  • Non-GMO Beans
  • Food Grade Yellow Corn
  • Food Grade White Corn
  • Seed Beans
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Update to Recording Cash Fees

Producers are now able to input the fees for their cash sale transactions by both at a bushel level or per transaction.

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Aggregate Reporting for Live & Feeder Cattle

Additional analysis reporting is now available for both live and feeder cattle. Administrators can simply go to the Reporting tab and select “Commodities.” Similar to Crop analysis, simply click on the link under Clients to review each individual producer.

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Delta

Delta can now be monitored on your options positions. This is an optional functionality that you can turn on for your options positions. Simply click on the “Account” link at the top right hand corner of the screen and on the “Profile” tab, click on the box to the left of “Show Delta” under “Brokerage Settings.” Click on the green “Update” box to save your settings.

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GrainBridge has added the delta quantity of bushels and the percentage that you are hedged to the overall production in the “Options trades” section.

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At the individual trade level on the Options screen, you will find the Delta of the individual trade and the number of bushels hedged.

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Grouping of Options Positions

Another sort option has been added in the “Group By:” drop down box. By selecting “Position” your trades will be sorted by the commodity profile and by the type of position. This will provide additional ease in the tracking and reviewing of your individual positions.

q4-grouping-of-options-positions

Brokerage Import Notation

When importing your brokerage trades, you will be able to add specific notes and/or assign the trade to a particular strategy. This will allow you to capture any pertinent information for your trades along with allowing you to measure the success of individual sets of decisions against one another.

q4-brokerage-import-notation

 

Q1-2016 Release

We are excited to announce the Q1-2016 GrainBridge release!

1. Ability for Administrators to Set-Up New Commodity Profiles When Creating New Users

To help producers to get started on GrainBridge, Administrators now have the ability to create profiles with basic production information when setting up a new user in GrainBridge. Administrators can select the crop commodities (currently corn, soybeans, and wheat) to be created in the producer’s account and the system will add the profile(s) and a basic crop plan (more information on the basic crop plan in release item #2 below). All with little effort by the Administrator! We will continue to add this same functionality to other commodities in future releases.

Admin add profile for client

2. National & University Averages for Yields, Expenses, and Break-Even Targets

When Administrators create profiles as noted above or when producers create their own profiles and go to the Plan module for the first time, producers will have the option to select national averages for their starting points. The producer will have the ability to change these values as well as adding custom expenses if they wish to do so.

Default targets

3. Ability to Track Cash Offers

In addition to tracking cash sales, a user can now track their cash offers by simply selecting the Offer button and enter the offer details as they would a cash sale.

track cash offers

4. Send Scheduled Reports to Multiple Emails Per User

GrainBridge now has the ability to store multiple emails per user. Simply go to the Client module to add an additional email. When scheduling reports for producers, the report will be sent to to each email address on file for the individual producer.

multiple email addresses per client

5. Show Livestock Units Per Head in Addition to Per Pound

In transaction pages and in reports, GrainBridge now provides the livestock production information in per head units along with with the per pound amounts.

6. Ability to Import and Split OTC Trades

For those of you trading OTC’s, you will now be able to import and split your OTC trades before importing them into the producer’s production profiles

7. Back-end small fixes and performance improvements

We have fixed a number of small bugs and performed improvements to the layouts of our reports. Login to your GrainBridge account to check it out.

We build and prioritize items based on your feedback. Please keep it coming!

Q4-2015 Release

Happy holidays from GrainBridge. The Q4-2015 release is out and with it is some new functionality.

1. National and universities averages for yields, expenses, and break-even targets

To speed up the process of setting production profiles and give reference to national and universities averages, we will start showing average yields, expenses and break-even targets that customers can use as a starting point instead of a blank field. The customer will always have the option to change or reset any of these values with their actual numbers at any point.

Default targets

2. Group brokerage trades by strategy

Now you can assign a strategy name to a group of trades and view gain or losses by strategy.

Brokerage trades grouping by strategy

3. Support for brokerage auto import from RCG and Straits Financial Services

For those of you trading through RCG or Straits Financial, now you can connect your brokerage account to auto import trades into GrainBridge.

auto brokerage import from RCG and Straits Financial

4. Production and marketing for coffee

We have added coffee to the list of commodities we support. If you work with customers in the coffee business, GrainBridge now allows you to track and market coffee production.

Production and marketing for Coffee

5. New payment types

Several payment types have been added. You can always create your own custom payments.

New payment types

6. Back-end small fixes and performance improvements

We’ve fixed a number of small bugs and upgraded to new hardware to improve security and performance of the application.

We build and prioritize items based on your feedback. Please keep it coming!

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