Progressive Ag Marketing How to make more money and take less risk on Irrigated Potatoes By Ray Grabanski Pro Ag Systems 1-800-450-1404 firstname.lastname@example.org Penney Hammer, Gary Barten
Progressive Ag Marketing Quality Adjustment is the key to Irrigated Potato Coverage n Basic Policy has 3 special provisions for rot quality adjustment (freeze only 1) 1. In field: >5% rot (<10% of claims??) 2. Price Agreed on within 60 (21) days –>5% tuber rot triggers P comparison (1-5% claims??) 3. In storage bin, no P established in 60 days (85-90% claims??): –>5% rot; collect full ins. guarantee, dump spuds –>10.4% in 60 days is salvage operation (85- 15), get 85% AND keep potatoes
Progressive Ag Marketing Freeze Damage Settlements Always Based on Table n Determine % freeze damage Go to freeze table to determine Production to count (No time table to do adjustment) –First 5% freeze, 1 for 1 adjustment –from 6-16% freeze, 5 for 1 adjustment –From 16-19% freeze, 10 for 1 adjustment –After 18% freeze, no additional adjustment >85% unless dumped or unharvested If unharvested, lose 20% of coverage but still on freeze table
Progressive Ag Marketing What triggers claim? n Production to count below guarantee What is the actual yield on loss year? Is there poor quality that can factor it down? On all the units acreage, or some? –> 5.1% rot triggers larger reduction –> 5% freeze damage triggers larger reduction What adjusting diagram are you under? –Rot, freeze, or combination? –In field, price agreed in 60 days, or price not agreed on in 60 days?
Progressive Ag Marketing Two basic adjusting methods n Price Comparison or Reduction in Value method If P agreed on within 60 days (sold) >5.1% rot triggers it –factor down production by price received/ins. price election (Ex. $3/$5.15 =.58 factor) n Adjust using Table Rot: If no P agreed on within 60 days (stored) Freeze: Always use table
Progressive Ag Marketing Basic policy vs. endorsements: Potato Insurance Has Choices n Basic Policy Includes rot and freeze damage 21 days of storage coverage Select yield level (CAT, 50% to 75%) n Endorsements (not CAT level) Storage - go to 60 days of storage (+4%) #2 Quality - Adds internal/external defect coverage (+44-69% premium) Processing Quality - fry color and specific gravity (+3-5% premium after #2)
Progressive Ag Marketing Irrigated Potatoes: Problem is quality, not production n Rarely do Irrigated potatoes have a yield drop over 25% (virtually no claims on yield alone?) n Quality Adjustment is where claims are triggered (>95% of claims?) Quality adjustment factors reduce production to count (freeze and rot in 03) factors go to zero at >5% rot in field or in storage bin within 60 days (21 days) different factor tables for rot, freeze
Progressive Ag Marketing Key is understanding Basic Policy quality adjustment n IN FIELD: >5% rot qualifies for 80% of insurance guarantee payment (lose 20% payment if potatoes not dug) n Rot includes late blight, soft rot, and pink rot (any storage problem) n On irrigated, loss of yield/undug is a small % of claims (5% or less?)
Progressive Ag Marketing Basic Policy quality adj: P Agreed on within 60 (21) days: n Uses Reduction in Value P compare concept once tuber rot exceeds 5% Ex. Haul in 1000 cwt after first dirt, paid only $3000 for delivered spuds, >5% rot –Net pay = $3/cwt –Divide $3 by price election ($5.15) for.58 quality factor –Yield = 400 cwt x.58 = 233 prodn to count –280 guar. - 233 = 57 cwt loss x $5.15 = $293/acre payment n White Ex in 2003: $1/$5.15 = 0.195!!!!
Progressive Ag Marketing Basic policy quality adj: In Storage Bin (No P Agreed) n Over 80% of Claims occur in storage?? n If quality problem, insurance treats you better if in storage 61 days??? n Basic Provisions include 21 days of storage coverage n Storage Endorsement will provide 60 days of storage coverage for 4% additional premium***
Progressive Ag Marketing >5% rot, No Salvage Value (Ex. 2003 market for whites) n Producer has option to take 100% adjustment and dump potatoes 280x$5.15 = $1442/acre still major loss and a disaster year, but takes the worst case situation out of play n If >10.4% rot, producer chooses 85-15 or to dump potatoes and collect full indemnity –85-15 Not good choice for whites in 2003 due to market conditions, so most dumped at >5%
Progressive Ag Marketing 85-15 Example In Storage n Producer has 400 cwt. APH, 70% yield Or 280 bag guarantee 420 cwt yield, >10.4% rot in sample –420 x.15 = 63 cwt prodn to count –280-63=217 cwt pay x $5.15 = $1118/acre claim –Producer keeps potatoes and sells at salvage value of 60%. 420x$3=$1260/acre n How its possible to make money on poor quality potatoes!!!!
Progressive Ag Marketing Quality Adj. Provisions: Storage Endorsement Pro Ag Strongly recommends storage endorsement (Necessary for 65% of 2003 claims??? Lost potential CAT claim!) –Cost is only 4% extra premium –For Most, 50% yield is way better than CAT!!?? Most storage problems emerge from 21 to 60 day period Our experience is most claims are paid in this coverage area (>80%??) –In 2003 21 days storage was not enough to trigger many claims??? (60 Days N/A on CAT)
Progressive Ag Marketing Quality Adj. Provisions: Storage Endorsement (cont) n >5% Rot and Not marketable –collect 100% of insurance guarantee and dump potatoes (Used for whites in 2003???) –YA provision will plug in 60% of T yield in APH (about 240 cwt instead of zero) n >10.4% rot, can use 85-15 rule –15% of production to count, and then can salvage what you can in marketplace (keep the potatoes) –Appropriate for russet market in 2003???
Progressive Ag Marketing Generally, big problem years have multiple situations 0-2 units could be left in field 0-2 units dumped 0-2 units 85-15 Still majority of units (15-20?) are good units, but this takes a lot of the risk out of irrigated potato production –2003: Only 20% left on Oct. 1 Frost –85-15 can take you closer to full revenue situation –On horrible market year (2003???), dumping is better option (???)
Progressive Ag Marketing 2003 Great Until Oct. 1-2; Frost on 20% of spuds For some, this became big problem year in 24 hours or less!! Factors that impact claim: –What units were freeze damage (FD) potatoes? –Were any potatoes already dug in that unit? Partially dug unit makes it difficult to generate sizable claim regardless of damage Better to harvest whole units than partial units –What % of freeze damage occurred? (>10% is likely payable claim at 70% yield coverage) –What mktg options available with FD potatoes?
Progressive Ag Marketing Partial Dig Problem:16% frost, 100 acres left, 400 cwt APH n Ex. 100 acres all in one unit, yield = 500 500 cwt x.35 factor = 175 cwt to count Guar. = 280 cwt - 175 to count = 105cwt x $5.15 = $541/acre claim x 100 acres = $54,100 claim n Ex. 50 acres left in 2-100 acre units 500 cwt x 50 good =25,000 produced 500 cwt x.35 = 175 cwt x 50 acres frost = 8750 cwt.to count 25,000 + 8750 = 32750 cwt. NO CLAIM since over 100A x 280 cwt Guarantee or 28,000
Progressive Ag Marketing Other potato endorsements: generally not worth premium? n #2 Quality endorsmt (+44-69% prem) –External defects: for % graded #2 divided by factor (.85 in many counties) Ex: 75% grade #2, 400 cwt yield.75/.85 = 88% factor x 400 = 352 to count Still no loss at 70% (280 cwt guar) –Internal Defects: >6% Qualify for P Adj. n Processing Quality Endorsement –fry color or specific gravity (+3-5% prem) –must buy #2 endorsement first which makes total cost considerable
Progressive Ag Marketing Summary of #2, Processing Qual endorsmts –If buying #2 qual endorsmt, should also buy processing quality endorsements for a little extra premium*** –Pro Ag rec: Generally should be bought only in special situations (HH?? Scab?? Anything not covered in standard policy)*** –Standard provisions with storage endorsement generally are much more cost effective –Written agreements for Wi Proc. Quality still required in 04
Progressive Ag Marketing Making more money and taking less risk For every $1 farmer premium paid, Irr potatoes pays about $2-3 in claims –potatoes usually have high loss ratio –Since 2001, Govt subsidy of 40-70% (none in hail) Coverage for disaster year takes away high risks of potato production Quality adjustment prov. with standard policy are key to Irr Potato coverage –freeze adjustment –rot adjustment
Progressive Ag Marketing Selecting Knowledgeable Potato agent is key n Not corn/soybean coverage Must know quality provisions Potatoes are dynamic crop quality-wise, changes in short time n Sampling is interesting process Pulling representative sample Lots of judgement calls will need to be made Dollars involved are big - no room for error
Progressive Ag Marketing Setting Up APH Important Common mistakes weve seen in WI –bad unit structure/divisions –poor methods for establishing yields (Yrs reported, dividing out yields among units, etc) –Not using all provisions (+2% for early dig?) –When claim occurs, making sure its paid!! Best agents will tell you what not to do as well as what you can legally do –B size potatoes –digging potatoes vs. leaving in field –Making complicated provisions work for you
Progressive Ag Marketing Area Maps Rating Factors: Location in County Affects Rates
Progressive Ag Marketing UPDATE:2004 WI Potato Changes (Price = $5.35) 2 Year Potato Rotation –All 2 year rotation potatoes covered (no choice) –Same rate as 3 or more yr rotation Muck soils covered on 1 Year Rotation Now 7 WI counties by Written Agreement Added Portage, Waushara, Waupaca Counties to Jefferson, Walwurth,Waukesha, Adams Counties Master Yield not approved (changes make it less attractive anyway) Proc. Quality still needs WA Russet premiums lowered slightly
Progressive Ag Marketing 2004 WI Price Elections vs. 2003
Progressive Ag Marketing Weaknesses in Potato Policy n 1. Some Quality Problems in basic coverage not covered Hollow heart, pink eye???? n 2. Some quality holes with #2, processing quality endorsements possible size losses not covered that is not paid for by processor any difference in insurance specification and processor contract
Progressive Ag Marketing Summary: Quality adj factors key to irrigated potato crop ins. Yield coverage is disaster protection Quality coverage is solid, dependable risk protection most needed –Storage Endorsement best –#2 Quality and Proc endorsements are special case coverages –85-15 gives you chance to make money on poor quality potatoes in certain years Freeze: With normal yield at 70% coverage, >10% freeze triggers claim Rot: 5.1% Rot can trigger 100% claim
Progressive Ag Marketing Conclusion: MPCI Ins is great coverage for irrigated potatoes We Pay $2-3 or more for every $1 farmer paid premium (big govt subsidy) Quality adjustment provisions is where most claims are paid (60 day storage) 85-15 gives you chance to make more money on poor quality potatoes n Make more money, take less risk!!
Progressive Ag Marketing Chance to Improve >2005 Policy: Historic RMA Review n Proposed RMA Changes for 2005??: –Make Tubor rot/freeze table the same (freeze) Price comparison for tubor rot as compromise eliminates potential for 85-15 gain in tubor rot table –Extend Storage Coverage from 60 to 90 days??? 120??? More??? Charge extra premium for each step?? –Improve Chip Proc. Qual. Endorsement Use Ag-tron readings? different quality factors? –Unit Division by Reds, Whites, Russets in the same Section
Progressive Ag Marketing RMA looking for proposals on Fresh Potatoes: Discount to exclude frost coverage??? Discount to exclude all storage cov??? Get #1 quality endorsement for fresh?? What do you need coverage for in Fresh Potatoes?? Yld? Rot? #1 Quality? n Seed Potato Coverage Change Proposals???
Progressive Ag Marketing Ray Grabanski, Pro Ag Systems 1-800-450-1404 n Risk Management Specialist n Potato Insurance in multiple states n Specialize in large potato farm coverage, multiple entities –Also premium market provider for corn/soybean market analysis n Provide crop ins/marketing info via email with coverage –email@example.com