Category: Crop Insurance

21 Feb 2022

Funding Food To Feed The World

How Financial Institutions and Insurance Companies Play an Essential Role in Feeding the World

The cost of farming has grown over the years, which means financial institutions are amping up their reviewal process for loans and increasing insurance deductibles for protection to reduce their loss risk. What does this mean to supporting food production for the world? Well, as part of our “What It Takes To Feed The World” series, we are diving into critical agriculture sectors and bringing awareness to their roles in the food production cycle.

Financial institutions and insurance companies are the starting point in the process and are essential in providing the necessary funds to farmers on through to commercial entities. For farmers, they help finance EVERYTHING from the seed and chemical to hedge lines for farmers to help manage their price risk and everything in between. For commercial and end user entities, financing includes loans to build and maintain infrastructure and logistics to short term bridge loans to buy directly from farmers on to their own hedge lines of credit to support carrying of positions both pre and post harvest.

What financial and insurance options are available to the agriculture industry, and how are they beneficial to farmers, commercials, and end users? We’ll discuss the answers to these questions and more below.

 

Farmer Direct Loans

Farm direct loans are loans that the government makes available via the Farm Service Agency, while banks provide similar farmer direct loans. In 2021 the FSA reported loan obligations of $6.67 billion. Meanwhile, in 2020, U.S. farm banks loaned $98.6 billion. The American Bankers Association defines farm banks as banks whose ratio of domestic farm loans to total domestic loans is greater than or equal to the industry average. These amounts show just how much money is needed to produce the U.S. crop each year before farmers even harvest and sell the crop. These loans range from rent payments to fertilizer costs to machinery. But farm banks aren’t just offering loans to the agriculture sector. In 2020 total bank lending reached $174 billion in farm and ranch loans (including the $98.6 billion). These banks play a significant role with billions in small farm loans and even microloans. Small farm loans are less than $500,000, and microloans are less than $100,000. These two categories alone totaled over $55 billion in 2020.

 

Hedge Margin Lines

Banks also help finance hedge margin lines to help farmers manage their price risk. By financing the hedge lines, banks allow farmers to place hedge positions in a brokerage account, protecting against adverse price movements that could lessen the value of their crop. When banks loan out money, they expect to be paid back; hedge credit lines are a tool banks use to help support the farmer being able to do so.  If your bank is NOT willing to extend a hedge line – please give us call!

By financing hedge margin lines, banks support the farmer and themselves. With loans comes default risk and hedging is one tool to help mitigate the price risk that ultimately will be how the farmer pays back the loan.

 

Banks and the Rest of the Sector

There’s no question that banks are involved in the food production supply chain. When you think about it, commercials, end-users, and other units that touch grain utilize bank loans to enhance their businesses. Like feed yards and elevators, end-users use banks to improve their infrastructure by adding more storage or drying systems, using short-term loans to purchase grain and make other improvements to their business. These improvements ultimately improve the efficiency of the entire system and potentially lead to  reduced costs of the final product, which helps the end consumer, people. Just like improvements to city and towns infrastructure are necessary, through the support of bank financing, these improvements are necessary to the health of the agriculture industry’s infrastructure.

Farming is not getting any cheaper, and more capital is required to produce excellent crops year after year. Banks’ loaning capacities play a major role already, but if we are going to keep up with growing demand in a growing world, their role will be even more critical going forward.

 

Crop Insurance

Crop insurance brings continuity to the industry year-over-year as the ups and downs of weather and prices can cost farmers millions of dollars if unprotected. There are two types of insurance for major field crops: yield-based, which pays an indemnity (covers losses) for low yields, and revenue that ensures a level of crop income based on yields and prices.

Insurance offerings and prices vary on where you are located and your land, but like other forms of insurance in your life, it is better to have it and not need it than need it and not have it. While the listed above are the main types of insurance, others can be purchased, like drought insurance for pastureland and hail insurance if your crop gets damaged by an ice storm. These are more specific to your geographic location but play an essential role.

Like banks, insurance companies help with the continuity of the agriculture sector. These companies along with government subsidy programs, provide the opportunity to continue farming when disaster strikes and threatens the financial stability of a farm.

 

How RCM Ag Services Partners Financial Institutions & Insurance Companies

For our Farmer Direct customers, RCM Ag Services partners with banks and insurance companies to provide our mutual customers daily expert market knowledge and advice. We are firm believers that the long term health and growth of our local farming communities requires a team approach that starts with the farmers and their banking and insurance teams.

For our commercial and end user customers, we are focused on evaluating profit margins and the cost of capital for managing the current and futures market risks.  Our Ag Services team is working directly with lenders, 3rd party credit suppliers, as well as USDA government programs to support the long-term financial health of the commercial business sector.

Along with market knowledge, our brokerage services allow us to establish hedge accounts that banks can fund with a credit line, as discussed above. Our brokers have over 150 years of combined experience in the market that helps them provide hedge advice that is customized to each operation, not cookie-cutter advice. Take advantage of these benefits and call one of our knowledgeable ag specialists today at 888-875-2110 or email agsupport@rcmam.com

 

27 Jul 2021

Managing Today’s Market Risks through Short Dated Options with CME Group

It is no secret that commodity markets have been on fire over the past 12 months.   On today’s podcast we’ve brought on one of our real-life firefighters from RCM Ag – Jody Lawrence along with Tim Andriesen from the CME Group to provide us with some inside baseball knowledge of the current state of the agriculture markets and to discuss the real world application of the use of short dated options to potentially fight the current blaze of volatility surrounding agriculture markets.

As the director of Research for RCM Jody is no stranger to the podcast.  Tim, is the Managing Director of Agriculture products for the CME Group and is responsible for management of the company’s global agriculture commodities business – including grain, oilseed, livestock and dairy risk management products.

 

Find the full episode links for The Hedged Edge below:

05 Mar 2021

Ag Market Updates: February 27 – March 5

Corn had noticeable losses this week after volatility in the markets picked back up. A disappointing, but not surprising, export report helped to keep pressure on markets. Thursday was off to a good start until about midday when the selling began to finish, well off the highs for a mixed close. Rain has crept into the northern Argentina forecast which will help a hurting corn crop. The continued wetness of northern Brazil keeps the regions harvest behind with no clear window for them to catch up/make serious progress. The May contract closed below the 20 day moving average at the close of Thursday’s trading. There has been support below these levels the last few times markets tested this level.  How Friday’s trade finishes will be important to maintain the technical uptrend.

The March USDA Report be out on Tuesday the March 9th and will be the next big market mover.  Traders are in need of some bullish news to hold off the bears.  Consider covering a portion of your new crop with some downside protection and or forward sales ahead of the report.

Via Barchart.com

 

Soybeans made small gains on the week as the continued struggles with the Brazilian harvest has continued to be supportive for the past/many months. The problem hanging over the market right now is the confirmation of ASF in China AGAIN (will it ever end?). After all the talk of China’s improved process of feeding pigs = driving soybean exports, if ASF gets out of hand (i.e 2018) it could pull the rug out from under the demand story. Despite this news, soybean oil prices continue to climb supporting beans and slowing the blow from the ASF scare. Exports, like corn, were not great but that was expected as sales remain strong and well ahead of this time last year. The weather issues in South America will continue to support US beans as they struggle to finish harvest and will push back any double crop area planting. Another note about the quality of the South American crop- the Buenos Ares Grains Exchange rated the Argentinian crop 10% good to excellent down from 15% the previous week. South America’s troubles are the US bean prices gains.


Via Barchart.com

 

Dow Jones
The Dow had a tough week along with the other major indexes as the prospects of interest rate pressure threw cold water on stock prices.  The 10 year US Treasury Note closed Thursday over 1.5% for the first time since the pandemic began. This has brought caution to the markets as tech has gotten hammered and the Fed may be losing its grip on its direction for interest rates.

Insurance
February was important for revenue-based insurance averages. At the end of the month the price for corn is $4.5848 and soybeans are $11.8665.

Weekly Prices

Via Barchart.com

12 Feb 2021

Ag Market Updates: February 6 – 12

Corn lost on the week following dissapointing numbers in the February USDA WASDE Report. Despite the big losses on Tuesday and Wednesday following the report a modest bounce was seen Thursday to give the bulls a little sigh of relief. As we have seen with previous dips there has been buying after the dips that help support the market. The big surprise in the report was US corn ending stocks number being over 100 million bushels higher than trade expectations at 1.502 billion bushels. They did lower them from the January report of 1.552 BBU but not near as much as expected. The world carryout was was also bearish with the USDA raising world carryout to 286.53 million metric tonnes, a raise of 2.7 mmt, and well above trade estimates. The bullish news was that Chinese imoprt expectations increased by 256 million bushels but the US export total was only increased 50 million bushels. With this bearish news funds also began to offload some of their long positions adding fuel to the fire. You should also not expect any news to come out of China as they head into their Lunar New Year so buying from China will be slow. Parts of Argentina that have gotten needed rain may have received more help than expected on their crops as some predict it helped more than anticipated. The positive day on Thursday to stop the bleeding was important for the bulls but how the week ends will be important.


Via Barchart.com

 

Soybeans were lower this week as the bearish news in the report for corn moved triggered a broad based sell off at the Board of Trade. Beans took it on the chin Wednesday as fund selling led the way. Despite a neutral report on the beans side, when funds decide to take profit they are the market mover. New export offers from Brazil were part of drawback as they were 40 cents below the US market and that collapse brought the US to about even. The USDA report showed that the US cannot export any more than about 250 million bushels the rest of the marketing year before bins are empty. CONAB released supportive bean crop estimates on Thursday coming in just above 133 million metric tonnes. The tightness of world stocks is on every traders mind and likely what has caused the markets to jump around – While 100 million additional bushels is only 1% of the 10 billion bushels produced any and all changes to production are being watched. The volatility of the past few weeks is best displayed on the visual daily ranges in the chart below.


Via Barchart.com

 

Cotton once again saw a big week of gains as demand around the world continues. Exports were strong this week with Vietnam, Turkey and China being the biggest buyers. The National Cotton Council’s planted acreage estimates came out this week with the following:

The NCC sees Upland acreage down 4.9% Y-O-Y, at 11.3mm acres. Pima acreage is seen down 20.7%, to 161,000. Overall, this imputes a 5.2% decline to 11.5mm acres. (CottonGrower.com)

With only 4 trading days next week, On-Call sales basis the March contract, will have to be fixed (bought) by the Mills before Friday, ahead of First Notice Day on Monday, Feb 22. The loss of acres was expected with soybeans and corn being very attractive in price vs cotton currently. If cotton can continue its run up it may be able to gain some acres back but this recent run will need to continue. West Texas continues to be extremely dry and will need some moisture heading into the spring.

Via Barchart.com

 

Dow Jones
The Dow gained this week as supportive news from vaccines and the continued drop in Covid cases around the US. As many investors remain bullish looking at 2021 it is important to note that we still have a long way to get out of the storm that has been the last year.

Wheat
Wheat has been in a sideways trade the last few weeks and looks to continue. There was no big news in the report that caused any knee jerk reaction in the market as it followed beans and corn lower on the week.

Insurance
Remember that this month is important for revenue-based insurance averages so it will be important to keep an eye on the markets even if you do not plan on making any sales. As of the close on 2/11 the price for corn is $4.5141 and soybeans are $11.645.


Via Barchart.com

What-It-Takes-To-Feed-The-W

Did you know that by 2050, the world is expected to feed almost 2 billion more people than we do today? As the global population continuously rises, a significant amount of food will need to be produced over the next 30 years.