Robert's Story

It’s not just crop insurance; It’s marketing insurance.

Full-Coverage Production Cost Insurance allowed Robert to be more aggressive in locking in futures contracts – and it paid off to the tune of $720,000.

2022

CASE STUDY

Robert had been a Global Ag Risk Solutions customer for years and saw the value of the product as part of his risk management plan.

He didn’t see the need for the more expensive full-coverage option on his farm, and usually opted for the lower coverage options to save on premiums at the expense of some protection.

Robert hadn’t really considered how an insurance product could change how he approached selling his crop before.

In 2022, Robert’s advisor – a farmer and a Global Ag Risk Solutions customer himself – started to chat with Robert about the potential to use Production Cost Insurance to its full potential – not just as risk mitigation, but as a profitability tool to support his marketing strategy.

Robert hadn’t really considered how an insurance product could change how he approached selling his crop before. Could full coverage really be worth the additional premium for his operation?

Historically, Robert forward-marketed 10 to 15% of his yield projections before making in-crop spraying decisions.

However, because of market conditions in 2022, especially in canola and durum, Robert saw the potential to do a lot more pre-selling and potentially make a lot more money.

The only thing holding him back was his concern about penalties for contract shortfalls. This represented a daunting risk for Robert.

But then, his Global Ag Risk Solutions advisor – who had experienced his own claim in 2021 as a customer – explained how full-coverage Production Cost Insurance could not only insure the cost of inputs and expected gross margin – it could also cover shortfall penalties on futures contracts.

Armed with this information, Robert decided the increase in his premiums was worth the opportunity and he upgraded to the full-service package from Global Ag Risk Solutions.

  • Robert chose full-coverage for the first time, recognizing that it would position him to market more aggressively.
  • The year was off to a dry start. Without the confidence of full-coverage, this would usually cause Robert to back-off his marketing plans.
  • All year long, Robert was able to keep farming aggressively to push for the best yields.  He knew his inputs were covered, and the gross-margin he needed to weather any delivery penalties. It was a game changer. 

 

Production Cost Insurance was no longer just ordinary crop insurance for Robert – it actually was now fuelling his whole-farm profitability strategy.

And it paid off. Big-time.

Let’s dive deeper into Robert’s marketing strategy and see how the aggressive changes he was able to make with full-coverage insurance dramatically increased his farm’s profitability.

Canola Marketing

(before in-crop spraying)

Former Strategy

Pre-sell up to 15% of 45 bu/acre target, remaining sold off the combine.

2022 strategy, with full-coverage PCI insurance

Pre-sell 75% of 45 bu/acre target hedging as market prices increased, remaining sold off the combine.

Durum Marketing

(before seeding)

Former Strategy

Pre-sell up to 15% of 45 bu/acre target, remaining sold off the combine.

2022 strategy, with full-coverage PCI insurance

Pre-sell 75% of 45 bu/acre, remaining sold off the combine.

Backed by the coverage provided by his policy, Robert pre-sold a much more aggressive 75% of his durum and canola in futures contracts . . . and made a lot more money.

In fact, when compared to his past strategy, Robert increased his revenue per acre by $112 in durum and $168 in canola.

Robert’s marketing strategy before full-coverage production cost insurance:

Crop Actual (bu/acre) Pre-Sold (bu/acre) Off-Combine (bu/acre) Revenue (per acre)
Crop Durum Actual (bu/acre) 35 Pre-Sold (bu/acre) 7 x $16 Off-Combine (bu/acre) 28 x $12 Revenue (per acre) $448
Crop Canola Actual (bu/acre) 38 Pre-Sold (bu/acre) 7 x $24 Off-Combine (bu/acre) 31 x $18 Revenue (per acre) $726

With full-coverage in place, Robert was able to be a lot more aggressive with his forward marketing:

Crop Actual (bu/acre) Pre-Sold (bu/acre) Off-Combine (bu/acre) Revenue (per acre)
Crop Durum Actual (bu/acre) 35 Pre-Sold (bu/acre) 35 x $16 Off-Combine (bu/acre) - - Revenue (per acre) $560
Crop Canola Actual (bu/acre) 38 Pre-Sold (bu/acre) 35 x $24 Off-Combine (bu/acre) 3 x $18 Revenue (per acre) $894

The result?

Robert put $720,000 in additional revenue on his books by taking advantage of a strong market early in the year:

Crop Before After The Difference
Crop Durum Before $448/acre After $560/acre $112/acre
The Difference$112/acre324,000
Crop Canola Before $726/acre After $894/acre $168/acreThe Difference$112/acre324,000
Crop Before After The Difference$720,000

Robert’s marketing strategy before full-coverage production cost insurance:

Crop Durum
Actual (bu/acre) 35
Pre-Sold (bu/acre) 7 x $16
Off-Combine (bu/acre) 28 x $12
Revenue (per acre) $448
Crop Canola
Actual (bu/acre) 38
Pre-Sold (bu/acre) 7 x $24
Off-Combine (bu/acre) 31 x $18
Revenue (per acre) $726

With full-coverage in place, Robert was able to be a lot more aggressive with his forward marketing:

 

 

 

Crop Durum
Actual (bu/acre) 35
Pre-Sold (bu/acre) 35x$16
Off-Combine (bu/acre) --
Revenue (per acre) $560
Crop Canola
Actual (bu/acre) 38
Pre-Sold (bu/acre) 35x$24
Off-Combine (bu/acre) 3x$18
Revenue (per acre) $894

The result? Robert put $720,000 in additional revenue on his books by taking advantage of a strong market early in the year:

Crop Durum
Before $448/acre
After $560/acre
The Difference $112/acre
  $324,000
Crop Canola
Before $726/acre
After $894/acre
The Difference $168/acre
  $396,000
Total increase: $720,000

 

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Production Cost Insurance

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