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 [email protected]

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

[email protected]

Penney Hammer, Gary Barten


Quality Adjustment is the key to Irrigated Potato Coverage

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


Freeze Damage Settlements Always Based on Table

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


What triggers claim?

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?


Two basic adjusting methods

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)

Adjust using Table• Rot: If no P agreed on within 60 days (stored)• Freeze: Always use table


Basic policy vs. endorsements:Potato Insurance Has Choices

Basic Policy• Includes rot and freeze damage• 21 days of storage coverage• Select yield level (CAT, 50% to 75%)

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)


Irrigated Potatoes: Problem is quality, not production

Rarely do Irrigated potatoes have a yield drop over 25% (virtually no claims on yield alone?)

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


Key is understanding Basic Policy quality adjustment

IN FIELD: >5% rot qualifies for 80% of insurance guarantee payment (lose 20% payment if potatoes not dug)

‘Rot’ includes late blight, soft rot, and pink rot (any storage problem)

On irrigated, loss of yield/undug is a small % of claims (5% or less?)


Basic Policy quality adj: P Agreed on within 60 (21) days:

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

White Ex in 2003: $1/$5.15 = 0.195!!!!


Basic policy quality adj: In Storage Bin (No P Agreed)

Over 80% of Claims occur in storage?? If quality problem, insurance treats you

better if in storage 61 days??? Basic Provisions include 21 days of

storage coverage Storage Endorsement will provide 60

days of storage coverage for 4% additional premium***


>5% rot, No Salvage Value (Ex. 2003 market for white’s)

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 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%


85-15 Example In Storage

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

How its possible to make money on poor quality potatoes!!!!


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)


Quality Adj. Provisions:Storage Endorsement (con’t)

>5% Rot and Not marketable– collect 100% of insurance guarantee and dump

potatoes (Used for white’s in 2003???)– YA provision will plug in 60% of T yield in APH

(about 240 cwt instead of zero)

>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???


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 (???)


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?


Partial Dig Problem:16% frost, 100 acres left, 400 cwt APH

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

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


Other potato endorsements: generally not worth premium?

#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.

Processing Quality Endorsement– fry color or specific gravity (+3-5% prem)– must buy #2 endorsement first which makes total cost

considerable


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


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, Gov’t 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


Selecting Knowledgeable Potato agent is key

Not corn/soybean coverage• Must know quality provisions• Potatoes are dynamic crop quality-wise,

changes in short time Sampling is interesting process

• Pulling representative sample• Lots of ‘judgement’ calls will need to be made• Dollars involved are big - no room for error


Setting Up APH Important

• Common mistakes we’ve 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


Area Maps Rating Factors:Location in County Affects Rates

Area 01 02 03

Portage 0.85 1.00 N/AAdams 1.00 1.25 N/AJuneau 1.00 1.30 N/ALanglade 1.00 1.07** 1.15**Irrigated Only


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


2004 WI Price Elections vs. 2003

Crop 03 Price 04 Price

Potato $5.15 $5.35SwCorn $50.00 $45.00Beans $99.00 $90.00Cranberry $22.00 $28.00Soybeans $5.15 $5.55Corn $2.20 $2.10


Weaknesses in Potato Policy

1. Some Quality Problems in basic coverage not covered• Hollow heart, pink eye????

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


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


Conclusion: MPCI Ins is great coverage for irrigated potatoes

• We Pay $2-3 or more for every $1 farmer paid premium (big gov’t 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

Make more money, take less risk!!


Chance to Improve >2005 Policy: Historic RMA Review

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


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?

Seed Potato Coverage Change Proposals???


Ray Grabanski, Pro Ag Systems1-800-450-1404

Risk Management Specialist Potato Insurance in multiple states Specialize in large potato farm coverage,

multiple entities– Also premium market provider for corn/soybean

market analysis

Provide crop ins/marketing info via email with coverage

– [email protected]

Documents

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 [email protected]