A good floor goes a long way in crop insurance - Tony Jesina

Paul Yeager   Hi, I'm Paul Yeager This is the MtoM Show podcast a production of Iowa PBS and the Market to Market TV show. We're getting to the end of crop insurance season at least one specific part. And we're going to talk with Tony Jesina, who is the Senior VP for crop insurance for Farm Credit Services of America. He's in Omaha, but we're going to talk about farming in general from coast to coast, and the impact that insurance has had on the industry that he's involved with an agriculture and how things have changed in just a short amount of time. And some reasons that might sound very familiar if you watch the TV show Market to Market about your floor. That's our tees. And that's our show. This week, we're getting into the nitty gritty of crop insurance and many of the government programs including what's happening and shaping up in farm bill talks, how they're watching that as well. If you have any feedback for me, send me an email at Paul.Yeager@iowapbs.org. We like it when you share an episode. We really like it when you just watch or listen to an episode. So we thank you for that. Each and every Tuesday new episodes are released of this podcast to go with the TV show that comes out every Friday afternoon. If you follow us on social channels, you know what I'm talking about, especially on YouTube, which is where you can primarily watch this episode. So now let's get to Tony. And talk crop insurance. Tony, I've introduced you one way, but you have a fun way to say your name. So tell me how there's two ways to pronounce your last name Is it is it when I'm at home? I'm this way when I'm on the road. I'm this way.

Tony Jesina   Yeah, that's correct, Paul. So when I'm at home, it's Tony Jesina which is a Czech background. But everywhere else around the country. I go by Tony Jesina.

Paul Yeager   and you are from Tama County, Iowa. Correct. Tell me about your grow up. What was it like there?

Tony Jesina   Yeah, we grew up on a diversified farm. We had corn and soybeans. We had some cattle raised a lot of hogs photofinish. So I went to South Tama High School. Then upon graduation, I went to Iowa State University go Cyclones, the common

Paul Yeager   path, right? You just stick there on highway 30 in the county and you're an Ames pretty soon, especially anything with agriculture. What was the thought? Were you going to school to return to the farm?

Tony Jesina   No, I, I graduated in the 80s. And that was not a great time for opportunities and farming. So I looked at what are the opportunities that are out there. I looked at a couple of different career fields eventually settled on finance degree with a minor in economics, which allowed me to get close to agriculture and support agriculture without without having opportunity come back to the farm.

Paul Yeager   Did you have a specific career in mind? I mean, reopen to banking to finance to insurance to or was it just anything related to agriculture with dollars and cents?

Tony Jesina   Well, my first career path was I wanted to be a nuclear engineer, okay, and find out. I've got some long story but partially colorblind, so I end up not being eligible for that program. So at Iowa State, I thought, well, the next logical thing was electrical engineering, because that's what my friends were doing. And I quickly realized that was not a path for me. I really enjoyed the business side of things. So that's when I went to the Business College. And banking and finance was natural. I really enjoyed it. And so want to make a career of that.

Paul Yeager   And the career progression. How'd you make it to where you're sitting today?

Tony Jesina   Yeah, so when I graduated from Iowa State, my first and only job has been with Farm Credit Services of America. So I started as a financial officer worked out of our Marshalltown office for 10 years. And then I moved to southeast Iowa and led a couple of our retail offices. We had an office and a tumble and went to Mount Pleasant now as the marketplace leader, for there for a while, and then I came to Omaha in 2009 and been in Omaha ever since. And since 2015, I've been the senior leader of crop insurance.

Paul Yeager   How's crop insurance changed since 2009?

Tony Jesina   Oh, my gosh, it's changed dramatically. Like we've been doing some training with our teammates, and since 2011. RMA, the risk management agency that oversees or administers the crop insurance program has introduced over 300 new different programs and plans of insurance. So it's grown significantly in terms of size and scale and complexity. So it's, it's not your father's Oldsmobile anymore, that's for sure.

Paul Yeager   Do you find that to be good with all those options?

Tony Jesina   But I think it's great. And the reason why is those programs are being created just for something for or the government to do? It's really because there's a demand and desire to minimize the risk or the gaps that exist. And so there's a demand for those types of products and programs. So that's a great thing for producers is that they are now better able to manage the risks than they were 10 years ago.

Paul Yeager   Do you find that the expansion came at the request of producers? Or who where did the data come from folks like you?

Tony Jesina   I think it's a combined effort. Paul, you look at, you know, visiting with producers, you're asking them, what are the gaps? And what are the things that they would like to see as far as changes with the program or the products? That so it's listening to producers? And then it's working with folks in the industry to understand are there different ways to solve those gaps and working with those parties to come to a better solution?

Paul Yeager   Do you find that the Okay, so you talk about gaps? Did the politicians help create those through Farm Bill legislation or just general USDA programs?

Tony Jesina   Actually, a little bit of both, the Farm Bill has made, you know, enhancements. So there's, for example, back in 2014, you know, that's when things like Supplemental Coverage Option came out, or stacks for those that are kind of more in the South. Margin Protection was started as a pilot. And so those are some things that came as a result of legislation through the Farm Bill. But they also have a process called a five oh H process, which allows third parties to work with folks in the industry to create products that might fit that are may may adopt. And so we've seen as much usage of those types of third party groups, the five wage submitters, if you will, to create products as well.

Paul Yeager   I realized this is probably a couple of steps above you, but where is Farm Credit service as an industry that you're involved with? How closely watching Farm Bill negotiations and offering suggestions of ways to make sure gaps are filled? Or improved?

Tony Jesina   Yes, Paul. You know, it's very timely, because we're going through there right now, the Farm Credit System, and Farm Credit Services America frontier Farm Credit, we watch it very, very closely, not only on a daily basis, but probably an hourly basis, we want to make sure we understand the parts of the farm bill that are being discussed that, you know, what are some ways to enhance it or improve it. So we offer suggestions at the same time, there's a lot of things in there that are really great, we want to make sure that we work hard to protect those, for example, crop insurance is the only safety net we really have in the Farm Bill. So to make sure that we do all we can to protect this critical tool for risk management for producers. So we want to very close, do

Paul Yeager   you find there still a political appetite for it?

Tony Jesina   Yes, there is. It will see that it's the only bipartisan bill that really exists in Congress anymore, where you can get both sides of the aisle to agree on legislation, which now that's getting you to become a short supply anymore, as far as one side wanted to work with the other. But the farm bill is one where you truly have bipartisan support.

Paul Yeager   And when you have hearings, field hearings are out there. I'm sure there's representatives of your industry as a whole that are paying attention. Are you hearing certain lines pages, things are going to be have any issue getting passed? I mean, are there other sticking points? Are you part of a sticking point, do you think?

Tony Jesina   Yeah, you know, there's there's a lot of different titles, obviously, to the farm bill. So there's, you know, there's a lot of discussion as far as each title as far as what's working well, and, you know, ways to enhance it, but probably the things that you hear about the most I have to deal with, like the reference prices that determine, you know, for example, you look at art and PLC to kind of the to federal programs as part of the Farm Bill. You know, the reference prices, are those gonna get adjusted or not. And so that's probably the biggest discussion right now. There's been a lot of discussion around some of the ad hoc, you know, disaster payments, and is there a way to make some tweaks to the safety net, whether it's crop insurance or other areas to maybe minimize some of that reliance on ad hoc programs and make something a little more reliable and more assurances for our producers?

Paul Yeager   Because the ad hoc items are the ones to me always seem the more political ones than the bipartisan ones.

Tony Jesina   Yeah, that's that is absolutely correct. When you look at just some of the recent ones, you have, you know, wildfires and hurricanes and you know, there's a very specific thick and tragic events that occur. But to get support for that sometimes you've got to broaden the coalition and include maybe other elements or add things to the program, or to the cost of that disaster to get enough votes to get a pass. And that's where sometimes you get some challenges or, you know, just it's, it creates some challenges within the program to get things like that approved. And, and yet, there's safety nets that are there if people take advantage of like, for example, a good crop insurance program.

Paul Yeager   Yeah, because you could governor's in some states that file, and it might be a smaller thing. And they're like, well, we didn't get any coverage. We didn't get the declaration, that would be important for it, it becomes a political thing. You mentioned those storms and hurricanes, wildfires, those are all hot topics in the insurance industry as a whole, where you have companies not writing certain policies in certain states. How does that drift over as a potential to to farmers and ranchers?

Tony Jesina   Yeah, Paul, a great question. And, you know, a couple of those examples are Florida and California, where you are seeing on the property and casualty side, you're starting to see some, you know, draw back into reduction in coverage, or companies completely getting out of those markets. And, and so the impact that that potentially could have for crop insurance, we keep a close eye on and just the impact that has on reinsurance. And so while the federal programs like multipro crop insurance are, are fine, but it can start to impact things like some of your private products like hail and wind, because if the cost of reinsurance goes up, that cost gets borne across a broader market. If it's not within if it can't be contained within say, the property and casualty market. The reinsurers might be looking at having to raise rates on all types of reinsurance. Just because it's, you know, it's that's where capital is moving. And that could have an impact on, again, some of the private product rating, if you will, or even availability.

Paul Yeager   Yeah, and I would think I hope that farmers and producer and ranchers have kind of thought, oh, that could spill over. But you're you're absolutely verifying the the fear that maybe some are having.

Tony Jesina   Yeah, and we're pretty fortunate the the players that are involved in crop insurance are very sound financially. And so they have pretty good programs themselves for their own risk management. So that part is been great as far as the safety and soundness for our industry. But it's something we got to keep an eye on.

Paul Yeager   Right? Do you find, like, go back to something you said there a few minutes ago, ARC and PLC. I had a producer tell me the other day that it just it has become almost too confusing for some of those things. Not so much the ad hoc. I mean, he gets that, but he goes, I get a figure this way, or I get a figure this way. But we get questions each week kind of the same scenario. Where's the understanding of changes to help your customer, my viewer have a better sense of really what they're getting with their investment in insurance?

Tony Jesina   Yeah. Yeah. So let me separate that if I can, Paul, because our can PLC? No, those are part of your FSA programs. And so proper insurance would run kind of in parallel with that. But depending on which you choose ARC or PLC, that that may allow certain crop insurance products to be available or not available. And, you know, a few years ago, it used to be a five year decision, once you made that decision ARC or PLC you lived with that for kind of duration of the last Farm Bill made that an annual decision. So that probably adds to the complexity, if you will, is that it's an annual decision, which is a good thing you can look at, you know, my current situation and the dynamics in the market and make it a decision based on this year, versus trying to forecast. What's this going to look like three or four or five years from now. And so that part, it makes it better for the producer, but it's a more real time decision. But it's an annual decision, they need to spend time understanding. Now the last couple of years just because of where the markets are at relative to those reference prices. It hasn't been as much of a material decision to their operation.

Paul Yeager   And I I've probably had three questions in the last three weeks about that saying the price is this therefore my PLC is going to be this. And again, each producer is different in this scenario, so I guess as broad of a brush, you just kind of you gave me a broad brush on explaining those things, but what's the benefit of one of those programs over the other for For a producer,

Tony Jesina   I think it depends on what their outlook is, in terms of what do they feel the risk is at? Is it more of the air revenue coverage they see that's for their risk or opportunity is for needing that safety net? Or is it really on the on the Price Loss Coverage side? And if neither one of those is material, then look at an option that's going to give you that's going to complement your risk management strategy. So, you know, so then, you know, that might cause some people not to look at Ark, if they don't think it's going to be a viable option for the upcoming growing season. But, you know, this individual, you know, for each producer,

Paul Yeager   I guess, in that sense, does each producer help or hurt themselves each year? I mean, they have their opportunity right there when it's not that five year window that they have to decide for, but it's the annual window. So it's, it's stressful.

Tony Jesina   It is stressful. Absolutely. And that's why we probably I'd say our our agents spend as much time explaining all those elements that go into it. So then once you understand, okay, what are my decisions I've made relative to FSA, then I can talk about my risk management plan. Now, the good thing is where it's an annual plan, you don't have to live with a bad decision for three, four or five years. That's annually, I can make a data driven decision today based on again, what's that producers outlook for the upcoming season and where they see their risk at?

Paul Yeager   And we have a deadline coming up, right?

Tony Jesina   Yeah, so September 30, is the is the normal sales closing window for fall crops. So things like wheat, but also a newer type of product called Margin Protection. Now, September 30, falls on a weekend. So it's really going to be the first Monday, so October 2, technically the deadline this year. But that's a key deadline coming up that producers need to understand and evaluate if there's an opportunity there to take some risk off the table.

Paul Yeager   What is reasons for taking advantage? Before the end of September? What do I need to do?

Tony Jesina   Yeah, so let's, let's talk about margin protection. So the key thing to look at is, you know, what are the what are the risks that you see for your operation? What am I concerned about? You know, and most producers, you know, there's a very, very high percentage of producers, I think it's 96 97%, of producers in the Midwest, take a revenue protection, crop insurance policy. So they're concerned about price and yield, typically, and margin protection does the same thing. It allows you to look at price and yield, but also a certain bundle of inputs, if you're concerned about those prices, as well. Now, one reason to consider margin now is if you look at just the markets, and what's your view of volatility of the markets, what's your view of volatility of input prices, when you think about, for example, what's happened with fertilizer in the last couple of years, when you look at, I'll just pick on corn for a second. A year ago, producers that locked in a margin protection policy, the price they locked in was 611. The next window to take risk off the table is with your revenue protection policy in the spring. So that price is set into February. Well, by February, that price had dropped 20 cents to 591. And then now you look at the harvest price. So if you look at kind of the current market for December futures, now you're under $5. And so in a year period of time, you know, our producers have seen an erosion of over $1. If you start looking at okay, if I'm concerned about that, what's it look like for 2024. And so, if you look at just the last 6070 days, on on the markets, for corn, you've seen fluctuation of 70 cents a bushel on the 24 December futures. And so if you're concerned about that price getting away, you know, just already looking at $1 erosion of 23 markets to 24. If you're concerned about that, you may want to consider taking some of that risk off the table. Now, if that's what you're concerned about.

Paul Yeager   It's hard to figure out what to be concerned about most, because, you know, you look at you look at that erosion of the market. And frankly, one of the biggest things right now that's moving the market is weather, which then becomes something that might trigger coverage in another area because you have a drought, and you don't you don't raise the crop,

Tony Jesina   right? Yep. So, but that's the advantage or the beauty of a good crop insurance policy is think of it as being able to put a risk floor under your operation. And so we recommend if you look at a margin protection policy and also to take a, a another type of like a revenue protection policy in the spring, just because of the other coverages it provides. And you bundle those two together, you've done a pretty good job of establishing a floor, keep an upside open. And so, you know, best case scenario, if you have a strong risk management program, that you've got a floor that protects your cost of production. And you get through the next growing season, and you don't collect on that policy. Because your operation generated more revenue than that, that's a great thing to have. Okay, that's a win. But if that if the markets don't materialize or weather doesn't cooperate, nope, with a loss, you know, now you've got that safety net below you knowing you know what, I can farm No, another year, but I feel really confident I can sleep at night because I've made a good risk management decision by taking my put a good floor under my operation, leaving the upside open.

Paul Yeager   If I close my eyes, Tony, it sounds like you're the person sitting across from me most Friday afternoons as we record your talk, everybody talks about a floor and the importance of having one and and if the market would rally would be this way, I want to go back to what you said about volatility. We are in years where it is a dramatic swing in 12 months, whether it's fertilizer or an input, or it's the crop itself that goes up and the weather, who benefits from the volatility, if they've planned correctly? What's a good scenario here to try to handle volatility?

Tony Jesina   Yeah, there's a risk management piece to it. There's also a marketing piece and I am not a market advisor. So you know, there's others that can help producers understand how to take advantage of merchandising volatility on the market side. But for us, it's more about knowing that we've got our costs covered. So in terms of volatility, it's you take that risk off the table by putting a floor. And if the markets rally, and you know, those markets are above your cost of production, then you've got confidence to for price and take advantage of those markets, knowing that I want to be protected. If my policy is structured, right. That case, I am short on bushels, I know that my policy will cover me. And most years, if we look back over the last, I think 2021 years on beans, about 50% of the time, the harvest price is lower than the spring price. And on on the corn side, it's like over 70% of the time, the harvest price is lower. So when you have those, those opportunities in the market where you might have a rally because of volatility. If you can take advantage of that, over the long run, you're generally going to be ahead.

Paul Yeager   So let's take it where we might go with a year with little volatility. But we're on the wrong side of where that price was. We'd factored everything high. We dropped and then never rose back up. I mean, that's still a scenario we can come out ahead on. Right?

Tony Jesina   Absolutely. Because a revenue protection policy and a margin protection policy, you're locking in a revenue floor. And so if things don't materialize, so the market doesn't provide that opportunity. Okay. That's where your crop insurance policy comes into play, because that's that safety net you put in. And so it's there when you need it. But hopefully you don't need it every year. But you want to have it there so you can sleep at night.

Paul Yeager   There's a lot of things that keep producers up. Right? I mean, come on, go back, go back to those days. And Tim makan here like, Okay, we need these hogs to rally a little bit we need something to happen. Where's the misnomer? Right now on crop insurance, whether it's Margin Protection, or what wherever it is that you think has changed. I asked you what has changed dramatically since 2009? You talked about the expansion of products, but what do you just the producers still want to do it? Because it used to be maybe they didn't want to they didn't see that as a good option or that was too much help. Do you see is there is that stigma gone?

Tony Jesina   There's for the most part, yes, but there's still pockets where there's still stigma, you know, a couple that you hear about would be you know, cost too much. Okay. So I'm not sure it really and it or never pays. And so if you look at you got to look at where your risk is at and that's where I'd say the big thing that's changed is, let's say you're seeing, you know, years ago people would offer crop insurance also offered a whole lot of other things. And, you know, we've only had revenue products around since the 90s. And it took almost nine years, I think for revenue products to become the predominant. No. So it's as as far as the most predominant policy, which means it takes time for producers and for the agents to understand how these policies really work, where they work well, where they don't work. And you're seeing the same thing as it's just this continued evolution that the more people understand that and looking at making business decisions and taking risk off the table, you're starting to see this evolution in terms of not only types of coverage coverage levels, but also bundling different programs together to be specific to your operation. So that's a big change. But there's still a handful out there that feel like, I'm just going to do it Dad always did, and was going to take this kind of baseline coverage. And, you know, it's more of therefore, you know, a disaster type environment. But that's, that sentiment has shifted a lot where producers are looking at that and saying, you know, what, if I take advantage of what this policy avails, okay, I can do things from operation like, I feel more confident for pricing and taking advantage. And so you're seeing people use it more from a business decision to make better business decisions to enhance their bottom line.

Paul Yeager   All right, Tony, this one's out here. Give me a minute to lay the groundwork on this question. You're a child of the 80s. I'm a child of the 80s. I get asked a lot to talk about on on this podcast or on the TV program. About are we setting up for another farm crisis? Do you think that if we had some of the protections that we have now, the farm crisis may have been averted? In the 80s? I mean, are there ways that individual producers may have been in better scenarios? Or are we talking apples and oranges here?

Tony Jesina   No, Paula, you're spot on the, if you look at some of the key triggers that happened in the 80s. And the fortunate thing is, as a, the ag industry has learned a lot of lessons from the 80s. And so if you look at from the risk management side, our programs are way better today than they were than what was available back then. And so could that have helped producers? Absolutely. You know, what it? Would it would have kept everybody prosperous? Probably not, because it's still a cyclical environment, you still have individual decisions, okay. So you look at what's available from as far as the programs that are out there, the risk management programs are way better, provides a much better safety net better floor. And the second piece of that is what's if you look at it from the lending side, you look at, you know, majority of producers today have locked in long term fixed rates. So I've taken that interest rate volatility off the table. And so you look at what happened in the 80s, when interest rates started to skyrocket your costs overnight change significantly, then if you had any kind of stress from weather or markets, and you didn't have a good safety net, you kind of coupled those together. And, you know, those contributed to the crisis. But today, our producers are, you know, as strong as they've ever been financially, when you look at from a working capital perspective, a lot of it's just because of how they, how their balance sheet is structured, how they're managing their debt, and how they're managing the available programs to maximize revenue, minimize, you know, really minimize the risk.

Paul Yeager   So if you have a bad year, and you might be at 50%, of revenue that you expected, I'm just going to play with some broad numbers here. But if protection allowed you to only lose, you know, you may have saved 10 to 20% each year, which didn't put you in a very big gambling position where you had to make sure that you hit black instead of red on the roulette table, I mean, that maybe we wouldn't have had to have these producer farmers take as big of a chance that they did to leverage themselves to the point of out of business. So we may have delayed it. I don't know. I there's not really a question. It's just more. I'm thinking out loud. When you started talking about a Tony. That's where it, it just kind of started to hit. So I guess I'll ask this question. So you can actually answer something is when we talk about the pace of government is when we saw the options change in the 90s and start to expand is that because it took us that long to figure out what happened in the 80s and this is the way we can help producers is that may be why we saw the expansion of insurance and government programs in the 90s

Tony Jesina   I think you saw private industry under Stand up where some of those gaps opportunities were. And then they worked with the government to come up with ways to to address that. But I'd say a lot of that probably came through private industry.

Paul Yeager   Okay. It was a private industry driven thing more than there was opportunities created to help farmers. And that's where business was, we're able to expand. Correct. Okay. Okay. When you look at your career, in crop insurance, what do you think will be the the biggest the headline that has been the biggest change? Or you talk about dramatic change? What do you think will be the biggest impact on feeding the world that American farmers do?

Tony Jesina   The biggest impact today or mean, in the future,

Paul Yeager   in your career, and your time will just get to the year, I

Tony Jesina   would say the biggest impact is that the evolution of the program has enabled producers to I would say, reliably, reliably, consistently, be in a position to serve the world and continue on for the next generation. They it's provided a lot of stability for not only the operations, but but the evolution of crop insurance has provided stability to the global food market.

Paul Yeager   Now, yeah, I hard to argue against that against that. Tony, anything else you wanted to talk about that? I didn't ask?

Tony Jesina   Well, you mentioned, you know, again, the deadline is coming up. And there's just a lot of opportunities out there that producers need to look at, this isn't just an annual decision anymore. And so I just encourage producers to reach out to their agent, you know, we write more crop insurance policies than anybody else we feel we're the experts in the space. And we have invested in tools and training to help producers understand what's available to you. So you can make a more, you know, a better decision, a data driven decision for your operation. And so as encouraged producers to not wait until this winter to figure out what you're going to do. You're already you're already locking in and buts for next year, you're negotiating cash rents, you're looking at what's my seat choices going to be? You should also look at risk management now and look at what risk I'm gonna take off the table today. And what risks maybe don't want to wait until my next opportunity which is in February to take risk off the table. So I wouldn't dally I get after right now at least understand what's available.

Paul Yeager   Tony, just see, you know, I appreciate the time. Thank you so much.

Tony Jesina   Appreciate the conversation. Paul. Thanks for all you do for the industry as well. Thanks.

Paul Yeager   Thank you. My thanks to Tony Jesina. We talked about Tama county a lot after we got done recording, so it was kind of fun to step back into some of the homeland in the region both of us can share. We thank you for sharing episodes and allowing us to spend time with you. Any feedback for the program? Send an email MarkettoMarket@IowaPBS.ORG. I'm Paul Yeager. Have a good one. We'll see you next time. Bye bye