Current Marketing Thoughts
Kevin Van Trump
Kevin Van Trump has over 20 years of experience in the grain and livestock industry.
Why should I get more new crop corn sold when I have 85% revenue protection?
May 21, 2013
I think you have to understand the insurance guarantees you "revenue." It does not guarantee you profits. Consider the following example:
Farmer Ted has an APH of 150 bushels per acre. He takes out the max 85% coverage. At first glance you might think Farmer Ted therefore has 127.5 bushels (150 x85%) guaranteed at the Spring Price guarantee of $5.65. If he priced his remaining estimated bushels then he should be covered. Not so fast. Consider what happens in the situation below:
Farmer Ted produces a crop equal to 180 bushels per acre. Prices fall to $4.50 and Farmer Ted files a claim to get his 127.5 bushels adjusted to the Spring Price Guarantee of $5.65. Unfortunately his claim is denied. The 127.5 bushel guarantee at $5.65 is equal to $720.37 per acre. Since Farmer Ted produced 180 bushels multiplied times the $4.20 sales price he generated $756.00 per acre. Hence "Claim Denied" and no payment received.
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Moral of the story, make sure you are talking things over with your insurance provider. I certainly don't have all of the answers, but I am very fearful many of you are thinking your insurance is going to guarantee a floor on 80-85% of your production. This is somewhat true, but I believe you have to dive a little deeper and look at the entire picture. Guaranteed "revenue" per acre is a more accurate way to look at it. Remember there are several variables and moving parts that will influence or generate a payment. Yields at or above your APH could negate any type of claim or insurance payment. Just make sure you are constantly running the numbers and understand all of the specific nuances of your policy.