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February 2013 Archive for Risk Management with Insurance Tools

RSS By: Jamie Wasemiller, AgWeb.com

Insurance tools have become an integral part of managing your farming operation. Stay current on insurance tools and how to incorporate them with your current risk management strategies to market your grains throughout the year.

Price Flex Insurance Option Webinar

Feb 22, 2013

Due to the interest level of producers along with the lack of knowledge that agent out there have in regards to Price Flex I have decided that if there is enough interest I will conduct a webinar next Tuesday, Feb. 26 at 10:00 am central standard time. During this webinar I will discuss the Price Flex Insurance option and briefly go over a few other insurance related items.

If you are interested please email me at Jamie@GulkeGroup.com and I will send you the information that is needed to register.

Just as quick reminder about the Price Flex Insurance option:

Price Flex is a private insurance that allows the producer the opportunity to "lock" a potentially higher revenue protection guarantee through higher month averages than the spring or harvest price set by the RMA for either RP or GRIP policies.  The higher level is limited to $1.00/bu in corn and $2.00/bu in soybeans.

 

The additional months still available to determine the 2013 insurance price is March, April, May, June and July (ex. The CZ13 futures price will be averaged during the above mentioned months to determine the additional monthly prices for 2013 corn insurance).

 

The following states that Price Flex is available are: AL, CO, GA, IL, IN, IA, KS, KY, MO, MI, MN, MS, ND, NC, NE, OH, SD, SC, TX, TN, VA, WI.

Price Flex Should Be Considered!

Feb 15, 2013

Due to the interest level of producers along with the lack of knowledge that agent out there have in regards to Price Flex I thought I would again post an older blog I wrote for the long weekend so others may have the chance to see it. With the recent downturn that we have seen in both corn and soybeans for the spring price averages it has made this opportunity all the more enticing as a way to try and lock in a higher price in the future months. I cannot express enough that every producers needs to learn about Price Flex and give it some serious consideration for 2013.

I presented two sessions on crop insurance at the Top Producer Seminar. A feeling I got from the attendees was that while crop insurance is vital to the farming operation it does not provide enough opportunities to lock in seasonally price rallies. A common thought is that price will be relatively low in the spring, move higher through the summer and then fall back down in the fall resulting in an insurance spring price and harvest price that will not capture any of a summer rally. Attendees also stated they wished they could take the month price average in the summer months instead of in February and October.  

The new Price Flex Insurance product now fulfills those statements. 

Producers can now purchase those averages in the months of March, April, May, June and July. Either single of multiple months can be purchased. If any of those month averages purchased end up being higher that what the government set as the spring or harvest price the producer will be allowed to substitute the higher average price to determine their Insurance Revenue Guarantee.   

If a producer purchases the month of June there are now month averages created and the highest one will be used to determine the Revenue Guarantee level. 

(Ex. If the Feb. corn average is $5.70, June average is $6.00 and the Oct. average is $5.80 the producer will use the Price Flex June average of $6.50.) 

If either the spring or harvest price the government sets is higher than the month or months the producer purchased thru Price Flex than the government price average will be used and the Price Flex premium will still be due in October.  

(Ex. If the Feb. corn average is $5.70, June average is $5.60 and the Oct. average is $6.10 the producer will use the government October average of $6.10.) 

I was happy to see the interest that the attendees had while speaking to them about this product and it just showed me that more producers need to learn about this opportunity. One of the ultimate questions was how much would it cost to purchase this product. Although prices may slightly vary I ran some quotes and for corn the price was about $.04 per bushel for corn and around $.08 per bushel for soybeans for any of the month I mentioned above.  I have even noticed that some of the fringe states can purchase this for $.01 a bu per acre. Another nice feature is that the premium is not due until October. 

Price Flex appeals to the producer that uses the board to hedger their crops as it provided a reasonably priced hedging opportunity. The common practice to try and take advantage of a potential summer rally is to buy calls before prices go higher or wait and buy puts once price are high. As a comparison a call or put option premium is over $.30 per bushel and that premium will have to be paid up front.  

It is also appealing to the cash hedger because it now give them another opportunity to hedger their crops without having to use futures or options. It may also allow them to be more flexible on when they have to make cash sales.   

The deadline to purchase this product is March 15 so this is the time to learn more about this private product. Our farm utilized it, I recommend it to all our Gulke Group clients and I hope many producers out there strongly consider this opportunity. Our farm utilized this product and I also recommend it to all Gulke Group clients as well. 

If your agent cannot provide you with information about Price Flex please take the time to contact me at 707-365-0601 or email me at Jamie@GulkeGroup.com

The following states that Price Flex is available are: AL, CO, GA, IL, IN, IA, KS, KY, MO, MI, MN, MS, ND, NC, NE, OH, SD, SC, TX, TN, VA, WI.

A Reason to Buy Up Coverage

Feb 14, 2013

As we look forward in risk management for producers it is very hard not to look at the fundamental data and with recent price movements and have concern that grain prices will not be significantly lower toward the end of the year. Although we are very light on subsoil moisture in many areas in the country but we also have a weather premium already built into the futures markets which will probably lessen the movement to the upside. If the weather become more favorable along with the fundamental data the price movement to the downside could be significant.

Take a good look at the fundamental information out there and it should volumes to you about why you purchase the highest levels of crop insurance that you can. If we are setting up for the possibility of low prices at the end of the year and into next year this is the time to protect as much as you can with the insurance spring price.

Bottom line is that we do not have want to be in a situation that we NEED a drought to keep above breakeven.

If the drought persists and prices go much higher a producer will still be very happy that they bought a high level of coverage along with the harvest price option and you only need to look back to 2012 to see how beneficial it was.

If you have any questions contact me at 707-365-0601 or email me at Jamie@gulkegroup.com.

Crop Insurance Beneficial in Multiple Scenarios

Feb 09, 2013

As we have seen since the January 11 USDA Quarterly Stocks Report the markets have been volatile. The market has two main responsibilities. The immediate one being curbing demand in the near term as the USDA told use there are tighter stock than many thought. The second is trying to keep that demand around for new crops as there will be near record acres planted with better yield potential. This second scenario will also be dependent on weather.

With February being the main discovery month for corn and soybeans the spring price average so far has been able to take advantage of the markets trying to curb demand in the short-term. The front month futures prices are seeing the most upside movement it has still been supporting the far out contracts. At some point the marketplace is going to get past the critical point of needing to curb demand and we could then see a large drop in prices until we can gain that demand back. We got a little taste of that on Friday with corn and soybeans having a rough close on the week based on the new USDA numbers. With crop insurance covering both price and yield this alone is a big reason to buy the 80% or 85% level of insurance to cover as many bushels as you can at what may be a very high price compared to what it may be worth down the road. If you have the ability to attach the Trend Adjusted Yield due this as well because it bump up your coverage level closer to 90%.

If drought conditions persist through the year the markets could have real upside potential. In the a recent survey by Agweb it painted a good picture as to the severity of subsoil absence and what it would take to replenish areas around the United States. We saw what the market did last year in an effort to curb demand due to lack of bushels and if the drought persists the market will do it again. In 2012 the harvest price was $1.82 higher than the spring price for corn, $2.84 higher in soybeans and $1.46 higher in wheat. This upside potential is one the main reason that producers should almost always elect the harvest price option. It is also a very inexpensive way to cover the upside compared to options and a lot less risky than hoping you will have the bushels produced to sell a bunch of them at very high prices.

If you are of the belief that the markets will rise in the summer above the spring price and then come back down in time for the harvest price than you need to look at the private product called Price Flex which anyone can reference my old blog posting for more information on.

Last year less than 3% of the total cost on our farmland was attributed to crop insurance and that included being at an 85% policy along with the Trend Adjusted Yield option. Along with the help it gives in managing risk throughout the year insurance on a yearly basis is money well spent. We all would much prefer to make money the old fashion way and grow it but insurance provide peace of mind against the what if’s and is an additional marketing tool.

Market volatility is showing us that the market is just not sure what it wants to do and when it will do it. This makes it very difficult to determine how to effective manage your risk and the timing of doing something is almost always the determining factor. Crop Insurance can provide some protection against the unknown and as I hopefully conveyed above can benefit a person in many different scenario that could play itself out.

If you have comments or questions I can be reached at 707-365-0601 or you can email me at Jamie@GulkeGroup.com.

Price Flex Insurance Provides an Good Marketing Opportunity

Feb 02, 2013

I enjoyed speaking again at the Top Producer Seminar in Chicago. If any readers out there have not attended the Top Producer Seminar before I would strongly advise you to sign up for next year. They quality of both the event and speaker is excellent. 

I presented two sessions on crop insurance on Thursday. A feeling I got from the attendees was that while crop insurance is vital to the farming operation it does not provide enough opportunities to lock in seasonally price rallies. A common thought is that price will be relatively low in the spring, move higher through the summer and then fall back down in the fall resulting in an insurance spring price and harvest price that will not capture any of a summer rally. Attendees also stated they wished they could take the month price average in the summer months instead of in February and October.  

The new Price Flex Insurance product now fulfills those statements. 

Producers can now purchase those averages in the months of March, April, May, June and July. Either single of multiple months can be purchased. If any of those month averages purchased end up being higher that what the government set as the spring or harvest price the producer will be allowed to substitute the higher average price to determine their Insurance Revenue Guarantee.   

If a producer purchases the month of June there are now month averages created and the highest one will be used to determine the Revenue Guarantee level. 

(Ex. If the Feb. corn average is $6.00, June average is $6.50 and the Oct. average is $6.30 the producer will use the Price Flex June average of $6.50.) 

If either the spring or harvest price the government sets is higher than the month or months the producer purchased thru Price Flex than the government price average will be used and the Price Flex premium will still be due in October.  

(Ex. If the Feb. corn average is $6.00, June average is $5.80 and the Oct. average is $6.10 the producer will use the government October average of $6.10.) 

I was happy to see the interest that the attendees had while speaking to them about this product and it just showed me that more producers need to learn about this opportunity. One of the ultimate questions was how much would it cost to purchase this product. Although prices may slightly vary I ran some quotes and for corn the price was about $.04 per bushel for corn and around $.08 per bushel for soybeans for any of the month I mentioned above.  Another nice feature is that the premium is not due until October. 

Price Flex appeals to the producer that uses the board to hedger their crops as it provided a reasonably priced hedging opportunity. The common practice to try and take advantage of a potential summer rally is to buy calls before prices go higher or wait and buy puts once price are high. As a comparison a call or put option premium is over $.30 per bushel and that premium will have to be paid up front.  

It is also appealing to the cash hedger because it now give them another opportunity to hedger their crops without having to use futures or options. It may also allow them to be more flexible on when they have to make cash sales.   

The deadline to purchase this product is March 15 so this is the time to learn more about this private product. Our farm utilized it, I recommend it to all our Gulke Group clients and I hope many producers out there strongly consider this opportunity. Our farm utilized this product and I also recommend it to all Gulke Group clients as well. 

If your agent cannot provide you with information about Price Flex please take the time to contact me at 707-365-0601 or email me at Jamie@GulkeGroup.com. 

The following states that Price Flex is available are: AL, CO, GA, IL, IN, IA, KS, KY, MO, MI, MN, MS, ND, NC, NE, OH, SD, SC, TX, TN, VA, WI.

 

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