Risk Management with Insurance Tools
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 - Lock in a higher Insurance Revenue Price for 2013
Dec 04, 2012
Price Flex: The following states have been approved for Price Flex; IL, IN, IA, KY, MO, MI, NE, NC, OH, SD, SC, TN, WI. They are anticipating additional approvals to follow soon in VA, AK, CO, FL.
Price Flex is a private insurance that allows the producer the opportunity to "lock" a potentially higher revenue protection guarantee than the spring or harvest price set by the RMA for both the RP and GRIP policies. The additional months to determine the 2013 insurance price is this month, Jan., 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).
Price Flex is available for corn, cotton, soybeans, and wheat in the states mentioned above. Price Flex has a limit on the difference in price between the highest Price Flex additional price discovery price designated and the price determined by the RMA. The limits are $1.00/bu for corn, $1.50/bu for wheat, $2.00/bu for soybeans, and $0.20/lb for cotton. Producers may choose from several options for price caps that are less than these policy limits.
The November price average finished at $6.27. If you purchased the month of Nov then this will act as your spring price as long as the government Feb price is lower. If the Feb price come in higher than $6.27 than the Nov average will expire worthless. Due to the $1.00 cap in corn if the Feb price happens to go below $6.27 then it will bring down the Nov price along with it but you are assured at that point that your spring price will still be $1.00 higher than the government spring price.
A $6.27 spring price would be the highest one in history and 4% higher than the next highest price of $6.10 set in 2011. The 2012 spring price was $5.68, meaning that a $6.27 spring price would be 9% higher than the 2012 price.
Last month the average after two days in Nov was $6.38. Here in Dec we are at $6.41 after two days.
The November price average finished at $13.05. If you purchased the month of Nov then this will act as your spring price as long as the government Feb price is lower. If the Feb price comes in higher than $13.05 the Nov average will expire worthless. Due to the $2.00 cap in soybeans if the Feb price goes below $11.05 than it will effectively lower the Nov average but again you will be $2.00 higher than the government spring price.
A $13.07 spring price is in the upper range of historical spring prices. The 2012 spring price was $12.55, meaning that a $13.07 spring price would about 4% higher than the 2012 price.
Last month the average after two days in Nov was $13.43. Here in Dec we are at $13.15 after two days.
As a risk management consultant and farmer it is always disheartening to watch the futures prices/ insurance revenue guarantee for the following year go lower. In the past the only way to hedge this price drop was on the board. That is fine for some but many do not want to do that. Now there is an opportunity to put on a strategy through a private product. The other nice feature about this product is that it is like insurance is the sense that you can buy now and not have to pay until October, 2013.
If you have any questions about Price Flex or want to look into buying this product contact your agent or give me a call at 707-365-0601.