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 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.