Power Hour: Use Crop Insurance to Hedge Volatility

January 3, 2013 08:30 AM
 
cash money

The drought of 2012 served as an intense crop insurance crash course for many farmers.

So, what will 2013 hold?

Jamie Wasemiller, Gulke Group analyst and owner of Wasemiller Insurance Agency, says crop insurance has become more of a hedging tool, than it was in the past. "You can use crop insurance to create a revenue floor. You can also create a cushion and mitigate risk."

Wasemiller says that as prices get higher, so does downside risk. "When the markets turn, sometimes there is a lag between input costs going down. Crop insurance can help to hedge this volatility."


He explains:

 

Crop Insurance Shortfalls

Wasemiller says that crop insurance can help reduce risk, but it still has limits. He reminds farmers of these crop insurance gaps:

  • Crop insurance does not cover 100% of bushels.
  • The bushels covered still have a deductible.
  • Insurance prices are only calculated twice a year.
  • Harvest Price Option does not always work.
  • Dockage and basis are not factored into crop insurance.

 

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