The Dreaded Cash Contract
Jul 20, 2012
I am getting phone call after phone call from farmers that used the old method of making cash sales close to their level of crop insurance and are now almost certain that they are not going to have near enough the bushes to meet these contracts. I know of some large farmers that may not be around next year because of this. Unfortunately this type of hedging practice has gone on for years and is a selling tool for the Harvest Price Option. It has been said that the Harvest Price Option is there to help you buy the back the bushels you may need because if price is considerably higher there must be a shortfall in yield. It also allows the farmer to pre-sell their bushes with minimal risk. I cannot totally argue against those statements as they have some truth to them but I can certainly add a caveat to them. When prices are going higher than not only are farmers losing bushels but they are also spending extra money to try and save those bushels. This year it has been due to additional irrigation, spraying for spider mites and other critters. If you run your numbers, although the insurance will probably help you in buying back bushels that is about wear the well runs out. There are going to be many farmers that are staring at barely breaking even and that is even with some very large insurance indemnity checks. This is just another example of how we as farmers need to learn to utilize all the tools out there that are available to us. Tying insurance and other marketing tools provides a farmer much more opportunity to lock in revenue and too tackle any scenario that might affect us. I advised all of my insurance clients to get out of their contracts that they were unsure of being able to fill back in mid-June or at least have futures on against those bushels. I would encourage any of you that are in fear of not meeting their contract bushels to contact the buyer and determine what the buyout cost is going to be. Once you know that number, do not be too hasty in what you do. Run what if scenario’s to get an idea of what your insurance is going to cover. Once you have some numbers down on paper it is much easier to look at other management tools that can be implemented throughout the summer and into the fall to either help you break even or to capture profits.
If you have any questions you can email me at Jamie@gulkegroup.com or call me at 707-365-0601.