Wade Assurance
  • Home
  • Speculation
  • The Pit
  • Resources
    • Futures Contract Specs
    • Tools
    • Terminology
    • Past Trade Performance
    • Crop Overview >
      • Corn
      • Soybeans
      • Wheat
      • Supply/Demand Factors
    • About
  • Disclaimer

Options on Crop Insurance Revisited

10/28/2017

0 Comments

 
In February, it was my opinion that we could have a difficult year as far as price goes.  The crop insurance guarantees were being set at a low that we had not seen in a very long time, and it was my opinion that if we had an average crop year yield wise with low prices that we would see some farmers have to exit farming. 

Because I am also a broker, I was able to design a strategy that only cost a few cents per bushel that raised the guaranteed price floor substantially over what the crop insurance guarantees were going to be.  My crop insurance customers were shown this as we discussed insurance for this year, and I wrote about it on this blog back in February.  ​On Friday, October 27, the soybean spread expired.  This is the chart from February that diagrams the strategy.
Picture
In hindsight, the strategy performed wonderfully!  If you participated with this strategy, you had price protection all year at $10.12 net after the cost of the options.  The strategy only cost .08 per bushel, but yielded .345 per bushel after the cost was factored in.  If you used this for 50 bushels of soybeans, you  added $17.25 per acre in revenue to your farm.  The strategy actually protected $1.32 per bushel or $66 per acre in revenue that the crop insurance would not touch had we had a major price event.  Don't tell me back in June you weren't a little worried.  Note that the Fall Harvest Price for crop insurance is being set this month.

​The chart below shows the actual outcome of the strategy.  The area shaded in yellow depicts the above chart and the time since the strategy was created in the unshaded area to the right.  The November options expired Friday with Nov Beans at $9.7675.  The horizontal purple line shows where the price floor was set.  The blue horizontal line shows where your crop insurance floor was if you had an 85% RP policy.
Picture
The Harvest Price Guarantee for corn is also being set this month, but there is still a month to go before the corn spread expires.  If prices were set today, the corn strategy would perform even better than the soybean spread on a per acre basis.  The spread is worth .36 today.  Take that times 150 bushels of corn and the spread is worth $54.00 per acre today.  This strategy only cost .057 per bushel or $8.55 per acre.
Picture
When we are at a place with tight margins, we really need to consider strategies that give you more protection than your crop insurance does.  Most of the farmers in this region of the country are enjoying record yields.  If that was not the case this year, it would have been tragic for a lot of farmers.  Our yields bailed us out.  We cannot always count on out yielding low prices.  A strategy such as this does not cost much, and allows you to take control of price risk you face.

Give me a call or an email if you have any questions which I did not address in this post.  
0 Comments



Leave a Reply.

    Archives

    January 2019
    December 2018
    June 2018
    March 2018
    February 2018
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    December 2015
    November 2015
    November 2014
    July 2014
    November 2013
    October 2013
    September 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012

    Categories

    All
    Brokerage
    Carryout Worksheet
    Corn
    Crop Insurance
    Cycles
    Dollar
    Oil
    Soybeans
    Wheat

    RSS Feed

    Corn Cycles

    Terminology

    Track Record

Steve Wade and Tyler Wade of Wade Assurance are associated persons for AgDairy LLC.

                           Commodity Risk Disclosure Statement

The risk of loss in trading commodity futures contracts can be substantial.  You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

Wade Assurance is an equal opportunity insurance provider.
CONTACT US
Steve Wade
swade@wadeassurance.com
​
Tyler Wade
​twade@wadeassurance.com
Picture
270-234-6074
  • Home
  • Speculation
  • The Pit
  • Resources
    • Futures Contract Specs
    • Tools
    • Terminology
    • Past Trade Performance
    • Crop Overview >
      • Corn
      • Soybeans
      • Wheat
      • Supply/Demand Factors
    • About
  • Disclaimer