Topic #3 Business Risk Management, where are we?

[TOM4CWB]

Charlie and Lee,

Much has been made of risk management, and obviously much more needs to be done...

With crop insurance, in 2002, did the AB gov. risk manage the drought risk???

Back in April on Topic "Topic #3 Business Risk Management" I brought info regarding rainfall puts and calls, and I and Leo Meyer did a fair amount of work promoting private risk management using these risk management options...

Now, if Crop Insurance had taken say 150 million of our premiums, they could have reinsured for at least $1Billion, without stripping the crop insurance reserve at all, if a diaster occured...

Now, is there enough money to pay the farmers who did take crop insurance???

There had better be, and on top the variable option pricing is being counted upon to repay hedging costs of buying out contracts that there will be no grain to fill...

Charlie and Lee, can you assure us that government will live up to their obligations, and that the variable option will reflect Aug 1st prices so we can buy our contracts out and be assured we will have the increased revenue from the variable price option in our crop insurance policy, to pay the bill of buying these hedges out?

THIS is absolutely critical, so that those who do risk manage can get their obligations looked after, without bankrupting the farm...

Please discuss this, as we cannot afford to have gov. let those who paid the crop insurance premium be let down, because you don't understand the consequences of your actions...

[charliep]

Tom4cwb

Alberta Crop Insurance uses different derivative markets, etc. to cover their risk.

Every can be assured that AFSC will meet its commitments on crop insurance regardless of cost.

Weather insurance type products you mention are available for pasture/hay but have not been offered for other crops. An alternative being considered for the future.

The summer price for the variable price coverage alternative under crop insurance will be out in August (July last year). The prices will reflect the new realities of the market. I realize there is a relationship between price used in crop insurance coverage (for those that are on the variable price alternative) and forward contracted prices for those that are in a write off situation.

[rain]

Charlie FIMAT has a weather Put or Call based on rainfall amounts over and under the area average. Have you looked at these at all?

I had mentioned it to you in an earlier thread this summer?

[TOM4CWB]

Charlie,

AFSC/Crop Insurance told me today that the meeting is set for July 30th, and the final decision on the variable option price should and likely could be out by August 7th.

I am a little concerned with the process of coming up with the price...

I have been told many times that Crop Insurance is production insurance... and that is fine, that works for me.

If Crop Insurance is production insurance, then I need my insured production to be delivered to --- at --- on --- date.

The idea then of production insurance then must be to replace the economic value of the lost production, so I can replace what has be lost to specific insured covered risk, that the policy covers.

Now, come the feds riding in on there high horses, with their crop year average prices, that must be factored into the variable option price I am told.

When I have a hedged contract to fill, I would much rather have the grain to deliver that cash in my pocket, as it usually costs big time to buy back the contract...

So if Crop Insurance wants to cover production risk, cover it, and if the feds want some other factor and value to determine the insurable coverage, fine, but tell us up front that some vague political haze will be added to the pricing formula for this production replacement payment... and then while we are at it, farmers can as for cost of production to be added into this formula as well...

This fog and political fudging is what causes many farmers not to take crop insurance, because they don't trust that farmers will get a fair shake... and if we expect a dependable risk management system, then it MUST have integrity and be trustworthy...

Charlie, Can you and Lee promise us that politics will not be a factor in the prices anounced around August 7th?

[charliep]

You seem to have good sources at crop insurance. This year provides challenges given the drought here at home and uncertain weather in the US (US corn will be determined by then but soybeans will still be in their critical period). What I can tell you is the process will be rigorous and fair in forecasting prices based on the best information we have on that date.

AFSC/the feds will use this forecast in resetting prices for the variable price option.

My plans for the next week are to a part of the world that rains (MB.) and do a little canoeing down the Assiniboine (Brandon to I don't know where).

[charliep]

Rain

I did some checking and the weather derivatives you talk about are available to individual farm managers. A contact for this product is:

Stan J Casar
Senior Vice-President
Fimat Derivatives Canada Inc.
515-167 Lombard Avenue, Winnipeg, Manitoba Canada R3B 0T6
Ph: (204) 943-4800
Fax204) 956-7840

A little too late for rain related products. They are starting to write some frost based ones.

These are good products for some individuals but you need to do the cost benefit analysis for your own situation.

[TOM4CWB]

Charlie,

All the best on your well deserved break..., see if you can send some rain back west...