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Best guess at which crop may pay under Alberta spring price endorsement

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    Best guess at which crop may pay under Alberta spring price endorsement

    In looking at my crop insurance I am trying to figure if it is worth taking the spring price endorsement on any or all of my crops.

    I just don't see some of the crops dropping by much over the 10%.

    For example peas would have to be in the mid $3 range and I don't see them much lower, and canola would have to be $7, which may happen but my gut feel says that is too low.

    Barley could easily fall to the low $2/bushel level if there is a huge corn crop and our dollar climbs some more. It is a sad state of affairs when the size of our barley crop does not even infuence the price. Why are we not adding tarrifs on the imported corn comming in, it is pretty obvious that it is hurting the price of barley this year, and it should not be too hard to prove that us corn is subsidized?

    Mustard is interesting, the contract prices are pretty much guaranteeing what you will get for fall price, yet a praire wide disaster such as last year would easily spike the fall price to the 50% max that the spring price endorsement allows. Mustard looks like pure gambling to me, as to taking or leaving the endorsement.

    Wheat looks like the wild card. A 50 cent a bushel drop in price from the crop insurance price is my most likely fall price guess. On most crop insurance contracts that will only pay out $15-20/acre and the premium is $4-9 acre. Is the payout big enough to justify the premium?

    These are my fall price guesses in $/bushel:

    If it rains and prairies get average crop, prices basis Calgary area, net at the bin:

    Feed barley $2.30/bu
    Malt barley $3.60/bu
    Cps wheat to cwb $3.95
    1cwrs wheat 12.5 protein $4.55
    Yellow edible peas $4.50
    Canola $7.40

    If it does not rain and we get last years yields:
    Feed barley $3.75
    Malt barley $4.10
    cps wheat to cwb $5.00
    1cwrs 12.0 protein wheat $6.20
    yellow edible peas $5.20
    canola $7.70

    Please contribute your own price estimates and your opinion on the spring price endorsement.

    #2
    Couple of comments and then I will leave for questions.

    1) Make sure you keep the variable price benefit (ability to increase coverage price on yield loss up to your crop yield based on coverage level) and spring price endorsement (ability to lock in a minimum price based on this past winters crop insurance values on actual production up to your crop insurance covered yield based on coverage level).

    2) On the spring price endorsement, my process over the next month would be to compare 90 % of the current crop insurance prices to the new crop bids grain companies are offering. If the new crop prices are close to or below the 90 % level, I would look favorably at the spring price endorsment (particularly if I have a negative market outlook). If new crop prices were close to the current insurance value, I would either look at strictly locking in prices (negative outlook) or buying puts (likely cheaper premiums). If you are optimistic about prices (I'm not unless weather problems kick in), it's okay to do nothing.

    3) The objective of the spring price endorsement is to cover downside price risk. The program should fit with your market plan.

    4) Wheat is where I am getting most questions. A dual challenge of understanding the new Producer Pricing Options and the AFSC Spring Price Endorsement. Tom4cwb has made some good points about this.

    Comment


      #3
      The other note is to make sure you know the insurable grade. In the case of peas, the calculation is based on feed peas (exact description in your crop insurance documents).

      Comment


        #4
        Charlie and Poorboy;

        You said Charlie;

        "Make sure you keep the variable price benefit"... the reason it is now called a "benefit"... is because this system is now in everyone's policy... if you take Crop Insurance for 03... you have it! THis is different from the "Spring Price Endorsement" which is optional... and as it has not been preloaded into the base program... costs much more. I see in the info that the SPE is 50% paid for by the farmer, 50% by the Alberta Gov. nothing by the feds.

        Minneapolis Spring Wheat Puts to Watch: Sept: $3.40 put @ 14 3/4 cents, $3.35 put @ 12 1/2, $3.30 put @ 10, $3.25 @ 8.0 ... these are US funds... and very costly... BUT... as some Marketing services are pointing out;

        "There are several advantages of using open market put options rather than crop insurance. Put options kick in immediately in a market drop. The Alberta Insurance program doesn't. Prices must decline by at least 10%. The grower has flexibility to cash out their put options at any time. And growers can cash out the residual of the put option should market conditions turn more bullish.
        Crop insurance premiums are lost." (PROMARKET Wire, Call Errol or John: Refco Calgary 888 216 2490)

        These are good points... If I am to spend an average of $8.00/ac... what is going to be the best risk management tool... is going to take the "Wisdom of Solomon"!

        Comment


          #5
          Tom4cwb

          Thanks for highlighting the fact spring price benefit is a part of the normal crop insurance policy.

          Hopefully we can get some discussion around the spring price endorsement and helping people put these two alternatives (SPE and puts) in a management decision making context (the third alternative is to do nothing). If nothing else, farm managers should have an understanding of mimimum price strategies.

          Comment


            #6
            With the numbers we have, we need to first decide if crop insurance is even worth the premium charged!!! If we only get $70 per acre coverage and it costs us upwards of $18 per acre to get it, then what? We have a large, unrecoverable increase in the cash cost of production. The new crop insurance does not even cover the COP with the premium worked into the equation. Never mind something to live on!! Only industry that I know of that can charge a 20% premium and call it a "good program" or a "great improvement".

            Comment


              #7
              achiliak;

              No question, depending on how long you've been in, or how many droughts have happened on the farm, what your experence history is... to how much it Costs!

              If you have a larger farm... and are willing to experiment... there is rainfall insurance that is commercially available... if you are interested!

              Stan Casar,
              Fimat
              stan.casar@fimat.com
              (204) 943-4800

              Stan is very innovative... you can buy high wind insurance, high/low temp. insurance, low rainfall insurance... High rainfall insurance...

              You can buy a combo of these... but Fimat used Enviroment Canada weather recording stations last year...

              If you worked with Fimat, you might piggy back on the lack of rainfall pasture insurance that AFSC brought in new this year... because there are a whole bunch of new weather stations now connected with this program, that may give your farm a better closer measuring station... if you live in Alberta. I thought I heard about a simular program in Sask.

              Last year the costs of these programs through Fimat were quite cost effective... probably worth looking into if you are interested in buying $250,000 of coverage or more.

              Contact them immediately... as it must be set up right away, or it will be too late for this growing year!

              Comment

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