Alberta Spring Price Endorsement/Revenue Insurance

[charliep]

Are you considering (only applies to Albertans) taking spring price endorsement/revenue insurance coverage this year? What factors are going into this decision?

[TOM4CWB]

Charlie;

If prices are as dismal as Crop Insurance projects... the premium charged still costs almost as much as the benefit paid.

Since the Canola Revenue insurance costs $8.09/ac... it seems to me buying some puts should be much more cost effective, or buying calls after hedging.

A max of 80% coverage is avaliable... this means $15.00/t on an average canola yield for an option.

Plus this is only paid back IF we end up with $6.12/bu as the protection is from $6.69/bu minus 50% deductable.

On Wheat/Barley they show better numbers... feed may indeed be worth looking at.

[charliep]

Thanks Tom4cwb

Would agree that crop insurance coverage prices are starting low this this year with probabilities of a 10 % decline minimal (I hope). Not much incentive to take on spring price endorsement (at least for crops where viable forward pricing contracts exist). SPE may be worth looking at for some crops that do not allow other forms of forward pricing alternative (case by case decision).

For revenue insurance(keeping in mind you have to subscribe to the spring price endorsement), coverage prices are low enough that there is a potential payment as of today (will change going into the fall). Keep in mind revenue insurance only pays out 50 % of the difference. You have to compare your potential payout to the premium cost of the spring price endorsement.

Still recommend price targets and some forward pricing this spring. Don't know where people's price targets are (will very with everyone) but I would look at a rally over $300/tonne (Nov. WCE futures) as a place to start selling new crop. Other crops should also have targets. As a part of this process, I would be using crop insurance (even at low coverage levels) as backstop to these forward contracts for the variable price benefit (Alberta only).

On the options strategy, would agree with Tom4cwb that they are a tool. Only comment is that WCE volumes are small on options (even canola). Hopefully, this will improve over the spring. Has anyone tried to trade WCE options since the move to electronic trading? Are you using US markets as a cross hedge?

[charliep]

Mistake. Should be canola rally over $300/tonne (Nov. futures). Have not adjusted to daylight saving time.

[charliep]

Apologies for being brief/not providing details (actually caught me by surpise)but am in Winnipeg. Changes to AFSC spring price endorsement/revenue insurance. Everyone will have to redo their numbers with the changes making the program more desirable with reduced cost of the SPE/better payout potential on the revenue insurance. Alberta program only. More information at:

http://www.gov.ab.ca/acn/200504/178261A881662-39DB-4078-ABD6BE8AEEF27B23.html

[melvill]

Incidently, Charlie and Tom, recently sat in on a farm commodity risk management workshop where one of the participants (a farmer) regularly writes options at the WCE. He said that the volume numbers at Winnipeg are sometimes deceiving. His point was that it may be that the volume numbers are low because there are limited numbers of people wanting to buy options rather than limited numbers of people willing to write them. In his opinion there are always or nearly always writers willing to do business but not many buyers. I'll also post this on a new discussion.