Crop price insurance - Poll

Renaultman · Nov 9, 2017

chickens and wheat said:
didnt gleadall used to offer something similar, I seem to remember going to a breakfast seminar type event all about it

Yeah I used them once, I think the cost was approx £10.00 for a guaranteed £120.00 think I ended up with a final price of about £128.00 on my last load, less the £10.00

Not saying I wouldn't do it again but on my tonnage I don't have a lot to play about with so just sell a bit here and there throughout the year when I feel the price is about right.

Goffer · Nov 9, 2017

In a nutshell - Highs and lows are for fools. Wise men trade in the middle . Why insure what you don't yet have

bactosoil · Nov 9, 2017

Crop insurance becoming far more widely discussed it seems to me ,just wonder
If it's got anything to do with various study's being carried out to use it in a post
Brexit plan for U.K. Farmers ?

fudge · Nov 9, 2017

Why use an option if the forward price is already above the COP? If the forward price is below the COP why plant the crop? Incidentally are options only £5 per ton 12 months in advance? That’s still £20/ac mind.

An Gof · Nov 9, 2017

Oscar said:
Hold your horses !!!
Went to a CMA talk last month and the speaker was Richard Counsell , MD of Stable and a Nuffield Scholar and he is about to launch in the New Year just what this thread is on about. Basically there will be a web site and you select crop [ there will be 8 types initially] ie feed wheat, a month and a price which is linked to HGCA prices. The web site will come up with a insurance cost / tonne depending on the risk and basically it will pay out the difference between the actual price that month and your price you picked on the web site if its lower.
EG: you pick 100 tonne Feed Wheat, May 2018, £145/ tonne and lets say it costs £3.50 /tonne. If in June 2018, having got HGCA s figures for May if the average HGCA figure said £145, then no payout and its cost you £3.50 so you ve made £141.50. However if the HGCA said £140/ tonne then you would receive 100 t x £5 = £500 but remember it cost you £3.50 back when you did the contract.
You will only be able to deal with the tonnage you have which will be checked through data ie if you have 100acs of wheat, then you will only be able to insure say 400 tonnes not 4000 t . This is to stop professional hedge fund guys / dealers and only farmers with holding numbers will be allowed to insure.
I have nothing to do with this buisness and I hope I have explained it correctly but it was very intresting and looked like a use full way of covering up and down prices however until its launched we will have to see. It was a 2 hour talk and he has got some very high ranking specialist in data /computer programmers and some big insurance companies to work together. By the way he is also a farmers son who ended up doing hedge fund stuff in UK and USA.

I had a presentation with a group from Richard Counsell this week. Absolutely fascinating and he really captivated the imagination of the group of farmers.
The tool he has will work for other commodities as well as cereals and oilseeds and possibly even livestock.
It looks a great way to protect a price. Yes you could sell forward but this mechanism allows you to insure a minimum price and still leave your physical crop for sale at a future date so you can benefit from any upside. Best part is that it is imple to use. Your level of risk will determine the premium, your choice, and your exposure is just the premium you pay online at the time of buying the premium. This really is one to watch.

fudge · Nov 9, 2017

Oh I see. Sounds good, my wheat and rape look fantastic for harvest 2018 what is Richard going to charge me to lock into today’s forward prices and leave me free to exploit any market upside before Christmas 2018?

Steevo · Nov 9, 2017

The trouble with options is that surely you can't always guarantee a price above COP? If the market is only offering £120/t for Nov 19 at the time you want to sell, but your COP will be £130 you can surely only go for £120?

Clive's idea appeared to suggest that you could fix the £150 even if the market was below your COP.

ollie989898 · Nov 9, 2017

Steevo said:
The trouble with options is that surely you can't always guarantee a price above COP? If the market is only offering £120/t for Nov 19 at the time you want to sell, but your COP will be £130 you can surely only go for £120?

Clive's idea appeared to suggest that you could fix the £150 even if the market was below your COP.

This is where I became confused as well. Knowing how futures markets work, they can't sell you what is not even remotely represented by the futures markets. Then Oscar posted and explained how it would work in practice. It is a mechanism to protect you from falling prices, not a minimum price per se.

David. · Nov 9, 2017

So where does the insurer lay off his risk? £120 achievable futures + £5premium - £150 COP guarantee, leaves him potentially £25 ton in the hole

Henarar · Nov 10, 2017

Clive said:
it is - but the question is above YOUR cost of production and margin that leaves a profit

let's say for example £5/t today to insure you get a minimum of £150 next november ? - would you pay that insurance premium ?

£150/ton is nowhere near enough if you were to say £2500/ton then we may be talking
I wouldn't mind keeping them all till November to get it

db9go · Nov 10, 2017

Why give any one any money Why not self insure and put that money away your self in your own pot and then you have total control.

4course · Nov 10, 2017

Initially thought no, but on reflection I spend a fair bit trying to ensure yield so why not spend a bit ensuring price/return as any upturn is still available minus the cost. A lot depends on the initial price, however have ventured into options on a couple of occassions in the past with mixed results there again have done nothing and sometimes won and sometimes lost out and in these times of unpredictability and uncertainty would not rule the idea out

Farmer Roy · Nov 10, 2017

Err, I hate insurance . . .

Who would underwrite this ?

shakerator · Nov 10, 2017

No it is not value

It's (put option) a mathematical calculation that means the probability of you not excercsing said option (insurance money down the drain) is the same as the option being in the money by the same amount further down the line towards expiration date.

shakerator · Nov 10, 2017

Farmer Roy said:
Err, I hate insurance . . .

Who would underwrite this ?

LIFFE !

4course · Nov 10, 2017

thinking about the idea abit more. Currently using this idea I could this year establish a bottom price for a % of possible budgeted output at a price above cost of production based on the current situation that crops are all established in good heart and fertilizer is bought forward as well as pre ems all seem to be working reasonably, but a lot can change its all about if you think the upside£/t is more or less likely than the downside, some years all you would be doing is guaranteeing a loss as for this year my opinion re next season£/t is changing everytime I think about it

Clive · Nov 10, 2017

ollie989898 said:
Ah, options. Fair enough.

I think you will find the majority of people do not understand them enough to have confidence in using them, and so rely on their grain buyer to do it for them instead by simply fixing a contract at an agreed price at the time.

I also wonder if in the past more than one or two people may have been bitten by contracts where they could not supply the required product or spec when the time came. Happened a bit in 2012 I dare say.

Of course, you also assume everyone knows their cost of production which may not be the case.

this is why I didnt mention the "option or Futures" word in my first post - I was mischievously wondering what people would think if the same thing was presented as insurance rather than trading

ollie989898 · Nov 10, 2017

Clive said:
this is why I didnt mention the "option or Futures" word in my first post - I was mischievously wondering what people would think if the same thing was presented as insurance rather than trading

Ah ok. I understand now.

Clive · Nov 10, 2017

Oscar said:
Hold your horses !!!
Went to a CMA talk last month and the speaker was Richard Counsell , MD of Stable and a Nuffield Scholar and he is about to launch in the New Year just what this thread is on about. Basically there will be a web site and you select crop [ there will be 8 types initially] ie feed wheat, a month and a price which is linked to HGCA prices. The web site will come up with a insurance cost / tonne depending on the risk and basically it will pay out the difference between the actual price that month and your price you picked on the web site if its lower.
EG: you pick 100 tonne Feed Wheat, May 2018, £145/ tonne and lets say it costs £3.50 /tonne. If in June 2018, having got HGCA s figures for May if the average HGCA figure said £145, then no payout and its cost you £3.50 so you ve made £141.50. However if the HGCA said £140/ tonne then you would receive 100 t x £5 = £500 but remember it cost you £3.50 back when you did the contract.
You will only be able to deal with the tonnage you have which will be checked through data ie if you have 100acs of wheat, then you will only be able to insure say 400 tonnes not 4000 t . This is to stop professional hedge fund guys / dealers and only farmers with holding numbers will be allowed to insure.
I have nothing to do with this buisness and I hope I have explained it correctly but it was very intresting and looked like a use full way of covering up and down prices however until its launched we will have to see. It was a 2 hour talk and he has got some very high ranking specialist in data /computer programmers and some big insurance companies to work together. By the way he is also a farmers son who ended up doing hedge fund stuff in UK and USA.

I think that's the same guy that was starting the AOX thing - which was basically betfair for farmers ?

Sounds like he's planning to present options in a easy to understand form "insurance" as I was suggesting

its nothing new as @ollie989898 suggests most just don't understand how it all works ort know how to access this "insurance" other than via their grain merchant in some cases where it can be prohibitively expensive

ollie989898 · Nov 10, 2017

I suspect that a fair number of people might find the prospect of just selling forward in any significant way to be quite daunting; there is of course a lot of trust involved when you are committing tonnages with a company for a crop yet not produced. I think I would be naturally reluctant to try to fudge with too much outside of my comfort zone, at least initially. This option does seem a bit more user-friendly though? You pay a one-off fee so your cost or loss is a known figure and have the option of not actually actioning it when the time comes (if I have understood it correctly), unlike a contract to supply which looks fairly innocuous in print form until you read the fine print on the back.

The only way it can work for the company providing the service is if they have people hedging against the futures markets, the idea of selling milk or livestock this way is intriguing, does a full blown livestock-orientated futures market exist in Europe?

I have often thought that the ability to fix your milk price for perhaps 3 years in advance might be a useful tool, but I dare say the retailers might not like it.

Crop price insurance - Poll

Is £5 /t insurance value to guarantee a minimum crop output price ?

Yes

No

Member

Member

Member

Member

Member

Member

Member

Member

Member

Member

Member

Member

Member

Member

Member

Member

Staff Member

Member

Staff Member

Member

0 %

Up to 25%

25-50%

50-75%

75-100%

100% I’ve had enough of farming!

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