Crop Insurance Launched

Discussion in 'Cropping' started by AndyBridgeFarm, Feb 8, 2019.

  1. Chae1

    Chae1 Member

    Location:
    Aberdeenshire
    I just use my own money, not the farms. It has been suggested using farm money when its going well, but wouldn't want to lose farm money.

    Manage that without gambling.
     
    AndyBridgeFarm likes this.
  2. AndyBridgeFarm

    AndyBridgeFarm New Member

    Location:
    Somerset
    Nor me!
     
  3. Steevo

    Steevo Member

    Location:
    Gloucestershire
    This illustrates the trouble with options from a farmers perspective.

    Time!

    Most don’t have the time to be watching the markets. They are too stretched already doing jobs on the farm, or regulatory paperwork etc. So if they took out an option, they couldn’t devote the time to it that is needed. A bit like taking on another 3000acres of land.

    Lack of attention would mean it would almost certainly not perform optimally and likely make a loss.
     
  4. Grain Buyer

    Grain Buyer Member

    Location:
    Omnipresent
    that's odd, as I was quoted £8.90 basis Nov at £152. you can get an ATM option for that which gives more flexibility. If you do an option with a merchant you can sell physical at the same time, plus get advise on how the markets are running and opinions on times to cash out the option. As I said in an earlier post, the concept of creating price insurance against things which don't have a trading exchange is interesting, and if they can make it work would be great for those farmers. But from a wheat point of view I can't see how it is better than an option, and potentially looks restrictive.

    ***please note, this is only my opinion after spending 30 mins on the site, so I could be totally wrong****
     
    Flat 10 likes this.
  5. Grain Buyer

    Grain Buyer Member

    Location:
    Omnipresent
    as has been said already......the insurance is just a dressed up option, if you don't understand this I suggest you stay well clear of both.
     
  6. Chae1

    Chae1 Member

    Location:
    Aberdeenshire
    It takes no time.

    Can all be checked/traded in seconds from a smart phone, anywhere.
     
    Grain Buyer likes this.
  7. AndyBridgeFarm

    AndyBridgeFarm New Member

    Location:
    Somerset
    What I found encouraging is that you can actually use it to also insure against price rises of inputs like fertiliser and diesel. A double hedge against my grain price falling and fertiliser rising seems pretty attractive on the face of it.
     
  8. AndyBridgeFarm

    AndyBridgeFarm New Member

    Location:
    Somerset
     
  9. Grain Buyer

    Grain Buyer Member

    Location:
    Omnipresent
    yes, I agree with you on this. For insurance against produce such as milk or meat it sounds great in principle. Personally the insurance costs associated to hedging input costs like diesel or fert would be negligible given costs/rewards. If you think diesel or fert prices are going to rise I suggest you simply buy them. If the price falls it won't make or break your business.
     
  10. AndyBridgeFarm

    AndyBridgeFarm New Member

    Location:
    Somerset
    True - but a double whammy might. Protecting from a fall in meat and a rise in diesel and AN fertiliser just seems like a sensible business decision. At least I'll know where I am and the bank might like me more!
     
  11. CRM AgriCommodities

    Location:
    UK
    The 'policy' is based on the AHDB index price and not on Nov-19 Futures. As an example, the current quote for May-19 wheat is £5.57/T and the insurance kicks in at £153.95/T. The current AHDB index is trading at £171.46/T, this means that the index will need to drop by £17.51/T (171.46-153.95) between now and may before your insurance has a payout, the index then needs to reach the end of May-19 and be trading at £148.38/T to cover the initial premium. So all in the market (index) needs to drop £23.08 before it pays out.
    The stable cover for November is £6.15/T and kicks in when the index has fallen £17.51/T.

    It appears that new crop insurance is based on the old crop index.

    As a comparison, an equivalent May-19 put option insurance which kicks in at £154/T is currently quoted at £0.15/T and has the same outcome. (www.barchart.com)
    A Nov-19 put option insurance which kicks in at after Nov-19 has dropped £17.51/T cost around £3/T.

    Both protect price downside and mean that physical crop can be sold at a higher price if the market rises. The difference is the premiums and when the insurance kicks in, as well as when both policies can any gains can be claimed.

    The AHDB ex-farm index is 'front month' so therefore new crop is being insured against an old crop index. As we approach harvest, old and new crop values will converge, its just whether old crop drops to meet new crop or new crop rises to meet old crop.
     
    Clive likes this.
  12. Hampton

    Hampton Member

    Location:
    Shropshire
    Probably Richard’s Dad!
     
  13. Daniel

    Daniel Member

    Just having a quick look at this Stable thing, I notice you have to input a fair bit of info, age, type of farm, farm size etc just to get a free quote.

    Nice little data gathering operation before it’s even had to price anything.
     
  14. CRM AgriCommodities

    Location:
    UK
    Indeed, however, it should be noted the current index trades at £171.46 so the market will need to drop by £21.46 before the insurance kicks in.
     
  15. Hampton

    Hampton Member

    Location:
    Shropshire
    Interesting.
    I haven’t been on the website yet, but met Richard at the NFU conference last year and that was how he relayed it to me. If it changes then fair enough.
    I don’t really understand your post above (which is probably why I don’t do options. I understand some of it, but if you set your level at current ex farm nov price (eg £153/t) and the insurance costs you £3 then surely the market has to only move down £1 and the premium has only cost you £2/t? Or that was the way I understood it? Why does it need to move £17?


    Edit: sorry, I see you are talking about the index. Does this really matter to farmers, as long as the insurance part works?
     
  16. CRM AgriCommodities

    Location:
    UK
    It doesn't matter as long farmers are aware that they are insuring their physical new crop on an index currently reflecting old crop prices (there is currently a £20/T difference between these two values). i.e If you insure new crop, and the insurance kicks in at £153.95 then the market has to move a long way before this happens.

    It's not the wrong thing to do, it's just about managing expectations and being aware that you aren't insured if the market drops, £5, £10, £15/T but you will obviously see that in your ex-farm price.

    We have been in touch with Stable to get confirmation of this, as it would be a great advantage to have another tool to help us and farmers manage volatility, we just need to be clear on the terms.
     
    Clive likes this.
  17. AndyBridgeFarm

    AndyBridgeFarm New Member

    Location:
    Somerset
    Yes - their insurance policy is index based not futures based from what I can see. Much simpler. You can also set the level of risk you are prepared to take which is pretty appealing particularly when insuring input rises and grain falls at the same time.
     
  18. AndyBridgeFarm

    AndyBridgeFarm New Member

    Location:
    Somerset
    Probably to make sure you're an actual farmer! How much data do you need to hand over to set up a Futures trading account? Quite along more I'd wager!
     
  19. CRM AgriCommodities

    Location:
    UK
    The index is also based on futures due to the fact that it is an index of prices paid by the trade, and the trade will usually base the prices they offer on futures - transport - margin.
     
    Clive and Brisel like this.
  20. AndyBridgeFarm

    AndyBridgeFarm New Member

    Location:
    Somerset
    It seemed pretty clear during the sign up that this was insuring against an index price as opposed to the farm price.
     

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