Crop price insurance - Poll
- Thread starter Clive
- Start date
- Location
- Boroughbridge, york
On a basic level yes
Seed&Grain
Member
Cost of production is so variable ... impossible to have a 1 fits all option? Is it not?
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 ?
Seed&Grain
Member
If it was pay £5 get £150 minimum for FW guaranteed .... would be foolish not to!
- Location
- North Yorkshire
can I pay 10 and get £200 ?
- Location
- Bury St Edmunds
LOL
ollie989898
Member
I think you need to flesh out your question a bit Clive. I'm not certain 'insurance' is the correct terminology to start with?
If my annual production of wheat is 2000 tonnes (ish). I pay 5 x 2000 now = £10,000. My cost of production is £130/tonne. I fix a guaranteed price of £155 today.
And this 'insurance' pays out to the tune of 2000 x £155/t if the market price is below that?
Are you trying to start some kind of business that fixes grain prices on behalf of producers by buying futures? For a small outlay, someone price fixes your crop for you?
On the face of it, I think most folk would not baulk at £5/tonne?
If my annual production of wheat is 2000 tonnes (ish). I pay 5 x 2000 now = £10,000. My cost of production is £130/tonne. I fix a guaranteed price of £155 today.
And this 'insurance' pays out to the tune of 2000 x £155/t if the market price is below that?
Are you trying to start some kind of business that fixes grain prices on behalf of producers by buying futures? For a small outlay, someone price fixes your crop for you?
On the face of it, I think most folk would not baulk at £5/tonne?
i'm not planning on starting anything (I have plenty on already !)
I simply wondered if a farmer could buy crop price insurance would they do so ??
Coming clean then .............. my point was going to be that this insurance does already exist in the form of options, if farmers say they are happy to pay to insure price then I'm curious to know why so few use options do do just that ?
- Location
- Boroughbridge, york
didnt gleadall used to offer something similar, I seem to remember going to a breakfast seminar type event all about it
ollie989898
Member
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.
- Location
- Minehead,Somerset
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.
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.
ollie989898
Member
That makes more sense.
Turning it around, how is this company proposing to do the business from their side of the transaction? Do they buy options or hedge or something against your 'purchase'?
Would such a company fall under the financial conduct authority sphere of influence?
- Location
- S.E
I initially voted yes for this but changed my vote to no after some thought. Why would anyone pay £5/t to fix a forward price when they could sell it at that price for no cost? If they still wanted exposure to the market they could buy some options. This is what we are now doing. Selling all our crop forward above our production costs and then buying options on a percentage of that if and when we feel there might be an upside coming.
- Location
- Minehead,Somerset
"Stable", make there money out of the £3.50 / tonne which is paid up front .Yes , they have got financial what ever approval . They are very linked to Cornish Mutual Insurance and who ever owns them. In case its not clear, this is not linked to actual grain sales ie you can sell when ever you like but do a insurance deal as well if you like the "cost" v what the market is doing but only on a tonnage linked to a holding number and also if you do one deal on lets say the 400 tonnes you can t come back in later and do another one. The idea is for farmers to not suffer when markets fall big time. If markets and futures look like they are rising then people will probably not bother with the insurance[as the insurance cost will be higher] but in these times when prices go up for a month or two but then USA and Russia for example say "we ve got an extra 10 million tonnes" and the price drops £10-£15 / tonne then this product would or could be a good deal.
- Location
- S.E
Why not just sell forward?
Presume you mean buying a call option.
@Against_the_grain hit the nail on the head.
If next years price looks good, keep the £5 and sell forward.
If next years price is lower than today, nobody will sell forward.
@Against_the_grain hit the nail on the head.
If next years price looks good, keep the £5 and sell forward.
If next years price is lower than today, nobody will sell forward.
- Location
- S.E
Look at the future's decide when they are at a level where you can make a decent profit and sell. It's madness not too if you think about it practically.
Holding on for potentially higher prices is gambling. Cover the risk first then look to maximise profits.
Holding on for potentially higher prices is gambling. Cover the risk first then look to maximise profits.
ollie989898
Member
I agree. But there is the risk of not being able to provide the crop.
Although, if you did sell 5000 (for example) tonnes forward and the price dropped massively, you could buy the grain elsewhere for less and sell the stuff twice effectively.
- Tags
- lycett