Crop price insurance - Poll

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

  • Yes

  • No


Results are only viewable after voting.

Renaultman

Member
Arable Farmer
Location
Darlington
mon nov 17futures 137.80
ahdb market return north east 143.8
actual price available friday 146
somewhere in this debate I fear smoke and mirrors
To be honest I can see what they are getting at. We forward, for example at £148 and get £148 and accept it We can take an insurance which gives us a guaranteed £142 but if prices rocket to £200 we're quids in. When I tried it there was very little movement leaving me out of pocket.
 

TOM BARCLAY

New 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.

Totally agree that if you do not understand something then DO NOT do it use them - options. That said put options are not dissimilar to insurance contracts. You are protecting against the worst case scenario - Wheat price dropping. Buying a put option is buying insurance. If you buy a Put option then the worst situation for the farmer is that he/she loses his/her premium. What does the farmer do if the wheat price falls to £110-£120 without any cover? I pay life assurance and health insurance. I am not irritated when i renew my policy each year. The policies are in place in case i die and if i lose a limb for example - a claim is then made. Farmers pay Lycetts/NFU Mutual or whoever for farm insurance - if the £500,000 combine went up in flames and it wasnt insured then someone would be in trouble.... Why would you not insure your Wheat if you are an arable farmer and it is your core business. Surely that would be irresponsible? Yes/No?
 

TOM BARCLAY

New Member
To be honest I can see what they are getting at. We forward, for example at £148 and get £148 and accept it We can take an insurance which gives us a guaranteed £142 but if prices rocket to £200 we're quids in. When I tried it there was very little movement leaving me out of pocket.
Very good point i agree. if there is little volatility then you lose out on the premium you pay - cash flow is key and it can be viewed as an unnecessary added expense. If you have cover (buy put options) over 10 years and you exercise the option (make a claim) a handful of times of that period you are smoothing the peaks and troffs. you are taking risk off the table and taking the upside too (minus premium) so in your example above - (£200 minus premium). Farmers dont mind missing out on £10 per tonne - but £20-30-40-50 - they do! Selling forward periodicly which is what farmers do do is a handbrake on the upside and downside! if there is no volatility/uncertainty then dont buy options.
 

Brisel

Member
Arable Farmer
Location
Midlands
Totally agree that if you do not understand something then DO NOT do it use them - options. That said put options are not dissimilar to insurance contracts. You are protecting against the worst case scenario - Wheat price dropping. Buying a put option is buying insurance. If you buy a Put option then the worst situation for the farmer is that he/she loses his/her premium. What does the farmer do if the wheat price falls to £110-£120 without any cover? I pay life assurance and health insurance. I am not irritated when i renew my policy each year. The policies are in place in case i die and if i lose a limb for example - a claim is then made. Farmers pay Lycetts/NFU Mutual or whoever for farm insurance - if the £500,000 combine went up in flames and it wasnt insured then someone would be in trouble.... Why would you not insure your Wheat if you are an arable farmer and it is your core business. Surely that would be irresponsible? Yes/No?

The main difference between machinery insurance and crop insurance is cost. A combine harvester will be 1-2% of value whereas crop insurance is 5-10% depending on how far ahead you want to go, volatility etc.
 

TOM BARCLAY

New Member
Sure - Very good point Brisel - more through the merchant which is why i think is part of the reason that they get a bad name. That is when you look for value over time the premiums change and can look attractive. if a £147 put option is £8 then the insurance premium is 5.44% through an FCA regulated broker - they cant build in margin like merchants do. they have to quote the market price and a transparent commission. the regulation is there to protect the customer/consumer/client/farmer. by going to the merchant you are essentially a price taker as they are not regulated.
 

TOM BARCLAY

New Member
its more expensive is it is way more likely that the market will go down and you make a claim/exercise the option! over 10 years you may claim 4 times however with the combine hopefully not at all!
 

4course

Member
Location
north yorks
To be honest I can see what they are getting at. We forward, for example at £148 and get £148 and accept it We can take an insurance which gives us a guaranteed £142 but if prices rocket to £200 we're quids in. When I tried it there was very little movement leaving me out of pocket.
yep ive done the same in the past and found them not to be beneficial( sometimes gained sometimes not1-2 ) unless the price alters by a lot it is only when there is a big movement that is sudden and very unexpected that options come into their own otherwise it is purely insurance and for the likes of me with at most 1500 t with sales spread over 15 months , might just as well do the job myself phyisically and not spend £12000 or £40/acre which although there is a case for using an option away from the price to mitigate a total disaster but last time I looked at that a couple of years ago there was no liquidity but its worth keeping an eye on
 

Will Wilson

Member
Location
Essex
I am very excited by Stable and what they are going to be launching.

The question is can they educate the average farmer (me) about how the system works?

This thread is already confused and the terminology wrong , there are whole markets / industries built around keeping it this way so that we pay through the nose for 'experts' (law, land agency, Solicitors etc).

It will be interesting to see how they react to crop insurance.
 

TOM BARCLAY

New Member
I am very excited by Stable and what they are going to be launching.

The question is can they educate the average farmer (me) about how the system works?

This thread is already confused and the terminology wrong , there are whole markets / industries built around keeping it this way so that we pay through the nose for 'experts' (law, land agency, Solicitors etc).

It will be interesting to see how they react to crop insurance.
Agree. Richard at Stable is a top man and it will be good to see it when live
 

shakerator

Member
Location
LINCS
so what will you do if wheat goes to £120?

not regret not buying a put option. chances are ill have made enough sales by that point unless currency moves 15% in a day.

the risk with an option is not using it. the risk of not using it depends on strike price. the closer to current market price the strike price is the more expensive they become. so in my view its a zero sum game. Because of this it cant be compared fairly with business insurance imv.
 

4course

Member
Location
north yorks
not regret not buying a put option. chances are ill have made enough sales by that point unless currency moves 15% in a day.

the risk with an option is not using it. the risk of not using it depends on strike price. the closer to current market price the strike price is the more expensive they become. so in my view its a zero sum game. Because of this it cant be compared fairly with business insurance imv.
ah black wednesday, nothing from harvest sold spot, no forward sales no options certainly wasnt black wednesday here and in reality the £ is more likely to drop 15% than gain 15% in a day ,whilst I wouldnt rule options/insurance out i tend to agree that it is a zero sum game and in reality has to be a loss/ insurance cost over time otherwise no one would sell you the option, they are in it to make a margin surely
 

Brisel

Member
Arable Farmer
Location
Midlands
I said at no 31 self insure by putting some money in a pot.
What it seems is you want some one ells to take the risk why not go to the bookies and put some money on who is going to win a horse race

How about farming? Farmers are the biggest gamblers by taking huge long positions by producing commodities, not knowing what the price will be :whistle:

This thread is about price risk management.
 

Clive

Staff Member
Arable Farmer
Location
Lichfield
How about farming? Farmers are the biggest gamblers by taking huge long positions by producing commodities, not knowing what the price will be :whistle:

This thread is about price risk management.

Farming is a risk, the skill of being a farmer is minimising that risk though putting everything in place to have the best chance of success like skilled staff, good agronomy and enough harvest capacity etc

Most farmers are pretty good and considering and managing those weather related risks but then often totally ignore the risks around commodity price and currency movements

There is usually more money to be made buying and selling right than there is in just growing better crops
 

Brisel

Member
Arable Farmer
Location
Midlands
Location
London
I am very excited by Stable and what they are going to be launching.

The question is can they educate the average farmer (me) about how the system works?

This thread is already confused and the terminology wrong , there are whole markets / industries built around keeping it this way so that we pay through the nose for 'experts' (law, land agency, Solicitors etc).

It will be interesting to see how they react to crop insurance.
thanks will- we're working hard to launch the crop insurance company early next year. Thanks for your support
 

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As reported in Independent


quote: “Red Tractor has confirmed it is dropping plans to launch its green farming assurance standard in April“

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