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Protecting insurance

Agriculture.com Staff 10/24/2008 @ 2:22pm

With the collapse in corn and soybean prices this month, potential insurance payments have moved upward as prices have moved downward. If you are in a position where you have insured your crop through a revenue-type coverage, you may want to look at ways to protect a potential insurance payment.

Specifically, you may want to look at buying futures or CALL options in the event of a rally. This is especially important if you have already forward contracted. The reason is because a forward contract will not increase in value if prices move up. Your potential insurance payment will decrease in value. To lock this insurance gain, you will, however, need to use a paper marketing tool.

Insurance payments for both corn and beans will be determined in part by the average price for December corn or November soybean futures for crop revenue coverage insurance (CRC) during the month of October. For Revenue Assurance (RA contracts), the average December corn futures price during the month of November is used. These determinable months may vary by state, so make sure you check with your insurance agent for how your contract works.

It may seem odd that you would try to hedge a potential insurance payment, but as a business manager, you may want to explore all avenues to protect potential income. This is a busy time of year, but taking the time to make a few phone calls could prove beneficial. We mentioned above that, if your grain is forward contracted, this may be more important to you. If your grain is not sold and prices rally, your unpriced grain will benefit, but you will lose potential insurance payment. In this case, you may think twice before locking in potential insurance gains. If futures drop, your unpriced grain is then unprotected.

If you have comments or questions, call Top Farmer at 1-800-TOP-FARM ext. 129 and ask for Bryan Doherty.

With the collapse in corn and soybean prices this month, potential insurance payments have moved upward as prices have moved downward. If you are in a position where you have insured your crop through a revenue-type coverage, you may want to look at ways to protect a potential insurance payment.

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