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Roy Smith: Get ready to evaluate insurance alternatives

Agriculture.com Staff 02/15/2008 @ 9:02am

This is the busiest time of year for my marketing business. It is like a second harvest for me. Since I cut back my farming operation, I am more rushed in February than when the combines run.

This week I had three marketing meetings. I will have the same number next week. I really enjoyed the sunny weather in western Nebraska. It was not exactly balmy in North Platte, but the sunshine was certainly a welcome break from the dreary conditions that have existed at my farm since Thanksgiving.

Farmers at these meetings are naturally upbeat with grain prices making new highs nearly every day. Trying to find an analog year for the "Winning the Game" workshops is obviously a bit of a stretch. It would be necessary to go back to the early 1970's to find any fundamental situation remotely similar to today's economics. Prices now are so much higher than back then that trying to draw a parallel would look ridiculous.

All of the unknowns are causing a great deal of uncertainty in the minds of farmers. It seems as if producers would be just as happy if corn were $3.50 and beans $8.00. At least these prices would be within the realm of experience of most individuals. Prices where they are leave everyone with the feeling that big changes are ahead for the farming industry. Most think that a shake-out is coming but they hesitate to predict what the outcome will be.

Two of the three meetings I had last week were sponsored by crop insurance companies. There is no question that insurance premiums are going to be dramatically higher. Farmers and sales people are both searching for methods to reduce premium costs and still maintain adequate protection. One insurance professional expressed concern that farmers will buy products that are cheaper than the traditional policies, but leave too much exposure to price or yield disasters.

When choosing an insurance program or when purchasing options, remember that the higher premiums reflect odds of better financial returns. I hate to put out premium money as much as the next guy. However, my experience with options has been that the big premiums result in big profits if the right strategy is used.

It will be impossible to evaluate insurance alternatives until the price guarantee levels are set on March 1. At that time most of us will have only two weeks to make up our minds. It will pay to understand all of the possible strategies before that time so you can use your time to evaluate strategies.

Fortunately there is no deadline on buying options. In fact, the longer you wait, the less time value there will be in the premium. There is no guarantee as to how long the current grain prices will hold. I doubt that this year will be like last year in that the good prices actually got better as the year progressed last year.

This is the busiest time of year for my marketing business. It is like a second harvest for me. Since I cut back my farming operation, I am more rushed in February than when the combines run.

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