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| Ray, I will cover 100% of unsold bushels of APH not crop insurance guarentee. Here is why:
I dont care what the crop insurance coverage level is since it is sort of a false floor. $3.99 was the spring price but it really does not do me any good today if the bushels are not sold. You can look at it two ways: either on 170 APH at 80% covereage there is a 136 BPA guarentee at $3.99, OR on the 170 there is a $3.19 guarentee. Does not matter since if I harvest 170 BPA at current prices the actual revenue is $646 wich is above the spring price anyways so there is not an indemnity. However since we dont know what prices will do (ag trader and okey non withstanding :) there is a risk of higher prices if I sell, and lower prices if I dont. If I buy a put yes my floor is $3.52 but if that is on 100% of the 170 my per acre floor is $598.20 wich is higher than the $542.64 via crop insurance guarentee. If prices go to $2.60 at harvest and I yield 170 calculated revenue will be $442 and there will be an indemnity payment of $100 per acre. With the puts, these would be around $1.20 ish in value, actually more because they will have time value in them so figure $204 per acre on the puts gross (I did NOT back out the premium paid because I did not back out the crop insuirance prmium either) all total $442 for crop +$100 for CI plus $204 for the puts = $746 gross.
If I relied only on my CI it would be the $542. Now if we rally, I can do better if I did not do anything, i.e buy insurance or puts or whatever. However even if corn goes to $4.50 at harvest with a slightly smaller yield of 160 calculated revenue will be $720. The fall guarentee will be $612 so no indemnity (I need a yield less than 136). I will lose the value on the puts with this strategy and therefore this is why if there are sales either made today or currently in place, upside protection with a call is needed.
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Have we seen the lows?
