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Grand Rapids, MI | Our model for prices is based exactly on the fact that we do not know what future prices will be. I take great amusement at the folks on here who think they know which way prices are going to move. If they were really that good couldn't they leverage up and be billionaires by now? With that being said, I think it is entirely possible to get some handle on what the variability of the market is. I explain this more in the webinar, but historically pricing is most likely to be close to what the market is valuing it at now, with diminishing chances of hitting higher and lower prices. For example, we might assume that it is most likely that the corn MYP is near the $3.75 that WASDE is predicting, but there may be a 10% chance that it is lower than $2.50 and a 10% chance it is higher than $5.00. See the figure attached for a graphic.
I have done a bit of "back of the envelope" work comparing the ~$5/ac investment into ACRE vs. increasing crop insurance or buying a put. I stopped when I realized to buy the kind of protection that ACRE provides, it would take perhaps $50/acre in puts and it was not possible to buy that much crop insurance. The $5 per acre with 200 bushel corn would be 2.5 cents per bu. This would only buy you $2.50 Dec corn puts! If you invested the $5 into a crop insurance policy, you probably would not even get to the next 5% jump in revenue policy, depending on where you started. Compare that to ACRE which is like having an entire 2nd policy at the 90% level on the state!
On the paperwork, there is some confusion on what will be required. I have heard conflicting information and have e-mailed my contact at FSA in Washington...so far no word...not sure they know the answer :-( Bottom line is though if you have crop insurance yields, you need to have the paperwork to back them up anyway in case of an RMA audit.
While I agree that as great a risk is individual crop failure, this is why we tell clients that ACRE is not a reason to drop crop insurance.
 (corn distribution.JPG)
Attachments
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 corn distribution.JPG (32KB - 44 downloads)
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ACRE (again)
