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crop insurance
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84TURBOGN
Posted 3/7/2007 17:46 (#116261 - in reply to #116216)
Subject: Re: crop insurance


Ok, another idea and I am playing devils advocate here.

But considering 007 saying that if I am not going to sell the crop then I can save $ on premiums by using an APH product like MPCI.

can I do the same thing with Put options and MPCI than I can with CRC?

Assume the 150 yield, bump up the coverage to 85% or 127.5 I will get paid $3.50 for each bushel loss under 127.5. I cover price by buying puts. Say 3.70's at 20 cents (easy figuring I know they are 22ish) I have a futures floor of $3.50 with upside wide open.

I harvest the 150 market goes to $3 at harvest. Puts are worth $105 per acre. Corn is worth $390 per acre (remember -40 basis) No bushel loss. But in the CRC example I would have a whopping $6.75 Indemnity. No Indemnity with MPCI but what would the premium savings be? I assume substantial. Net per acre would be $390+105-$30 for puts = $465 per acre less MPCI premium. I am not sure if this is apples to apples since when I used the CRC example in the previous post I used 75% but I am assuming the premium difference between 85% MPCI and CRC would be huge. Also I would need to figure the puts with the CRC at 75%, I think I was at $396.75 because I did not sell untill harvest. If I had the puts on it would add $75 net of option cost for a total of $471.75, but again, the premium would be higher for CRC. Point being I acheived these prices by marketing not the insurance.

So in the end, if I used puts and MPCI to me it looks cheaper than CRC and I have better flexability because I can raise my floor if the prices rally.

What if there is a poor crop? I figured that as well. If I had the 85% MPCI on the 150 APH and harvested the 110 like in the previous post. I will have 17.5 bushel loss x 3.50 = $61.25 Indemnity. Since I had puts, and no bushels sold and prices went to $5.06 I can sell the bushels at higher prices. I need to take my basis off (-40 assuming) and I sell the 110 at $4.66 = $512.60 per acre. The puts are worthless so -$30 per acre net = $543.85. I think in the CRC example I had a $13 indemnity with this situation but probably a higher premium. The only thing I have not added is IF I did raise my floor with the puts, that this would cost me more money BUT it looks like there will be money to do that with the premium savings.

Soooo If I stay with puts I am probably better off with the MPCI depending upon the premium difference. They key is staying with the puts and not selling the grain. That will be the hard part.

Also as I worked through this, I was thinking that if I had GRIP, staying with PUTs would make more sense as well vs selling the crop.
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