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Jesup, IA | OK, I have not totally bought into the conspiracy theory, but it is pretty easy to build a case for fall price manipulation. It might help to read the thread "Crop Ins & Price Risk" started by Plows & Sows.
In short, the reason not to manipulate the spring price is because the insurance was not sold yet. The price was set in February, but the corn/soy sign up period generally occurs in March.
Next, from the thread below, the companies that sell crop insurance are largely in the origination and policy management business. They have agents, book policies, evaluate replant situations, adjust claims and collect premiums. Out of the policies they underwrite, they can push the losers (large claim and loss experience) back to the RMA. And like banks that bundle up home mortgages and sell them, they can sell large pools of insurance risk upstream into the reinsurance sector of the insurance industry. And of course, they keep some business back for themselves.
So after the policies are booked, and a big chunk of the risk is sold to global reinsurers, we go into a summer long price decline. It's not a yield loss event like 2012, so there is a route to fix it; just get the market to edge higher.
Now I'm pretty sure that most of the traditional insurers like Ace/Rain and Hail, NAU, Great American, John Deere and Country Mutual couldn't call a management committee meeting and get away with saying "let start buying this grain market on the board and run the price up, it will cut our policy losses!". But in the case of Agrinational (owned by ADM) or RCIS (owned by Wells Fargo), I find myself scratching my head. After all, they do have large securities brokerage departments arbitraging and trading out of all kinds of risks all the time. Do you really think that RMA has the oversight to peer into one of those two giants and make sure some money flows buying grains in October is really for a hedge fund they manage?
Then the possibilities are endless when you go to the global reinsurance market. Amongst the giants, Swiss Re, Lloyds of London, Munich Re, Allianz, Berkshire Hathaway, China Re, who is to say that some of those "money flows" and "funds" that were supposedly coming out of the equity market were not great fables fed to the financial press, and were really reinsurers routinely throwing around a few billion $$$ here and there to mininimize their claim experience.
Again, I'll just bet RMA can tell Swiss Re and China Re to turn their books over for inspection for manipulative trading practices. "totally impossible" Not a chance.
So again, I haven't gone over to the dark side and bought into the conspiracy thing yet, but it certainly is possible to connect the dots.
BTW: From 1988 to 1993, right after grad school, in a former life, I worked for a Swiss Bank (Schweizerischer Bankverein, now part of United Bank of Switzerland) in the department that financed and provided risk management to insurance and reinsurance companies. Believe me, all said above is possible.
Edited by Ben Riensche 11/3/2014 21:59
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Incentive for Market Manipulation
