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Contributor

Don't understand end-users complaints

I've heard talk in different places about how us grain farmers have it so easy to protect our risks from loss with crop ins. being available to us while the end-users or livestock people have NO insurance to protect them.  Well, IMO, they do.  It's called options.

As a grain producer I have to get my ducks in a row by Mar. 15th every year and decide how many thousands of dollars I am willing to gamble with thru an ins. co. just to protect a percetage of crop.  At that time of yr. I have no idea what the growing season holds in store, so every yr. I take the risk off myself by donating a sizable amount of money in hopes that I'll not have to collect.  Even this yr. it looks as if I'll not have a claim. 

 

So my question is:  Why don't the endusers purchase call options early in the growing season as ins. against higher prices and call it insurance????  Am I missing something here?

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12 Replies
Veteran Advisor

Re: Don't understand end-users complaints

If you normally grow all your feed why would you?

 

Then it is just another expense.

 

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Senior Advisor

Re: Don't understand end-users complaints

So JR.....if you grow all your own feed.......how do you value it.....

At the very least its the COP which can't be near 8 or even 7.........probably down in the 4 or 5 range........do you carry insurance on the crop you put out to gaurantee something????

If you are all livestock and no grain and independent its definately tough, we have a neighbor that's in that boat. If you are livestock and grain then it appears its an opportunity lost to move that high dollar grain into low dollar milk or meat instead of straight to town, but the loss is indirect? If you are all livestock and corp vertically integrated you are trimming loses by having everything in house and getting all the mark-up?

Just asking, because if you grow all you need, in a normal year anyway, then you are not actually buying high dollar corn.......you are just not selling it????
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Veteran Advisor

Re: Don't understand end-users complaints

The only way to value it is the day you are filing out your expense report to use local price.  I grow all my own forges ina normall year and half of my corn needs. 

 

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Senior Advisor

Re: Don't understand end-users complaints

So you show a decent profit on the grain and forage side..........and a pretty decent loss on the livestock side.........

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Veteran Contributor

Re: Don't understand end-users complaints

JR your at risk feeding dairy cattle highpriced grain-At  the very least livestock producers should protect themselves on grain they need to feed that they don't produce.

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Contributor

Re: Don't understand end-users complaints

It seems to me like they want to change the game after it is over.  It seems like wall street bankers taking huge risk without protection and then  be too big to fail and get the bailout.

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Senior Contributor

Re: Don't understand end-users complaints

You can still change your production plans after March 15th. That is the date when you decide what level and type of insurance you want. I have all my crops that I may or may not grow that year listed on my policy. If the spring weather doesn't cooperate, I can easily switch at a later date. I also use the total direct payment amount as a way to pay for insurance? Why should I pay more? Where's RobECNE? He can tell you more of the nuances of the insurance system than I.

Option prices are based on the volatility and TIME from expiration. Options months from their expiration are usually (but not always) more expensive than days if volatility is taken out of equation.

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Senior Contributor

Re: Don't understand end-users complaints

We feed some cattle we ALWAYS figure what we could have sold the corn for just like what we hauled to the elevator.

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Senior Advisor

Re: Don't understand end-users complaints

Again, your grain and forage side show a good profit.......livestock flat or a loss......which equals what???????
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