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Senior Advisor

Insurance, cash flows and pressure to sell

This will be an interesting mix of factors. Probably all protected commodities will be roughly the same with revenue protection. I just happened to be looking at wheat.


If the price trend continues I'll get a healthy payment on winter wheat as yields here are 80-100 bu for history and the insurance for SWW is $8.40. A farmer probably won't feel a great necessity to sell immediately at harvest with the settlements that will be awarded. In any case there will be much less pressure to sell to cover cash flow needs than w/o insurance.


The main commodities already have protection for this harvest. This will likely result in a higher likelihood to wait out price declines (for better or worse) for crop not previously sold. This will possibly be counter to the current trend of declining prices, assuming it continues. So, who blinks?


On the other hand, commodities will certainly be sold. And no doubt there are buyers that will see this as an opportunity to be in the market (like China?). Meanwhile corn in some areas like Brazil's interior becomes a very low margin play as the lower yields (than the main US corn belt) and shipping costs remain the same. Higher fuel prices will affect the lower margin producer more quickly than the higher margin producer.


The results will eventually resolve, some sooner, some later. In order I would predict importers to show their hand first (short term), followed by farm sales (intermediate) and then producing areas like interior Brazil (long term).


But, I expect insurance proceeds to be a powerful but hard to measure influence.

1 Reply
Veteran Advisor

Re: Insurance, cash flows and pressure to sell

Excellent post!  Best strategy may be to lock in current price thru FC and jujst collect the nearly 2 dollar a bu. insurance in Corn.  Nuttin like farmin the Gov.

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