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Veteran Advisor

What Is Your Black Swan Insurance?

There is considerable agitation over what some see as potential for ag trade issues.  To large production may be added problems with exports caused by disputes with Mexico and Canada, with China, and potentially with Russia.

 

To me, the big question is not whether such an event will happen but how to handle it.

 

One way is to sell ahead (and hope the contract isn't breached).  Another is to set floors via options.  I could hedge on the board.  Of course, one could hunker down and do nothing, that is, speculate to the max by not having any protection on at all.

 

My plan is to sell futures when and as it seems appropriate.

 

The University of Illinois is suggesting that current new crop soybean prices are sufficiently attractive that one might consider pricing some production.  I put in a bid to sell Sep beans on the board.  Sep is kind of old/new crop to me.  My guess is it will be more volatile than new crop pricing.

 

Are you thinking of any way to protect yourself against a strong price drop?

 

 And if you do have or plan insurance, when is your guess for the most likely time for the swan to appear?  Spring?  Summer?  Fall?  I'm guessing Summer but prices may be jittery in the Spring.  Hard to say.  That means be prepared early rather than late.  What do you think?  Paranoia?

 

http://farmdocdaily.illinois.edu/2017/01/is-it-time-to-sell-some-2017-soybeans.html

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5 Replies
Honored Advisor

Re: What Is Your Black Swan Insurance?

I honestly don`t worry about it, the spring crop insurance prices will be known March 1 and then we go from there.    Studies show that the high profit farmer sells for just about the same as the low profit farmer, it`s more about cost control (not having $200,000 tractors  Smiley Happy  ) and raising exceptional yields.  But I need $4 and $10 cash corn and beans or i roll the dice.   Right or wrong.

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Veteran Advisor

Re: What Is Your Black Swan Insurance?

Could you share your profit info with us?  The studies I saw in a quick search were that high profit farmers sold at higher prices, had higher yields, and had about equal machinery costs as low profit farmers.  AgFax and KSU.  That makes it seem important to get a good price.  

 

Since I'm not in any government programs I forgot all about crop insurance.  That does put a different spin on things.  Maybe a black swan is nothing to worry about for those in the program.

 

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Honored Advisor

Re: What Is Your Black Swan Insurance?

If there's any single factor that stands out between high-profit and low-profit crop farms over the long term, it's cost control, says Dhuyvetter. “If we are looking at longer term (five-year averages or longer), I contend it is almost all cost differences.”

Prices and yields may be more important in the short term (one-to two-year profit comparisons), Dhuyvetter says. But long term, farmers have more control over costs than they do over prices and yields, he maintains. “We have little evidence that farmers can consistently beat the market,” he says. And, he adds, yields are heavily influenced by weather

 

http://www.cornandsoybeandigest.com/equipment/high-profit-farms-keep-machinery-costs-check

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Frequent Contributor

Re: What Is Your Black Swan Insurance?

The key to having $200K tractors is using them. If you use them 800 hours a year it works. If you use them 200 it won't.

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Veteran Advisor

Re: What Is Your Black Swan Insurance?

jim, i believe that it's a combination of "good marketing" or some wish to say "risk management", and cost containment.

the problem today is many have done a considerable amount of "cost containment", and how do you do more.

the ks farm managemet group are always looking for "patterns" for marker's for success, it's kind a mixture of

both.

 

many many variables.....if you have expenses down to the minium, then the marketing is a issue....the idea of

the weakest link....it's almost something you have to say it's on a case by case issue.

 

as for marketing......as i've said here, that is something i need to be better at........i don't like to admit it, but

the last several years i've maybe lost more in the markets than i have made.

the old ideas in marketing, seems no longer to work, and what used to be major stories, are not, and

things that have little impact, seems to have great impact ((alternate facts.....i know, shame on me)).

 

in your situation, you really are walking high rope without a net.....i think you realize something needs to be

done....but what ?  and when is it best to do it, with cost in mind all the time.....i understand

 

a day or two ago, consulted one broker on things, they had cooked up a sceme to lock in 10.20 beans for 20 cents...overall that

doesn't sound bad...so, with a 90 cent basis...and 20 cents out, we would settle out to 9.10 per bu.....but at the same time, i

could have sold ahead, for only 90 cents down....

 

i believe, since you don't have crop insurance, you need to somehow protect yourself.....the best way, we could get 20

answers ((although it would be interesting to hear how people would do so, and why chose that way)).

 

i wish you luck

 

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