crop insurance and prices

[hardnox]

http://cyrus.cob.calpoly.edu/REINSURANCE/paper.pdf

A half a day hardly proves my point but ever since C and S prices rallied from the first day of Oct '14 to the last and everybody was hollering about the gubint stickin' it to them I've been thinking and waiting for additional information.

I'm hardly immune to conspiracy theories but have always said that the problem is forcing them to fit into your ideological view. It is like when the government gives you a nice gift with a small Mar 1 acres number and then finds some acres at the end of June. You can say they're lying in the June report or you can thank them for giving you a nice selling opportunity.

Anyway, I've been told that the law once forbid crop insurers from hedging in the market. I want to know if that is still the case and how stringent it is- it is certainly no problem to call up your friendly Goldman Sachs guy and get them to write it as an OTC derivative.

FWIW, the givernment reinsures all underwrting losses above 100% but the companies keep gains to around 50% (see chart above, pg 7). So the government had no incentive to manipulate the market in October. The carriers would have, or at least if you call unwinding hedge positions at a propitious time manipulation.

The crop insurance titles are a pretty sweet deal for farmers and for the carriers. But it could be that "privatization" of the farm program comes at an additional price.

[vandenplas]

Thanks for this, Hardknox.  I doubt, however, if it is, or can be understood by the majority of posters on this forum.  No criticism indended.  Just reporting what I think. 

[BA Deere]

I think that the "manipulation" that happens in February and October is chump change.  The fact that there is a subsidized insurance program is the real money flow from the farmer to the enduser.

There are 2 kinds of farmers basically, those that need crop insurance and those that don`t ..and we all know who we are  🙂  If there wasn`t subsidized crop insurance, those of you that "need" it would seed down your "H.E.L." hills to pasture, you wouldn`t swing for the bleachers on yield on that riverbottom that floods out 2 years out of 5. 

Those extra acres are what makes the difference between a "2 billion bushel carryover" and a "800 million bushel carryover" or "$5 corn" or "$3 corn".  If there was no insurance pasture would be "pasture" and crops would be "crops" and corn would be 5 bucks. 

What is it that they said about socialism again?  "spread the misery around equally".  There is absolutely no doubt that there is a "Cheap food policy" ,  just look at all the corporations that wrote the farm bill...those that "farm the farmer" dictated what farm policy will be for the next 5 years.

[rawhide]

What "they" forgot about is when Deere and others shut plants down due to the fact they can't sell any of their overpriced toys. Then the Walmarts of every small town will not be able to run 24-7 and then the local pickup truck store closes and the only chance the ag sector has is a few more Willie Nelson concerts but he is gettin kinda old.

By the way I never did get a check from 'ol willie back in the 80's. Farm-Aid my a$$.And I can't wait to pay 15% interest again. That's coming too

[Palouser]

On interest rates, you're opinion is based on the economy rolling again. No rolling, no high interest rates.

My money is firmly in the 'not going to roll' catagory. Even though farmers actually have the best chance to capitalize on market fluctuations because of unprecedented world demand. That is propped up also by fuel mandates. But a hot farm economy is such a small fraction of the overall economy it can't get anything to 'roll' except 'new paint' on the farm. Granted, it might not be this year - or even next. As long as fuel mandates are there the ag sector is going to be the exception - at least part of the time - and that's normal. The subsidized insurance is sure going to keep things from going in the tank. What other sector gets this (beside Wall St).

No high ingterest rates if we can't get the economy going. I don't see a snowball's chance ........ .

[BA Deere]

Hey Pal, look at oil companies, look at over a decade of the US at war in the middle east ...we wouldn`t be there were it not for "free flow of oil at world prices"..that`s a subsidy!    Look at companies that don`t pay their employees a 'living wage" , the US taxpayer subsidizes those underpaid emplyees with "earned income credit" and food stamps. 

http://www.msnbc.com/msnbc/walmart-government-subsidies-study 

Look at the broken immigration problem, packing houses, truck farms, chicken farms and factories have hiring illegal aliens in the business model to make a profit.

Look at the crony capitalism where it`s more who that you know, rather than how well you run a business that determines whether you succeed or fail.  There`s subsidization all around.  The farmer is the only one that I know of that takes his subsidy check and cuts his own throat with it.

[Palouser]

I agree with you in many ways. As for war, yes it is a subsidy of oil in large part since 2001 - and before. They were sold for the wrong reasons and the compounded by Congressional votes. Now we fight over the ongoing results. I AGREE  with the rest as well, generally speaking.

Until this ends, the favoritism of policies and loopholes will erode the middle class. But, individually, it's hard to deny farmers have gotten the best of everything. Demand, mandates and subsidies.

The question is whether the middle class can be listened to over the demands of the more favored. We can vote, we have the numbers but, that doesn't mean reform will happen.

[nwobcw]

the subsidies also extend to the airline industry and trucking. The government picks winners and losers.

[hardnox]

The government made a massive bet on ethanol and the larger portion-cellulosic-failed catastrophically.

The grain portion will just keep limping along as is, I'm guessing.

After the turmoil associated with the very large targets and fast timetable, we just move on and try to deal with the fact taht the goalposts don;t get moved every year, even though we priced assets and rents like they would.

[nwobcw]

I would have bet money that Obama would raise the ethanol content in gasoline to 12 percent or more