Below is an email I received on June 3 from Jay Horton from Strategis Partners, the company that is promoting Multi Peril Crop Insurance. I have attached a copy of the spreadsheet to the email I sent to you informing you of this article. I hope it works, if not then write me in the comments section at the end of this piece and I will forward it to you.
I circulated the email among consultant friends and I have to say that none have been enthusiastic. One said he could see ways of taking advantage of the proposition. Some of the comments I cannot repeat. Let’s say they were from non-believers. But here is a sample of the comments and questions about the commercial proposal to provide MPCI:
- Fire and hail is only 1% or $5/ha compared to $$21/ha. Do not tell me that isn’t an extra cost.
- It will happen(government assistance) and I wish I could have that sure bet on it.
- Benefits are imaginative. In risky areas where the cover would be most useful the premium will reflect the risk.
- I fail to see why interest is saved. We normally pay insurance (F + H) after harvest. I am sure they will require payment before.
- What about the interest on extra inputs?
- Real cost $32,000 net of saved insurance. You could get the yield by extra inputs anyway, nothing to do with insurance.
- For every winner with forward pricing there is a loser. Is the farmer better at this than the speculator? In the end forward pricing is a COST. Frankly it has to be to pay for the broker of the deals. Otherwise everyone would be in on the act. It is only sensible when prices are towards to top decile as currently with wool. How much can you cover forward anyway, safely? (Remember this was written early June, just this morning wool has continued to go down and wheat up. It needs an expert to comment but I have noticed the Shanghai Stock exchange has taken a hit over recent times. Once again China controls the market this time in wool. Ed)
- Only a % of the output is covered. 70% as I read it. To me that business will have a serious loss if only 70% of the proposed output is achieved.
- Jay relies on security of income to make business decisions that could or might pay off. Returns from extra inputs. Forward pricing. True should they work but they are not assured. Observe Canola prices this year. Early pricing, which looked pretty safe has been eclipsed. Do you hedge currency as well?-you should at extra cost.
End of comments. I welcome comments from farmers and anyone else in agribusiness. If in this article I have missed something, then tell me. Same goes if you think I am wrong.