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| The final yield will come into play.
I still cant see how going long corn either with calls, short puts or futures is a sound risk manangement strategy. If I have the grain sold, then maybe only if I figure the final county yield on the high end. Say for example my "expected" yield was 145 but the record for my county was 165. Plug in the 165 number (if your crop looks good) with 3.50 corn and see what "anticipated" payment you have. It is alot different than if I used the 145. Buying futures or calls etc using the 145 yield expected indemnity payment is adding risk.
At the end of the day you still need to manage price risk on the crop. CRC/GRIP/RA etc do not manage price risk on the crop.
There were plenty of guys beating thier chests at $600+ guarentess this spring. If the price was only managed with the insurance, they are a long ways off. Here is why. Take the 145 yield example even at $3.00 corn and the actual yield was 165. If there is no on farm storage and the grower does not price until harvest and gets $3.00 - 45 basis = $2.55 x 165 = $420. He has grip and the county yield comes in at 165 (lets hope he yielded at least what the county did) and the grip payment according to the spreadsheet is $58.28 per acre = $479.03. BUT he has to still pay the premium so the net is lower than that. Far cry from the $600. Now take that same situation and the guy buys futures at $3.45 because he wants to protect an indemnity payment. Assuming he holds on to $3.00 (an whay wouldnt he since he thinks the indemnity payment makes up the difference) and does so on 145 BPA corn, that is a $65.25 loss, bringing him to $413.78 before his premium is taken out by the insurance company. Take that scenario to the banker and see what he/she says!
I am not saying GRIP is a bad tool, just know what it can or can not do.
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GRIP Insurance
