|
| Dixonman,
A simple way to determine what a futures price means for your GRIP policy:
If the corn GRIP price equals $3.50 (Oct average of Dec futures), divide the beginning price, $4.06 by ending price, $3.50 = 1.16 (%)
Multiply your level of coverage (90%) times 116% = 104.4%
take 104.4% x the expected county yield (150 bu), = 156.6, that is now our bu guarantee. If our county now yields 145, take 145 from 156.6, = 11.6 bu loss.
To find indemnity amount:
11.6 bu times fall price of $3.50 x 1.5 (if you bought 100% of price), divided by level of coverage (90%) = $67.67 per acre indemnity.
The overnight Dec market closed at $3.46. If we continue lower, GRIP policy holders should assess their county yield prospects, because the likelihood of a GRIP payment becomes greater and greater.
Some strategies to protect potential GRIP payments are to buy call options, sell put options (out of the money in most cases), or go long futures.
Some "benchmarks" to keep in mind, at $3.30 futures, a 90% GRIP policy becomes in effect a "111%" policy. At $3.00 futures, this same 90% policy now guarantees 122% of the expected. If this occurs, we will be in a similar situation to 2004, when almost every GRIP policy in the U.S. (90% level) would have paid a loss, even though most counties had new record high yields.
Attached is a spreadsheet that you may "plug" in different scenarios, to determine GRIP payments.
you may call my cell for more info/discussion about GRIP payment potential if you would like, 402-643-0235. Rob Heyen
Edited by robheyen 7/3/2007 10:54
Attachments
----------------
 2007 GRIP Worksheet.xls (20KB - 438 downloads)
| |
|
GRIP Insurance
