Consider ways to protect against price drops of crops, says analyst

The Spring Price Endorsement offers protection but now has a deductible

Consider ways to protect against price drops of crops, says analyst
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There are some changes to the Spring Price Endorsement this year.

The Spring Price Endorsement (SPE) is a supplementary election to production insurance at the 60 to 80 per cent coverage level. It provides some protection against a price drop for an insured crop. A spring price is set for each crop during the winter, and a fall price is determined by market prices during the month of October.

“This year, a 10 per cent claim deductible on SPE has been introduced, reducing those premiums by 20 to 30 per cent, depending on the crop selected,” said provincial crop market analyst Neil Blue. “The payment triggers remain the same. The fall market price needs to drop below the spring insurance price by at least 10 per cent.

“If the Spring Price Endorsement is triggered by a price drop from spring to fall of at least 10 per cent, the SPE will pay back up to 90 per cent of the spring insurance price on production produced, or deemed to be produced, up to the coverage elected.”

This coverage is limited to a maximum drop of 50 per cent from the spring price. A claim under SPE can occur regardless of whether there is a production claim.

Forward contracts are another option.

“They have the advantage of locking in a price and having a delivery commitment,” said Blue. “However, the price lock-in and delivery commitment can also be a disadvantage in the case of a significant price range and/or production shortfall.”

As for futures, only canola futures and options now trade in Canada, he noted.

“U.S. futures markets can be used for some other crops, but they have the added feature of a different currency.”

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