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1. 31 Futures and Options Markets scenarios This set of scenarios explores using a Hedge Put and or Call Option as a standalone means of protecting price and revenue risk It may be useful to cover up the Combo Policy Plan columns before you start these scenarios Figure 23 This allows you to evaluate just the Futures and Options marketing tools as standalone tools Click on the grey colored check box to the right of the Combo Policy column heading Combo Policy on the Summary Results page Use the check boxes in the Futures amp Options columns as necessary to activate one or more of these marketing alternatives When you click on any of the gray check boxes they turn orange and a check mark is displayed to let you know that alternative is active Figure 23 isa screen capture of the starting setup for the futures and options scenarios This is the base case with the combo columns covered and Hedging and Put options activated When activated thes columns show the results of each of these individual alternatives Activating the Hedge and Put marketing alternatives also includes the profit or loss from each marketing alternative in each of the Combo plans This allows analyzing risk management strategies that combine the Combo insurance plans with the marketing alternatives The portion of the screen that is outlined in blue contains the profit or loss from the marketing alternatives and the interaction affects for the marketing alte
2. Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest 0 70 Cost of Production Per Bushel Actual Yield at Harvest a 43 Figure 33 Activated the Hedge alternative with all other parameters as shown in Figure 32 Use Check Boxes to display input options 4 TOA Ramis am bised an Na af Pa Display Hide Combo Ins variables at time of purchase Protection in a Futures Ootions contract Display Hide Market variables at harvest sale offset i W Harvest i Price Excl i Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 278 50 274 40 276 20 307 20 220
3. For marketing alternatives variables that will affect the results are the Soot Harvest Time Futures Preproduction NOT RMA Avg the Put and Call Strike prices and premiums the Spot Futures Price at Harvest Sale Offset and the Actual Basis at Harvest This program allows the user to select values for both the Spot futures at harvest and the local cash price at harvest The difference in these two values cash minus futures is the basis Changing either of these two price inputs changes the basis However the price a producer receives is determined when the Actual cash price at harvest time is set Adjustments are made to the actual cash price if appropriate An example would be prorating Hedge gains or loss over harvested bushels and adjusting the actual cash price by the prorated amount Due to the flexibility of implementing price protection strategies using Futures and Options can occur anytime from prior to the start of the production process through harvest This means that the Spot Futures prices can be significantly different than the RMA Projected Harvest Price or the RMA Harvest Price While this is unlikely this actually happened within a few weeks of the fall sales closing date for wheat in Montana The flexibility to implement the futures and options marketing tools throughout the production cycle provides a much greater selection of price levels to choose from than is offered by the RMA average prices on the fixed sales closing dates by
4. gt Laws and Regulations t Livestock Policies b Reinsurance Agreements About RMA Field Offices News Opportunities Publications Help Contact Us You are here Home Information Browser Information Browser Information Browser RMAs Information Browser is the landing page for all data and web applications available on the RMA public Web site It combines links formerly available through the Actuarial Documents Data and Tools and Calculators areas on our left hand navigation bar Actuarial Information Browser 2011 Reinsurance Year and beyond Actuarial Document Browser before Reinsurance Year 2011 Agent and Insurance Provider Locators Cause of Loss historical data files Codes and Abbreviations Cost Estimator 2011 and beyond Premium Calculator before 2011 County Crop Programs Crop Indemnity Maps Data Acceptance System Appendix III M 13 Handbook Data Archive Dates Inquiry System Date Summaries 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 i999 1998 1997 1996 FTP file access HTTP interface GIS Actuarial Maps GRIP Final County Revenues GRP Final Payment Yields Livestock Reports LRP and LGM Loss Ratios by Fund Designation 2009 PDF XLS 2008 PDF XLS 2007 PDF XLS 2006 PDF XLS 2005 PDF XLS 2004 PDF XLS 2003 PDF XLS Nursery Software and Eligible Plant List and Plant Price Schedule Books Pilot Biotech
5. Harvest Sale Offset 5 30 5 11 5 06 5 01 5 30 5 30 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 212 00 204 50 202 20 200 40 212 00 212 00 212 00 4 50 4 50 4 50 4 50 4 50 4 50 98 50 94 40 96 20 127 20 40 40 198 80 24 50 22 20 20 40 32 00 32 00 32 00 128 00 32 00 Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest Cost of Production Per Bushel Actual Yield at Harvest Scenario 13 In our base case scenario the Spot Harvest Time Futures Preproduction NOT RMA Avg is 8 40 This is a 1 25 per bushel increase over the RMA Projected Harvest Price of 7 15 and reflects what actually happened after the fall sales closing date in 2010 for wheat in Montana This provides an opportunity to add another tier of price protection to try and capture some portion of the 1 25 increase Click on the check box in the Hedge column to activate the Hedge alternative Figure 28 illustrates the addition of the Hedge at 8 40 per bushe
6. State Montana 30 County Hill 041 Type Winter 011 Practice Summerfallow 005 Prot wath Harvest Price Exclusion 03 lt Show Item Details gt gt 85 80 15 70 65 60 55 50 Detail Worksheet Producer Worksheet Final Planting Acreage Reporting Sales Closing 11 15 2010 11 15 2010 09 30 2010 aMMa A Computed Rests Total Per Acre Quantity Coverage 200 200 00 200 20 Production Guarantee Amount 200 200 00 200 20 Total Premium Amount Including A amp O 29 012 20 29 01 Premium Subsidy 19 254 20 19 25 Administrative and Operating Subsidy 5 212 20 5 21 Producer Premium No Administrative Fee Included 9 758 00 9 76 EN HSU OUVE Fee 530 00 Producer Premium Administrative Fee Included ee Unit Structure Structure o 1 000 Sub E AT Code Additive Additive Optional Rate Adjustment Rate Adjustment ER Multiplicative Optional Rate Adjustment 1 00000000 Fixed Rate 0 040 N A THIS WORKSHEET IS INTENDED TO ASSIST IN ESTIMATING PRODUCER PREMIUM ONLY 55 Appendix Figure 7 This screen shows summary results Producer Worksheet for a 70 yield election for the Yield Protection Plan USDA United States Department of Agriculture Cost Estimator Risk Management Agency Welcome Guest Producer and Detail Worksheets for Estimate 23264 Back P cave erin Export Selected Initial Criteria Commodity Wheat 0011 Commodity Year 2011 Stat
7. 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 13 33 13 25 13 19 13 60 13 60 13 60 Net Revenue Per Acre Based on Actual Bushels Harvested 380 80 373 30 371 00 369 20 380 80 380 80 380 80 Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 4 50 4 50 Expected Net Income Per Acre Preproduction 128 00 98 50 94 40 96 20 127 20 40 40 198 80 Actual Net Income Per Acre Actual Yield Actual Net Price 200 80 193 30 191 00 189 20 200 80 200 80 200 80 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest 0 70 Cost of Production Per Bushel 54 50 Actual Yield at Harvest o 4 50 Now decrease the actual yield to 27 bushels and you will see that all Combo Plans pay indemnities With the actual yield set to 27 bushels lower the RMA Harvest Price below 14 30 by clicking on this number holding the left mouse button down while dragging downward You can also double click on this number and type in a new number As you lower
8. 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures Price for Insurance Products Harvest Sale Offset 6 00 i Net Combo Indemnity Received Per Acre 7 50 9 80 B K 5 30 NA 5 30 0 70 30 00 Cash Price at Sale Time 5 30 5 30 Actual Basis Harvest Per Bushel NA 0 70 NA Gain Loss on Basis Harvest Sale Offset Per Bu 2 38 rofits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 2 38 2 38 2 38 Profits Losses From Puts Prorated Over Actual Production Per Bu 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 7 49 7 44 7 39 7 68 5 30 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 212 00 299 70 297 40 295 60 307 20 212 00 212 00 Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 4 50 4 50 Expected Net Income Per Acre Preproduction 98 50 94 40 96 20 127 20 40 40 198 80 Actual Net Income Per Acre Actual Yield Actual Net Price 32 00 119 70 117 40 115 60 127 20 32 00 32 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts RMA H
9. Montana State University Matt Diersen South Dakota State University d griffith montana edu Diersen Matthew sdstate edu 406 994 2580 605 688 4864 USDA unisd states Department of Agricutturo ga National Institute of Food and Agriculture Done jM Computer Protected Mode Off fa vy 145 v Figure 2 Screen capture of the Introduction tab of the software without the browser 4 This program allows comparison of levels of price protection offered by futures contracts options contracts and the new Combo Policy offered by RMA which has consolidated several previous insurance policies into one policy M All three products use similar information when calculating the net price offered level of price protection for each MONT AN A tool Adjustments are made for the differences in the way futures options and Combo Policy plans are implemented and the transactions cost incurred for each product STATE UNIVERSITY EXTENSION To complete this analysis use the tabs across the top of the screen going from left to right and complete 5i requested information on each page Please note that some information such as the current futures price at yt purchase time or initial position and the expected futures price at sale or time when the initial position is offset appear on several pages You do not have to enter one of these prices more than once Changing a value that appears on one page changes that value everywhere it appear
10. Sample report generates by the RMA Actuarial Browser USDA United States Department of Agriculture Actuarial Information Browser gage Risk Management Agency Information Browser gt Actuarial Information Browser gt Crop gt Crop Report Crop Report A Hide Selection Criteria a Select Criteria coma Commodity Wheat 0011 Commodity Year Commodity Year 2011 Each tab contains information Insurance Plan Insurance Plan Yield Protection 01 7 State County State Montana 30 about the crop location and County Hill 041 e Hi 040 insurance plan selected id 4 1 of1 D Di 100 Find Next lhe D Year 2011 Commodity Wheat 0011 State Montana 30 Data Released Plan Yield Protection 01 County Hill 041 Types Practices Type Winter 011 Winter 011 Winter 011 Winter 011 Winter 011 Winter 011 Winter 011 Winter 011 Winter 011 Practice Irrigated 002 Continuous Cropping 004 Summerfallow 005 Organic Certified Irr 702 Organic Transitional Irr Continuous Cropping OC Continuous Cropping OT Summerfallow OC 717 Summerfallow 712 715 716 Type Practice T P TIP 4 TIP 5 TIP 6 TPT TIP 8 TIP9 T P 10 TIP 11 TIP 12 Prices Base County Type Practice T P TIP 4 TIP 5 TIP 6 TIP 7 TIP 8 TIP9 TIP 10 TIP 14 TIP 12 Projected Price 7 1500 7 1500 7 1500 7 1500 7 1500 7 1500 7 1500 7 1500 Catastrophic Price 3 9400 3 9400 3 9400 3 9400 3
11. a 6B Ss cs 8s f fF fT Ff f FT F 4 Basis at Time of Sale Offset Both the Futures and Options tabs in this software can be used independently from the rest of the program The input variables necessary to estimate the beginning position and the ending variables at the time the hedge is offset are all on this page The outcome of taking a position in the Futures markets and offsetting this position at the appropriate time given the variables specified by the user are shown on this page While this tab can be used as a standalone tool information on this tab is also carried forward to the Summary Results tab On the Summary Results tab the last three columns in the side by side comparison display the Futures and Options risk management alternatives However on this tab the default position for the futures and options are Off Figure 7 The row labeled Net Predicted Cash Floor Ceiling Price Per Bushel shows the Futures Options expected net prices that would be in effect if a position was taken in the market These net prices will always match the net prices on the Futures and Options tabs The row labeled Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset does not show the same number for the ending result that is shown on the Futures and Options tab On the Futures tab this number is 7 68 For Put Options tab this number is 7 41 and for the Call options this number is 7 53 The reason these numbers are different on the S
12. the RMA Harvest Price The RP indemnity starts to decrease but indemnity payments for the other two plans do not change until the RMA Harvest Price falls below 7 15 As you drag the price below 7 15 both the RP HPE and the RP indemnity payments change but the YP plan s indemnity payment does not change Now set the RMA Harvest Price and the Spot futures price at harvest to 7 00 and change the Actual cash price at harvest to 6 30 to maintain the S 70 basis Leave the actual yield set at 27 bushels Caution To assure that estimates for all of the Combo and marketing alternatives show accurate results make sure you change all the relevant variables for each situation in this instance holding the basis at S 70 Click and drag the RMA Harvest Price up to increase this price level Both RP HPE and RP increase their indemnity payment until you hit the 7 15 RMA Project Harvest Price level As you continue to drag upward increasing the RMA Harvest Price above 7 15 only the RP indemnity changes If you continue to increase the RMA Harvest Price the RP indemnity will increase until you reach the 14 30 price level This is 200 of the 7 15 RMA Projected 29 Harvest Price Once this cap is reached for the RMA Harvest Price the RP indemnity is maxed out for any given yield below 28 bushels in this scenario Scenario 5 Click onthe Reset button This resets all values you have changed to the original values that were loaded when you
13. 17 Put options do not provide as much down side price protection due to the premium paid for the Put option In this scenario the Put option strike price is 6 50 and results in a Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset of 5 51 which provides a higher net income per acre 40 40 than just cash marketing 32 per acre when the cash price per bushel is 5 30 34 Figure 24 Caution messages when price relationships may be suspect Bushel Buy Up Calc Off On MouseOver for Help Off On _ Use Check Boxes to display input options Revenue Results are based on No of Bu i Display Hide Combo Ins variables at time of purchase YP Protection RP _ ina Futures Options contract Display Hide Market variables at harvest sale offset Cash Yield WiHarvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premiu 0 02 0 29 0 17 Expected Basis Preproduction 0 70 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 100 00 100 00 100 00 Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost
14. 27 91 49 86 17 66 11 30 25 94 56 50 141 85 139 55 249 30 88 30 56 50 129 70 4 50 4 50 4 50 4 50 4 50 4 50 98 50 94 40 96 20 127 20 40 40 198 80 123 50 38 15 40 45 69 30 268 30 123 50 50 30 Spot Harvest Time Futures Preproduction NOT RMA Avg _ Bet i eT E es 0 70 RMA Harvest Price Havest Sale Offset is a aot Mites Pice sie al 6 So Actual Cash site Received at Harvest Sale oa eee Spot Futures Price at Harvest Sale Offset Call Strike Price Selected Actual Basis at Harvest Call Premium Paid Cost of Production Per Bushel Number of Futures Options Contracts Actual Yield at Harvest Reset Print 46 Scenario 19 Our last scenario simulates the revenue protect provided by the RP Combo plan by purchasing the YP coverage plan and a Call option Start with the variable values as shown in Figure 37 None of the marketing options are active As you might expect for this scenario the RP Combo plan provides the highest indemnity at 130 40 per acre This is due to the upside price protection provided with the RP plan There is a way to simulate the RP coverage by using a Call option to provide protection against rising prices To illustrate this uncheck the RP HPE and RP combo columns so they are not active Leave the YP column checked Now click the check box to activate the Call option column Figure 38 shows the results of this risk managemen
15. 388 80 400 40 minus 11 60 if the maximum indemnity is reached If you set yield to zero and the RMA Harvest Price to 14 30 the RP indemnity will display 388 80 Increasing the RMA Harvest Price above 14 30 for this example does not increase the RP indemnity as 14 30 is 200 of the RMA Projected Harvest Price Any combination of actual yield and RMA Harvest Price capped at 200 of RMA Projected Harvest Price that results in a revenue estimate above the minimum and below the maximum will result in an indemnity payment When the RMA Harvest Price is at or below the RMA Projected Harvest Price the RP plan pays the same indemnity as the RP HPE plan Scenario Descriptions Several scenarios are provided below to explore how these marketing tools manage risk individually or when combined A few of the values used for different variables in the base case were held constant throughout the scenarios presented below This helps simplify the number of scenarios presented here but we encourage you to explore how these variables may affect 24 your decisions Screen captures from the software show results for most scenarios but in some instances the user is encouraged to explore particular situations Screen captures show values of key variables used in most scenario Variables held constant across scenarios are e APH yield equals expected yield and is 40 bushels e Yield election level is held at 70 e Price election level is held a
16. 40 378 80 0 70 7 70 308 00 Spot Futures Price for Futures amp Options Markets at Sale cai 6 00 6 00 6 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 6 00 6 00 6 00 Net Combo Indemnity Received Per Acre 156 95 160 40 158 60 7 Cash Price at Sale Time 5 30 5 30 5 30 5 30 5 30 5 30 Actual Basis Harvest Per Bushel NA NA NA 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu NA 50 00 50 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 19 04 19 04 19 04 19 04 Profits Losses From Puts Prorated Over Actual Production Per Bu 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 55 73 56 42 56 06 24 34 5 30 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 26 50 278 65 282 10 280 30 121 70 26 50 26 50 Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 4 50 4 50 4 50 4 50 4 50 4 50 98 50 94 40 96 20 127 20 40 40 198 80 98 65 102 10 100 30 58 30 153 50 153 50 128 00 153 50 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offs
17. 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale E NA NA NA 12 00 12 00 12 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 12 00 12 00 12 00 NA NA NA Net Combo Indemnity Received Per Acre 49 70 47 40 84 40 NA NA Cash Price at Sale Time 11 30 11 30 11 30 11 30 11 30 11 30 11 30 Actual Basis Harvest Per Bushel NA NA NA 0 70 3 Gain Loss on Basis Harvest Sale Offset Per Bu 0 50 00 0 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 11 30 13 79 13 67 15 52 11 30 11 30 11 30 Net Revenue Per Acre Based on Actual Bushels Harvested 275 70 273 40 310 40 226 00 226 00 226 00 Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 4 50 4 50 Expected Net Income Per Acre Preproduction 98 50 94 40 96 20 127 20 40 40 198 80 Actual Net Income Per Acre Actual Yield Ac
18. 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre NA 6 30 6 30 64 40 62 60 Cash Price at Sale Time 5 30 Actual Basis Harvest Per Bushel NA NA NA 50 50 30 Hedge 0 00 0 00 0 00 S0 00 0 00 0 00 0 00 0 00 Calls 0 00 0 00 0 00 0 00 Gain Loss on Basis Harvest Sale Offset Per Bu Profits Losses From Hedge Prorated Over Actual Production Per Bu 7 79 8 52 8 43 5 30 5 30 5 30 106 00 155 70 170 40 168 60 106 00 106 00 106 00 4 50 4 50 4 50 4 50 4 50 4 50 128 00 98 50 94 40 96 20 127 20 40 40 198 80 74 00 24 30 9 60 11 40 74 00 74 00 74 00 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest 1 00 Cost of Production Per Bushel e Actual Yield at Harvest Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset Net Revenue Per Acre Based on Actual Bushels Harvested Cost of Production Per Bus
19. 90 with RP HPE Now click the check box in the Hedge column to active the Hedge Figure 33 shows the results with the Hedge active Even though the Hedge column now shows a 58 30 net income per acre 42 when profits from the Hedge are combined with the Combo plans all of the Combo plan columns show large positive numbers The combination of using the hedge and a combo plan provides a significant safety net in this scenario This management strategy only exists because the jump in futures prices after the sales closing date on Sept 30 Figure 32 Very low yields with only the Combo plans active Use Check Boxes to display input options Display Hide Combo Ins variables at time of purchase B Display Hide Market variables at harvest sale offset YP Protection in a Futures Ootions contract Cash Yield W Harvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on C
20. Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction ae 50 94 40 96 20 127 20 40 40 198 80 Actual Net Income Per Acre Actual Yield Actual Net Price 128 00 120 50 118 20 116 40 128 00 128 00 128 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest Cost of Production Per Bushel Actual Yield at Harvest Following the Numbers Note that in Figure 9 the Cash column and the columns for Futures Puts and Calls all have a value of 7 70 for Net Cash Price Per Bushel Harvest Yield Harvest Sale Offset Since the Futures Puts and Calls are not active check box is gray no profit or loss is displayed in these columns for contracts traded i e these three columns all display results as if all market factors fit the perfect hedge but without actually establishing a position in the Futures Options market all alternatives displayed act as if it was a Cash market This also means that if you unchecked the check boxes in the Combo plans these columns would also display a 7 70 price for the Net Cash Price Try it The reason the row labeled Net Cash Price shows a different number on the Summ
21. Help x Convert F F Select x BB Snagit r x sly Favorites 3 Web Slice Gallery g bookmaplet Easy online st Map that address Suggested Sites v gt gt 88 D ALLCurrent AllProjects Cost Estimator Home X fy GJ wm Pager Safetyy Toolky USDA United States Department of Agriculture Cost Estimator Pree Risk Management Agency Welcome Guest Browse by Subject Home gt Information Browser gt Cost Estimator gt Main Menu Log In Gi A METEN t n b Agent Locator gt Cost Estimator Pop Up Blockers Please disable your pop up blocker before using this application or add this application to your list of Main Menu safe sites Quick Estimate Detailed Estimate Saved Estimates b Price Discovery b Prices Inquiry Quick Estimate Detailed Estimate Continue with an Existing Estimate Preferences gt Livestock Reports View Frequently Asked Questions FAQ b Dates Inquiry Ask a Question or Make a Comment If you use a Satellite Internet Service Provider click here to use a secure connection RMA Home USDA gov Civil Rights Report Fraud Copyright Information Jobs Site Map A Z Index FOIA Accessibility Statement Privacy Policy Non Discrimination Statement Information Quality USA gov White House Internet Protected Mode On fa vy 125 Appendix Figure 2 The first screen in the Quick Estimate series which is not yet
22. Indemnity Received Per Acre 7 50 9 80 11 60 Cash Price at Sale Time 7 70 7 70 7 70 7 70 Actual Basis Harvest Per Bushel EN NA NA NA Gain Loss on Basis Harvest Sale Offset Per Bu 50 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 7 70 7 51 7 46 7 41 7 70 7 70 7 70 Net Revenue Per Acre Based on Actual Bushels Harvested res 00 asco gaa 298 20 296 40 308 00 308 00 308 00 Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 4 50 50 450 450 450 4 50 4 50 4 50 4 50 4 50 128 00 98 50 94 40 96 20 127 20 40 40 198 80 128 00 120 50 118 20 116 40 128 00 128 00 128 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Cost of Production Per Bushel Actual Yield at Harvest
23. Practice Summerfallow 005 E gt Livestock Reports i Individual Coverage gt Dates Inquiry Reported Acreage 00S Insured Share Percent Unit of Measure BU Approved Yield 4 0 Rate Yield J40 Yield Protection 01 Projected Price 100 7 15 Revenue Protection 02 Projected Price 100 7 15 Price Volatility Factor 0 33 Revenue Prot with Harvest Price Exclusion 03 Projected Price 100 7 15 Price Volatility Factor 0 33 Get Estimates Appendix Figure 4 The third screen in the Quick Estimate series showing summary results USDA United States Department of Agriculture Cost Estimator Risk Management Agency Welcome Guest Quick Estimate 23264 Back lan Save HAprint Export Commodity Wheat 0011 Commodity Year 2011 State Montana 30 County Hill 041 Type Winter 011 v Practice Summerfallow 005 v Individual Coverage Reported Acreage 1000 Insured Share Percent If Unit of Measure BU Approved Yield 40 Rate Yield 40 Yield Protection 01 Projected Price 100 7 15 Revenue Protection 02 Projected Price 100 7 15 Price Volatility Factor ee ees Revenue Prot with Harvest Price Exclusion 03 Projected Price 100 7 15 Price Volatility Factor 0 33 Show In Grid Liability Amount Total Premium Amount Producer Premium Amount Subsidy Amount Liability Amount Individual C
24. Preproduction 308 00 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale 6 00 6 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset NA NA NA Net Combo Indemnity Received Per Acre eo NA NA Cash Price at Sale Time 5 30 E 5 30 5 30 5 30 Actual Basis Harvest Per Bushel 0 70 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per B 0 00 0 00 0 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 2 38 Profits Losses From Puts Prorated Over Actual Production Per Bu 0 21 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 7 68 5 51 5 30 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 212 00 307 20 220 40 212 00 _ Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 Expected Net Income Per Acre Preproduction 128 00 127 20 40 40 198 80 _ Actual Net Income Per Acre Actual Yield Actual Net Price 32 00 127 20 40 40 32 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Put Strike Price Selected gt Put Premium Paid Spot Futures Price at Harvest Sale Offset Call Strike Price Selected Actua
25. Puts sub tab display pms cate Conditions When Options Purchased Buy Put Options bu Strike Price Purchase 6 50 Premium 0 27 Futures Price Purchase 8 40 Expected Basis Sale 0 70 Brokeraae and Interest bu 0 02 Predicted Floor Price with Put 5 510 Acres Insured Price Revenue Protected 1 000 40 0 APH Yield lt gt Revenue Per Bushel Buy Put Option Protects Against Falling Prices Spot Futures Exer Offset Actual Cash Price at Sale Time Actual Basis at Sale Time Cost of Production o 4 50 Interest and Brokerage 0 020 Profit Loss on Put Option 0 290 Net Cash Price Adi for Hedaed Net Income Received Total Expected Production Number of Contracts Needed 8 00 Number of Contracts Purchased Percent hedaed using Puts This block does not affect the graph Increment Value for sauna J Graph s X axis 1 00 Cents Per Bushel s 0 20 0 60 n 0 40 amp v 0 20 Note Check Boxes 0 00 gt that Display Hide 0 20 amp Lines on the Graph cooooco 0 40 G DONT Futures Prices B Option Only Cash Opt Estimated Cash 10 Figure 6 Screen capture of the Options tab with the Calls sub tab display Puts Cals Conditions Option Exercise Expire Conditions When Options Purchased Futures Exer Offset Cash Price at Sale Time Strike Price Purch eran ia Actual Basis at Sale Time Fut
26. Yield at Harvest Scenario 2 Actual yield at harvest is reduced to coverage levels of 28 bu per acre 40 APH 70 coverage election Lower the RMA Harvest Price and the Spot Futures Price at Harvest to 7 15 so they both match the RMA Projected Harvest Price Set the Actual Cash Price Received at Harvest Sale to 6 45 which keeps the expected and actual equal at 70 With these parameters no Combo plan pays an indemnity Actual yield is at not below the 70 coverage level selected and the RMA Harvest Price equals the RMA Projected Harvest Price Figure 18 26 shows the results with these parameter values Actual net income per acre has fallen due to the decrease in the actual price from 7 70 to 6 45 The Cash column net income per acre is positive but only 60 The net income per acre for all of the Combo plan is negative due to their premium values being larger than the Cash net income per acre Figure 18 RMA price and yield levels at the trigger points for an indemnity payments _ Use Check Boxes to dis la input o tions Revenue Results are based on No of Bu al Display Hide Combo Ins variables at time of purchase YP Duis RP TAR era a Display Hide Market variables at harvest sale offset Yield WiHarvest Revenue Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 8 40 6 50 10
27. basis at harvest equaled the expected basis 70 As expected production also conveniently matches an even number of contracts so the expected production is not over or under hedged in this example Figure 4 Screen capture of the Futures tab in the software Conditions when Hedae is placed Expected Conditions When Hedae is lifted offset Futures Purchase bu 8 40 Cash Sale Harvest Offset bu 7 70 Expected Averaae Basis 0 70 Futures Sale Harvest Offset bu 8 40 Brokerage and Interest bu 0 02 Actual Basis Sale Harvest Offset bu 0 70 Net Predicted Cash Floor Price 7 68 Net Price Received Paid 7 68 Cost of Production bu 4 50 Net Inc Sale Total bu 3 18 Estimated Net Income bu 3 18 Profit or Loss on Hedae Only 0 02 Net Inc Cash Only 3 18 APH Yield 40 0 Percent hedged Acres Insured Price Revenue Protected 1 000 Net received adjusted for Total Expected Production Using APH Yield 40 000 percent hedaed is equal to gt Number of contracts to cover expected production 8 00 Number of Futures Options Contracts Purchased 8 a A Projected Cash Price Given Basis Adjusted for Basis and Trading Costs Increment Value for 9 00 Graph s X axis Cents Per Bushel m Weakening T Basis 0 10 7 lt 8 00 Ww 9 O a S oa a Basis a 6 00 o o o o n m N So a 2 Ss Ww T n N n a www COC CFC S amp S a
28. changing both the Spot futures at harvest and the Actual cash price received This software allows you to explore how basis variability can affect the final results across all alternatives Set the variable values and check boxes as displayed in Figure 26 Now assume the basis changes from 70 to 1 00 weakens between the time a Hedge or Put is placed and harvest sale offset To illustrate this set RMA Harvest Price and the Spot futures at 37 harvest to 6 30 The Actual Basis at Harvest will show 1 00 If the Actual Cash Price Received at Harvest Sale is changed to reflect a change in the basis the net income per acre for all of the alternatives change Net income per acre is driven off the Actual Cash Price Received at Harvest Sale value but adjusted when necessary It is difficult to see the impact of basis variability on the various alternatives on the Summary Results page Table 1 is included here to help illustrate the difference between the price change and a basis change While the cash alternative absorbs the entire per bushel change in price the Hedge alternative absorbs only the change in basis from S 70 to 1 00 This change is a negative 12 00 per acre 30 basis change 40 bushels per acre As a reminder this scenario includes an exact match with expected and actual production and eight contracts exactly match total production of 40 000 bushels If this was not the case there is either an over hedged or under hedged
29. commodity for the Combo policy However the commodities markets only provides 33 price protection just one component of total revenue and the producer is still subject to basis risk when using the commodity marketing alternatives Scenario 7 The scenario starts with all the parameter values of our base case The Hedge and Put columns are checked active but the bottom line for these columns indicates a net income less than the cash market Figure 23 The portion of the table outlined in blue shows the profit or loss for each futures market alternative In this scenario the Soot Futures Price at Harvest Sale Offset is a negative two cents a bushel This is the brokerage and interest costs entered by the user for trading the futures contracts The Puts column shows a negative 29 cents per bushel loss 27 per bushel premium plus 02 per bushel brokerage and interest cost Calls are not active in this scenario The bottom row of the table shows the net income on a per acre basis Both the Hedge and Puts columns are less than the Cash column due to the trading costs incurred for the eight contracts necessary to cover expected production In this scenario both the Hedge and the Puts have acted just like insurance They were implemented to protect against down side price risk and they were not needed so the loss is the comparable to an insurance premium Scenario 8 Starting with the parameters of the base case Scenario 7 lower the Spot
30. position and the net income per acre are adjusted accordingly with profits or losses from the marketing tools Table 1 Basis variability effects on net income per acre Basis is S 70 Actual Cash 7 70 RMA Harvest Price and Spot Futures are S8 40 Yield is 40 bu Basis is 1 00 Actual Cash 5 30 RMA Harvest Price and Spot Futures 32 00 115 20 are 6 30 Yield is 40 bu Difference in Net Income A B 96 00 12 00 128 00 127 20 Combinations of Combo Policy Plans and Futures and Options Markets As indicated previously this software allows evaluation of one or more of the Futures and Options alternatives in any combination with the Combo policy plans The scenarios below help illustrate possible combinations of an overall risk management strategy Scenario 12 Figure 27 provides a starting point for this set of scenarios Both the RMA Harvest Price and the Spot futures are 6 00 The basis is held at S 70 so the cash price is 5 30 Yield is 40 bushels Net income per acre for the Cash and all of the futures and options columns is 32 00 These values are the same because the Futures and Options columns are not active The combo plans are all active and reflect a net income per acre that differs from the Cash column by the premiums paid for each Combo plan 38 Figure 27 Use Check Boxes to display input options _ TEE TE SP E ET a a Display Hide Combo Ins variables at time of p
31. up from YP to RP is an extra 4 10 premium per acre This converts to 5324 of one bushel 4 10 divided by 7 70 The cost to buy up from RP HPE to RP is 23337 of one bushel 11 60 minus 9 80 1 80 divided by 7 70 Once the premiums are estimated and entered in this software for any given level of coverage selected they will not change unless the coverage level changes Figure 22 Bushel Buy up calculations pop up Stee bie lt hows the Results are based on No of Bu tee diners ie Expected Local Cash Price Per Bushel in a Futures Options contract premiums and potential yp RPHPE RP cage i P g indemnity payment for Estimated Premium Cost by Combo Plan 750 980 1160 8 40 6 50 10 00 each Combo Plan It Per Acre Premium Difference YP to RP HPE 2 30 50 02 50 29 50 7 also lists the number of Bushels Per Acre YP to RP HPE 0 299 50 70 50 70 S0 70 bushels per acre atthe Change in Idemnity Received YP to RP HPE 2 30 7 68 5 5 1 9 a7 expected local cash Per Acre Premium Difference YP to RP 4 10 Men ox 100 ox 400 ance price that it would take Bushels Per Acre YP to RP 0 532 z z _ to Buy Up your Change in Idemnity Received YP to RP 4 10 coverage level from one Per Acre Premium Difference RP HPE to RP 1 80 9307 20 220 40 378 80 plan to another Bushels Per Acre RP HPE to RP 0 234 Change in Idemnity Received RP HPE to RP 1 80 8 40 8 40 8 40 E NA NA NA Net Combo
32. 0 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 7 15 7 15 7 15 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 286 00 286 00 286 00 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale NA NA NA 8 40 8 40 8 40 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 8 40 8 40 8 40 NA NA NA Net Combo Indemnity Received Per Acre 57 20 57 20 67 20 NA Cash Price at Sale Time 7 70 7 70 7 70 7 70 7 70 7 70 7 70 Actual Basis Harvest Per Bushel cael NA NA NA 0 70 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu NA 50 00 50 00 50 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Calls Profits Losses From Calls Prorated Over Actual Production Per Bu 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 10 56 10 56 11 06 7 70 7 70 7 70 Net Revenue Per Acre Based on Actual Bushels Harvested 154 00 211 20 211 20 221 20 154 00 154 00 154 00 128 00 26 00 Cost of Production Per Bushel Based on APH Yi
33. 0 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale NA RMA Avg Futures Price for Insurance Products Harvest Sale Offset 6 30 6 30 Net Combo Indemnity Received Per Acre 4 64 40 62 60 Cash Price at Sale Time Actual Basis Harvest Per Bushel Gain Loss on Basis Harvest Sale Offset Per Bu NA NA NA 50 rofits Losses From Hedge Prorated Over Actual Production Per Bu 4 16 4 16 4 16 4 16 Calls rofits Losses From Puts Prorated Over Actual Production hes Bu 0 00 0 00 0 00 0 00 0 00 0 00 0 00 0 00 11 95 12 68 12 59 9 46 5 30 5 30 aa 00 E 253 60 251 80 189 20 106 00 106 00 450 50 450 450 450 4 50 4 50 4 50 128 00 94 40 96 20 127 20 40 40 198 80 74 00 73 60 71 80 9 20 74 00 74 00 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Har
34. 0 60 173 10 170 80 169 00 180 60 180 60 180 60 4 50 4 50 4 50 128 00 98 50 94 40 96 20 0 60 6 90 9 20 11 00 Spot Harvest Time Futures Preproduction NOT RMA Avg 840 Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 4 50 4 50 4 50 127 20 40 40 198 80 0 60 0 60 0 60 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest Cost of Production Per Bushel Actual Yield at Harvest Scenario 3 Leave the actual yield at 28 bushels and decrease the RMA Harvest Price and the Spot futures price at harvest to 6 00 per bushel Lower the Actual Cash price received to 5 30 to maintain a S 70 basis The RP HPE and the RP Combo Plans pay the same indemnity as the RMA Harvest Price falls below the RMA Projected Harvest Price of 7 15 per bushel This software displays the Net Indemnity which is the total indemnity minus the premium paid per Combo Plan so the net indemnities are not the same For the sake of illustrating that these two plans pay the same indemnity zero out the premiums for the RP HPE and RP p
35. 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 NA 7 15 9 80 B P 6 45 NA Spot Futures Price for Futures amp Options Markets at Sale NA RMA Avg Futures Price for Insurance Products Harvest Sale Offset 7 15 Net Combo Indemnity Received Per Acre 7 50 6 45 6 45 NA NA Cash Price at Sale Time Actual Basis Harvest Per Bushel 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu 50 00 0 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 6 18 6 10 6 04 6 45 6 45 6 45 Net Revenue Per Acre Based on Actual Bushels Harvested 18
36. 15 8 40 6 50 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 6 91 7 68 5 51 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 Spot Futures Price for Futures amp Options Markets at Sale 12 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre Cash Price at Sale Time 11 30 Actual Basis Harvest Per Bushel Gain Loss on Basis Harvest Sale Offset Per Bu NA NA NA 50 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 28 96 238 96 238 96 238 96 Calls Profits Losses From Puts Prorated Over Actual Production Per Bu 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 13 73 13 27 35 22 17 66 11 30 56 50 68 65 66 35 176 10 88 30 56 50 Net Revenue Per Acre Based on Actual Bushels Harvested 4 50 4 50 4 50 4 50 4 50 Cost of Production Per Bushel Based on APH Yield 128 00 98 50 94 40 96 20 12
37. 7 20 40 40 123 50 111 35 113 65 3 90 268 30 123 50 Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest Cost of Production Per Bushel Actual Yield at Harvest Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts _ Use Check Boxes to dis lay input options Revenue Results are based on No of Bu EEA EA E E T a SA YP Protection RP in a Futures Options contract 7 Display Hide Market variables at harvest sale offset Cash Yield W Harvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling 10 00 0 17 0 70 9 47 100 00 378 80 11 30 56 50 4 50 198 80 123 50 0 70 45 Scenario 18 This scenario explores the opportunities to protect against adverse upward price moves when you have hedged or forward contracted for delivery of grain at harvest time Start with the values as shown in Figure 36 To protect against upward price movements a producer can also use Call options This is a typical strategy used when producers forward cont
38. 9400 3 9400 3 9400 3 9400 1 59
39. Acre Cash Price at Sale Time Actual Basis Harvest Per Bushel Gain Loss on Basis Harvest Sale Offset Per Bu Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 21 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset ese 7 68 5 51 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 212 00 307 20 220 40 212 00 Cost of Production Per Bushel Based on APH Yield 4 50 Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Put Strike Price Selected R Put Premium Paid Spot Futures Price at Harvest Sale Offset Call Strike Price Selected Actual Basis at Harvest Cost of Production Per Bushel Actual Yield at Harvest Call Premium Paid Number of Futures Options Contracts YP Protection RP in a Futures Options contract Cash Yield W Harvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling i 6 50 10 00 100 00 378 80 128 00 127 20 40 40 198 80 32 00 127 20 40 40 i Scenario 9 For illustrative purpos
40. Cash Floor Ceiling Price Per Bushel 7 70 6 86 6 91 es ea a Revenue YP Protection RP Yield W Harvest Revenue The columns of information Percent of Production Insured Price Protected amp Yield Insured 70 70 Th a ees Price Election on Combo Insurance 100 100 peeeeee aS initially Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 274 40 276 20 hidden covered Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre Cash Price at Sale Time 7 70 7 70 7 70 7 70 Actual Basis Harvest Per Bushel am NA NA NA Gain Loss on Basis Harvest Sale Offset Per Bu NA NA NA Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 7 70 7 51 7 46 7 41 Net Revenue Per Acre Based on Actual Bushels Harvested 300 50 298 20 296 40 Cost of Production Per Bushel Based on APH Yield 4 50 Expected Net Income Per Acre Preproduction 98 50 94 40 96 20 Actual Net Income Per Acre Actual Yield Actual Net Price 128 00 120 50 118 20 116 40 There are two check boxes in the upp
41. Fuel and Oil Repairs Machinery Operating Costs Fuel and Oil Repairs Interest On Preharvest Costs Avg Months Loan Outstanding 19 Figure 15 Screen capture of the fifth screen after selecting the Harvest Operating Costs amp Results item off of the drop down menu in the upper right corner of Cost of Production for the Crop 1 sub tab Units of Price Number Percent Value Value Measure Per of Units Tenants Tenants Landlords Area Dry Lqid Unit Used Share Share Share Combine Operating Costs Only Fuel and Oil Repairs Custom Combine Truck Operating Costs Only Fuel and Oil Repairs Custom Haul Interest On Harvest Costs Avg Months Loan Outstanding tu Total Operating Costs For Total Operating Costs Per Acre for Tenant amp ee Total Operating Costs Per a 135 a Breakeven to Cover Operating Costs Per Unit of Production 3 40 Percent of expected production necessary to cover cash flow for this crop 45 3 Pop up Caution Messages To this point the examples have stuck with our perfect world base case scenario This is rarely the case and this software has a couple of cautions that pop up if certain conditions are met There are three instances where these occur Two deal with divergence of prices from the RMA Harvest Price The user must enter the RMA Harvest Price Harvest Sale Offset the Spot Futures Price at Harvest Sale Offset and the Actual Cash Price Received
42. Futures as harvest to 6 00 As you lower the price the basis changes to a positive 1 70 because the Actual Cash Price Received at Harvest Sale is still 7 70 For now set the Actual Cash price received to 5 30 so the basis remains as at our expected S 70 As you lower these prices two messages appear on the screen to caution you that the price relationships between the RMA Harvest Price the Spot futures and the local cash price may not be representative of what you might expect however it does not mean there is something wrong Figure 24 At this point only the Spot futures and local cash price have changed but the RMA Harvest price remains at 8 40 These messages will disappear if the RMA Harvest Price is lowered to within 10 of the Spot futures price Figure 25 There is a wider margin on the cash price caution message 20 of the RMA Harvest Price to account for basis Lower the RMA Harvest Price to 6 00 so it matches the Spot futures at harvest Note that lowering the RMA Harvest Price has no effect on the results calculated for the Hedge or Put columns Figure 24 and 25 With a Spot futures at harvest of 6 00 and a Spot Harvest Time Futures Preproduction of 8 40 the Hedge shows a profit of 2 38 per bushel Net income per acre is 127 20 while the Cash net income is only 32 00 per acre As a marketing tool the Hedge maintained the net income per acre to within 3 00 per acre of our base case scenario for Cash Figure
43. Load Delete Scenarios _ Use Check Boxes to display input options Revenue Tinea aon based as the of tla a Display Hide Combo Ins variables at time of purchase YP Paista RP a a a Display Hide Market variables at harvest sale offset Cash Yield WiHarvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium Expected Basis Preproduction Net Predicted Cash Floor Ceiling Price Per Bushel Percent of Production Insured Price Protected amp Yield Insured Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 7 70 7 15 7 15 7 15 8 40 6 50 7 50 9 80 11 60 0 02 0 29 NA NA NA 0 70 0 70 6 96 6 86 6 91 7 68 5 51 70 70 70 100 00 100 00 100 100 100 278 50 274 40 276 20 307 20 220 40 0 70 7 70 308 00 Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre Cash Price at Sale Time Actual Basis Harvest Per Bushel Gain Loss on Basis Harvest Sale Offset Per Bu Profits Losses From Hedge Prorated Over Actual Production Per Bu Profits Losses From Puts Prorated Over Actual Production Per Bu Profits Los
44. Net Income Per Acre Preproduction 98 50 94 40 96 20 127 20 40 40 198 80 Actual Net Income Per Acre Actual Yield Actual Net Price 128 00 120 50 118 20 116 40 128 00 128 00 128 00 Crop Name Description Yield Price Bushels RMA Projected Harvest Price Time of Purchase Combo Plans Available Election Election Premium Protected Upper Limit 200 of Projected Harvest 14 30 Revenue Protection RP Anal 28 000 APH Yield RP With Harvest Price Excl 100 28 000 Acres Insured Price Revenue Protected Yield Protection 100 7 50 28 000 Total Expected Production Using APH Yield 40 000 RMA Harvest Price Havest Sale Offset Number of contracts to cover expected 8 00 Actual Yield at Harvest 13 Figure 9 Screen capture of the Summary Results tab with the Check Box for the display of marketing tools variables selected and the Futures amp Options calculations Use Check Boxes to display input options r isplay i ptions Revenue Results are based on No of Bu m Display Hide Combo Ins variables at time of purchase YP Protection RP in a Futures Options contract Display Hide Market variables at harvest sale offset Cash Yield W Harvest Revenue Hedge Puts Calls Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest
45. P Protection RP in a Futures Options contract Display Hide Market variables at harvest sale offset Cash Yield WiHarvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling 6 50 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 42 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 5 30 10 06 5 72 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested Ram 201 20 114 40 106 00 Cost of Production Per Bushel Based on APH Yield 4 50 Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 128 00 127 20 40 40 198 80 74 00 21 20 65 60 74 00 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Harvest Time Futures Preproduction NOT RMA Ava Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Spot Futures Price at Harvest Sale Offset Call Strike Price Selected _ Actual Basis at Harvest 30 70 laa Cost of Production Per Bushel 83 Actual Yield at Harvest Call Premium Paid Number of Futures Options Contracts Scenario 11 The scenarios to this point have held the expected basis constant at 70 per bushel by
46. Preproduction 0 70 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 i 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 100 00 100 00 100 00 Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale NA NA NA 12 00 12 00 12 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 12 00 12 00 12 00 NA NA NA Net Combo Indemnity Received Per Acre 156 95 154 65 264 40 A 1 A Cash Price at Sale Time 11 30 11 30 11 30 11 30 11 30 11 30 11 30 Actual Basis Harvest Per Bushel NA NA NA 0 70 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu NA NA NA 0 00 A i Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 28 96 28 96 28 96 28 96 Profits Losses From Puts Prorated Over Actual Production Per Bu 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 14 64 14 64 14 64 14 64 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset Net Revenue Per Acre Based on Actual Bushels Harvested Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 28 37
47. Price Yield and Enterprise Revenue Risk Management Analysis Using Combo Insurance Plans Futures and or Options Markets Authors Duane Griffith Montana State University Extension Farm Management Specialist and Matthew Diersen South Dakota State University Extension Risk and Business Management Specialist Introduction This user s manual provides a brief overview of software that analyzes possible combinations of risk management strategies to protect price yield or enterprise revenue with the new Combo Insurance Policy Plans the Futures and or the Options markets The first portion of this manual is a tutorial using screen captures from the software with a text book hedge example i e after the fact everything works out exactly as you and the markets expected at the time the insurance policy and or Futures Options were purchased This software allows comparison of multiple levels of yield price and revenue protection offered by futures and options contracts in combination with the new Combo Policy Plans offered by RMA The second portion of this manual provides examples of specific risk management strategies and how the available tools can be combined to implement effective strategies for typical situations to the worst case scenario The Combo Policy consolidated several previous insurance policies into one policy The Combo Policy uses the Futures and Options markets when establishing the RMA Projected Harvest Price
48. Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre Cash Price at Sale Time 7 70 7 70 7 70 7 70 7 70 7 70 Actual Basis Harvest Per Bushel han NA NA NA 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu NA 50 50 00 50 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 7 51 7 46 7 41 7 70 7 70 7 70 Net Revenue Per Acre Based on Actual Bushels Harvested 308 00 300 50 298 20 296 40 308 00 308 00 308 00 Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 4 50 4 50 98 50 94 40 96 20 127 20 40 40 198 80 120 50 118 20 116 40 128 00 128 00 128 00 Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 128 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Cost of Production Per Bushel Actual
49. Prices Combo Coverage Prices Predicted Cash 7 15 7 15 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premiu 9 80 11 60 0 29 0 17 Expected Basis Preproduction NA NA 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 6 86 6 91 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 100 00 100 00 Price Election on Combo Insurance 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 274 40 276 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale NA NA NA RMA Avg Futures Price for Insurance Products Harvest Sale Offset 8 40 8 40 8 40 Net Combo Indemnity Received Per Acre 7 50 9 80 11 60 Cash Price at Sale Time 7 70 Actual Basis Harvest Per Bushel NA NA Gain Loss on Basis Harvest Sale Offset Per Bu NA Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 7 70 7 51 7 46 7 41 7 70 7 70 7 70 Net Revenue Per Acre Based on Actual Bushels Harvested 298 20 296 40 308 00 308 00 308 00 Cost of Production Per Bushel Based on APH Yield 450 4 50 Expected
50. The first alternative in the Summary Results table Figure 17 is Cash This alternative assumes no risk management tools of any type are used to mitigate risk Post production net income per acre is calculated using the actual cash price and yields at harvest time entered by the user Expected total revenue per acre is also calculated using the APH yield spot futures pre production or pre harvest entered by the user and the expected basis In our perfect world example the predicted local cash price at harvest equals the actual cash price at harvest expected yield equals harvest yield so expected total revenue equals actual total revenue In the base case all Combo Policy Plans columns are active check boxes are checked so the results shown in these columns show how each plan performs as the relevant variables change Note also that each of these three columns includes the rows labeled Profits Losses From market tool name Prorated Over Actual Production per Bu for Hedges Puts and Calls The Base Case scenario shows these rows for all columns on the Summary Results tab as zeros These values will always display zero unless you activate the Hedge Puts Calls using the check boxes shown in Figure 17 By turning one or more of the Hedge Puts or Calls columns on it will then display the effectiveness of that individual tool in the last three columns and the results of each of these tools when turned on is also shown in the Combo columns
51. This allows you to evaluate possible combinations of available tools The Profit Losses for all Combo plans and marketing tools is prorated over the actual yield so the side by side comparison of these alternatives is valid If the Hedge Puts or Calls have no value given harvest time conditions then the transactions cost a negative number for each of these alternatives are prorated over actual yield This flexibility is demonstrated in the risk management scenarios provided below Combo Policy Plan Parameters Established in the Base Case Scenario A brief summary of the base case scenario is provided for each Combo Policy Plan This summary includes the revenue protection levels established when a plan in purchased and discusses the key parameters that will vary the final level of Price Yield Revenue protection provided by each plan 1 Combo Yield Protection Plan YP o The maximum revenue guarantee established in the base case scenario is 200 20 per acre 40 70 28 bu yield protection level times the 7 15 RMA Projected Harvest Price o Only yields below the selected protection level will affect the final indemnity paid o Changing the RMA Harvest Price has no effect on potential indemnities under this plan 23 2 Combo Revenue Protection with Harvest Price Exclusion RP HPE O O The revenue guarantee established with this plan is the APH yield times the coverage level times the RMA Projected Harvest Price In
52. WiHarvest Revenue Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 15 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale 6 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset w 6 00 6 00 6 00 6 00 6 00 Net Combo Indemnity Received Per Acre 49 70 70 40 68 60 F I Y Cash Price at Sale Time 5 30 5 30 5 30 5 30 5 30 5 30 Actual Basis Harvest Per Bushel NA NA NA 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu NA NA 50 00 50 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 42 0 42 0 42 0 42 Profits Losses From Calls Prorated Over Ac
53. age size Figure 3 Screen capture of the General Inputs tab in the software RMA Projected Harvest Price Time of Purchase Upper Limit 200 of Projected Harvest Price APH Yield Acres Insured Price Revenue Protected Yield Price Bushels Protected No Contracts To Combo Plans Available Election Election Premium _ by Ins Equal Ins Coverage Revenue Protection RP 70 100 11 60 28 000 5 60 RP With Harvest Price Excl 70 100 see 28 000 5 60 Yield Protection RMA Ava Futures Price at Harvest RMA Harvest Price Actual Yield at Harvest 28 000 5 60 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset cash futures Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Marketing Costs Brokerage Interest amp Other Misc Expense Acres Insured Price Revenue Protected Total Expected Production Using APH Yield Number of contracts to cover expected production Number of Futures Options Contracts Purchased Actual Cash Price Received at Harvest Sale Time Spot Futures Price at Harvest Sale Offset not RMA Harvest Price 15 00 Actual Basis at Harvest 0 70 Cost of Production Per Bushel T faso The General Inputs tab Figure 3 in this software contains the information needed to start an analysis This information is broken into two groups The first group is related to the Combo Insurance Policy T
54. al crop revenue The software as distributed shows an example of a text book world i e everything works out exactly as planned In this example expected production equals actual production and the Hedge in the futures market works out exactly as anticipated when the hedge is implemented This example allows you to follow the numbers through the various alternatives and see before and after results Using this example helps understand how the software works and simplifies the inherent complexity of comparing Combo Policy Plans side by side with Futures and Options in a comprehensive risk protection strategy Real world scenarios are also provided There are three distinct periods of time covered by the analysis in this software In order to get accurate comparisons of the alternative strategies the user must enter information relevant for a possible alternative risk protection strategies available at the time that strategy is implemented The first time period is just before the sales closing date for a particular crop At this time the RMA Projected Harvest Price for the Combo Insurance Plans is known Once the published RMA Projected Harvest Price is entered it should not be changed unless an analysis of a different crop or location causes the RMA Projected Harvest Price to change The second time period covers several months after the sales closing date for the crop being analyzed Futures and Options market prices can vary a great deal dur
55. amp Other Misc OR Insurance Premiu 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale NA NA NA 8 40 8 40 8 40 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 8 40 8 40 8 40 NA NA NA Net Combo Indemnity Received Per Acre 7 50 9 80 11 60 Cash Price at Sale Time 7 70 7 70 7 70 7 70 7 70 7 70 7 70 Actual Basis Harvest Per Bushel a NA NA NA 0 70 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu 0 00 0 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 7 70 7 51 7 46 7 41 7 70 7 70 7 70 Net Revenue Per Acre Based on Actual Bushels Harvested ETE 00 ao 50 298 20 296 40 308 00 308 00 308 00
56. ance and marketing tools Government programs provide a minimal amount of price revenue protection with the loan rate or loan deficiency payment LDP Crop insurance products may or may not include price protection but cover yield risk Formal price risk management tools exist that may or may not include standardized futures and options contracts Weather and other environmental conditions insects diseases etc eventually determine grains supplies on a local and national level and when combined with market forces determine prices for a given commodity Crop insurance underwent major changes prior to the 2011 crop year Most of the major crops with multiple insurance products available were affected by implementation of the new Common Crop Insurance Policy basic provisions commonly referred to as the Combo policy The Combo policy combines existing insurance products APH CRC RA and IP into one policy with separate plans The Combo policy also standardizes various methods of calculating premium rates and coverage levels used for the insurance policies it replaces Winter wheat is the first primary small grains crop affected by the Combo Policy in Montana Other crops with a fall insurance deadline September 30 alfalfa seed apiculture forage production and pasture rangeland and forage PRF Rainfall Index are not affected by the Combo changes The Combo policy uses yield coverage levels and two price points to determine indem
57. and Harvest Price Familiarity with all three of these risk protection tools will help evaluate possible risk protection strategies offered by any combination of these alternatives For comparative analysis this software includes adjustments for the differences in the way futures options and Combo Policy plans are implemented and the transactions cost incurred for each product so the bottom line provides an accurate comparison To complete this analysis use the tabs across the top of the screen Figure 1 going from left to right and enter requested information on each tab in the software You are asked to enter the initial values for all the variables used in this software on the General Inputs tab After entering these values they also appear and can be changed on some of the other tabs Once a value is entered for any variable it does not have to be reentered in other locations within the software if that value does not change Changing a value that appears on any of the tabs changes that value everywhere it appears This allows you to change numbers in What If analysis on the Summary Results tab to see how yield price revenue protection levels vary by alternative and how different factors affect yield price revenue protection strategies Each individual page tab may have several data entry steps Enter all necessary information for the comparison you wish to make The Summary Results tab allows changing key values previously en
58. arvest Sale Put Premium Paid Spot Futures Price at Harvest Sale Offset 12 00 Call Strike Price Selected Actual Basis at Harvest 0 70 Call Premium Paid 0 15 Cost of Production Per Bushel 4 50 Number of Futures Options Contracts Actual Yield at Harvest Scenario 20 The coverage levels for price and yield have been held constant at 100 and 70 respectively throughout these scenarios Work through each scenario with different price and yield election levels of your choice This will require you to visit the RMA Cost Estimator located on the web at https ewebapp rma usda gov apps costestimator This is web based software that estimates your premiums for each combination of insurance plan crop location and coverage level you wish to evaluate See the appendix in this publication for further details Scenario 21 The number of futures or options contracts was held constant at eight for all of the scenarios provided Typically producers will not have a situation where expected production exactly matches actual production and an even number of contracts In these instances using futures and options puts the producer in an over hedged or under hedged position In either of these positions profits or losses from a hedge when prorated over actual yield can either help or hurt the cash position Even if a perfect match for production existed producers will not usually hedge 100 of their expected production W
59. arvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest 0 70 Cost of Production Per Bushel Actual Yield at Harvest Scenario 14 Change the actual yield to 20 bushels per acre leaving all other variables as in Figure 28 Figure 29 shows the results of the yield change With yield at 20 bushels the Combo plans all pay an indemnity and all show a positive net income per acre while Cash net income is a negative S74 00 per acre The Hedge alternative is still active and profits from the Hedge are providing enough revenue to make all the Combo plans and the Hedge alternative show positive returns If the Hedge was not active the Combo plans would not show a positive net income per acre To verify this uncheck the Hedge alternative Figure 30 shows the results when the Hedge is not active Figure 29 Change the actual yield to 20 bushels with all other variables as in Figure 28 7 wr o at o E Use Check Boxes to display input options a Display Hide Combo Ins variables at time of purchase a Display Hide Market variables at harvest sale offset YP Protection RP in a Futures Options contract Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Sale Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 7 15 8 4
60. ary Results tab is the premiums paid for each Combo plan are prorated over the bushels harvested for every set of circumstances All alternatives use bushels harvested so calculated results can be compared using a common denominator for all alternatives As soon as you start changing the base case scenario values with what if analysis the comparative values for these numbers per bushel and per acre illustrate the effectiveness of each risk management alternative considered 14 Cost of Production This software also allows the user to estimate operating cost of production for up to two crops Figure 10 is a screen capture of the introductory screen for estimating costs of production The Crop 1 and Crop 2 sub tabs are identical in their content an procedures except that two different sets of example data have been entered in the base case scenario The two sub tabs entering relevant operating inputs and costs for two different crops Operating costs of production are those incurred during a single production cycle for a particular crop These costs are also referred to as variable costs as they vary with the level of production even though they are typically fixed on a per unit basis For example a per unit cost is incurred for each additional acre produced 10 00 per bushel of seed at one bushel per acre or 5 00 per acre of herbicide On a per unit basis these costs typically remain the same and each additional acre planted incurs the same
61. at Harvest Sale Offset Theoretically if the markets are efficient providers of price signals these three prices should all maintain a normal relationship However normal means different price levels for different crops and regions within the U S Since the timing of calculations for the RMA Harvest Price and selecting a Spot Futures at harvest can differ these two prices can also differ We would not expect these two prices to differ by a large amount If so it means that there were large moves in the futures markets up or down shortly after the time period RMA used to calculate the average for the RMA Harvest price If there were large moves the 20 spot futures could be significantly different than the average This type of volatility would almost impossible to predict While if is possible this is unlikely Figure 16 is a screen capture which shows two pop up caution messages when the user enters a Spot futures at harvest time that differs by more than 10 of the RMA Harvest Price and or the Actual Cash Price at harvest differs by more than 20 of the RMA Harvest Price If these messages appear as you enter data it does not mean something is definitely wrong it means the price relations may be unusual If the price relationships reflect typical conditions for the crop and region or if current conditions are unusual for a variety of reasons ignore these pop up cautions A similar set of messages is also displayed
62. at Sale iS NA NA NA 6 00 6 00 6 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 6 00 6 00 6 00 NA NA NA Net Combo Indemnity Received Per Acre 7 50 22 40 20 60 NA NA NA A Cash Price at Sale Time 5 30 5 30 5 30 5 30 5 30 5 30 5 30 Actual Basis Harvest Per Bushel NA NA NA So 70 one 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu rae 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 5 03 6 10 6 04 5 30 5 30 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 40 140 90 E ae 70 80 169 00 148 40 148 40 148 40 Cost of Production Per Bushel Based on APH Yield 450 450 450 450 Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 96 20 11 00 127 20 40 40 198 80 31 60 31 60 31 60 98 50 94 40 31 60 39 10 9 20 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest 0 70 Cost of Production Per Bushel 450 Actual Yield at Harvest Spot Ha
63. base scenario is illustrative of how the software works for analysis purposes the software was designed to help analyze more real world examples reflecting what happens under different price and yield scenarios using different combinations of risk management tools and strategies Figure 17 Base case scenario _ Use Check Boxes to display input options Revenue Results are based on No of Bu Display tide Combo Ins variables at time of purchase YP Protection RP in a Futures Options contract Display Hide Market variables at harvest sale offset Cash Yield WiHarvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 6 91 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures
64. comes after taking a position in the Options markets is included on the Options tab Results displayed estimate the outcome given the values of variables set by the user Puts and Calls must be turned on Figure 7 in order for information displayed on the Summery Results comparative analysis to match the results for Puts and Calls displayed on the Options tab Figure 5 is a screen capture of the display for the Puts sub tab The Puts tab is the default display Producers often shy away from Hedging in the Futures markets because that eliminates any upside price potential Puts are Options contracts that allow producers to establish price floors for a given commodity that does not exclude upside potential in price movements As with the Futures tab users can change several parameters initially entered on the General Inputs tab These include the Strike price and premium for a specific Put the expected basis and the transactions costs brokerage and interest for trading in the Options markets The graph on this page is also dynamic When some of the variables are changed the graph reflects the specific set of outcomes for each variable changed Some variables do not affect the graph as they are specific to the conditions when the Put expires or is exercised With the perfect hedge as our initial example the Put expires worthless The floor set by the Put was 5 51 Strike price of 6 50 minus the premium 27 and brokerage costs 02 and expecte
65. completed USDA United States Department of Agriculture Cost Estimator aa Misk Management Agency Welcome Guest Browse by Sub ject Home gt Information Browser gt Cost Estimator gt Quick Estimate b Actuarial Information t Browser SS Quick Estimate cE0401 b Agent Locator Cost Estimator Commodity Select A Commodity Detailed Estimate State Aoo b Price Discovery Type Loo O ee apa practice E b Livestock Reports Data walid as of 11 27 2010 b Dates Inquiry uae The Cost Estimator only provides a general premium estimate Refer to your crop insurance agent and policy for specific information regarding insurance coverage actuarial information conditions and exclusions RMA Home USDA gov Civil Rights Report Fraud Copyright Information Jobs Site Map A Z Index FOIA Accessibility Statement Privacy Policy Non Discrimination Statement Information Quality USA gov White House 51 Appendix Figure 3 The second screen in the Quick Estimate series with all values completed J Browse by Subject l Home gt Information Browser gt Cost Estimator gt Quick Estimate Log In t Actuarial Information Browser Quick Estimate ce0401 b Agent Locator t Cost Estimator Quick Criteria Manin Commodity 3 Quick Estimate Commodity Year l Detailed Estimate State Saved Estimates County most Si b Price Discovery Type s Prices Inquiry
66. d basis 70 The right hand column Conditions Option Exercise Expire shows the Profit or Loss from the Option to be a negative 29 27 premium plus 02 brokerage The Futures price at the beginning and ending of the time period were identical 8 40 A 7 70 cash price means the actual basis equaled the expected basis S 70 In short a perfect world outcome for a Put option which in reality would be very rare The Options Tab Call Options Figure 6 is a screen capture of the Call Options sub tab Call options are used to establish price ceilings Call options are typically used by producers that need to protect themselves against rising prices An example would be a cattle feeder establishing a ceiling on both the feeder cattle they purchase and the corn they feed to these cattle Grain producers can also use a Call option to protect themselves against sever losses in expected production that would result in rising market prices This could be part of a strategy that forward contracts or otherwise pre prices a portion of production and then uses a Call option to protect against yield losses This is illustrated later in this publication when several risk management scenarios are demonstrated using this software The graph on this page is also dynamic and will change as the user changes values for variables displayed on this tab Profit Loss on the Call option is S 17 Figure 5 Screen capture of the Options tab with the
67. drop down menu in the upper right corner of Cost of Production for the Crop 1 sub tab Crop Name __Winter Wheat Acres Planted 1000 0 Expected Yield Per Acre Expected Price Per Unit 7 50 Expected Crop Revenue 300 00 Secondary Revenue Per Acre This Crop 0 00 Total Revenue Per Acre for this crop 300 00 Average Annual Operating Loan Interest Rate 17 Figure 13 Screen capture of the third screen after selecting the Preharvest Operating Costs First Screen item off of the drop down menu in the upper right corner of Cost of Production for the Crop 1 sub tab Units of Price Number Percent Value Value Measure Per of Units Tenants Tenants Landlords Area Dry Lqid Unit Used Share Share Share 10 750 24 500 Seed Chemicals Custom Chemical Application Fertilizer Custom Fertilizer Application Insurance Crop Hired Labor Wages Social Security Workman s Comp Unpaid Labor Owner Landlord Operator Tenant Tenant s Spouse Tenant s Children 18 Figure 14 Screen capture of the fourth screen after selecting the Preharvest Operating Costs Second Screen item off of the drop down menu in the upper right corner of Cost of Production for the Crop 1 sub tab Units of Price Number Percent Value Value Measure Per of Units Tenants Tenants Landlords Area Dry Laid Unit Used Share Share Share Tractor Powered Equip Operating Cost
68. e Montana 30 County Hill 041 Type Winter 011 Practice Summerfallow 005 lt Show Item Details gt gt 85 80 75 70 65 60 55 50 Detail Worksheet Producer Worksheet a Final Planting Acreage Reporting Sales Closing 11 15 2010 11 15 2010 09 30 2010 m Computed Rests Total Per Acre Quantity Coverage 200 200 00 200 20 Production Guarantee Amount 200 200 00 200 20 Total Premium Amount Including A amp O 22 135 82 22 14 Premium Subsidy 14 690 82 14 69 Administrative and Operating Subsidy 3 976 82 3 98 Producer Premium No Administrative Fee Included 7 445 00 7 45 Administrative Fee 30 00 0 03 Producer Premium Administrative Fee Included saso se Factors and Codes ed Factor a o E Unit Structure Structure ou Sub E Code N A Additive Optional Rate Additive Optional Rate Adjustment Multiplicative Optional Rate Adjustment 1 00000000 Fixed Rate 0 040 N A THIS WORKSHEET IS INTENDED TO ASSIST IN ESTIMATING PRODUCER PREMIUM ONLY 56 Appendix Figure 8 RMA Information Browser located at http www rma usda gov tools The screen capture shown below is a partial list of information sources provided by RMA USDA United States Department of Agriculture aa Misk Management Agency Browse by Subject b Bulletins and Handbooks b Crop Policies and Pilots b Federal Crop Insurance Corporation FCIC b Information Browser
69. e upper right corner the after results are calculated Since the initial example is a perfect hedge the predicted net price when the hedge was placed 7 68 is also the net price received after the hedge is lifted The Futures price at purchase equals the Futures price at sale offset and the cash price at sale results in a basis which equals the expected basis at purchase In this example if the hedge was not placed the producer would have received the 7 70 cash price at sale time However with the hedge the net price at sale is 7 68 adjusting for the 02 per bushel hedge transaction cost In this example expected production also allows purchasing an even number of contracts for 100 price protection coverage on the expected production In short everything works out as planned a very rare occasion Since this is rare the user can change any numbers with a blue background to get a feel for how the futures markets work Changing a number in any location it is displayed changes that number in every location in the software For example the initial value of Spot Harvest Time Futures Preproduction NOT RMA Avg on the General Inputs tab is 8 40 This is also the value shown on the Futures tab labeled Futures Purchase S bu If you change this value on the futures tab it is also changed on the General Inputs tab The futures price at harvest turned out to be 8 405 and the cash price at harvest was 7 70 which means the actual
70. eld Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 4 50 4 50 4 50 4 50 4 50 4 50 106 00 106 00 106 00 127 20 40 40 198 80 31 20 31 20 41 20 26 00 26 00 26 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset 98 40 Actual Basis at Harvest 0 70 Call Strike Price Selected Call Premium Paid Cost of Production Per Bushel 4 50 Number of Futures Options Contracts Actual Yield at Harvest 200 30 Scenario 6 Work back through each of the previous scenarios and use the 3ushel Buy Up Calc Off On button with each scenario This may add some additional auderstandine of the Cambo plans and the protection they provide under various price and yield combinations Click onthe Reset button before you start One example for the Bushel Buy Up Calculator is illustrated here In our Base Case the premiums for the three plans are 7 50 YP 9 80 RP HPE 11 60 RP The premium difference from YP to RP HPE is 2 10 Using the expected cash price estimate at harvest time of 7 70 8 40 spot futures plus a negative S 70 basis the buy up in bushels of grain is 2987 of one bushel 2 30 divided by 7 70 29870 The buy
71. er left corner of Figure 7 These are used to display hide a set of input data related to specific action or time period These check boxes act as a toggle When you click one of these boxes it turns a display on or off and the display stays on or off until you click on the check box again As some hidden displays use the same screen space in some instances one display must be turned off before turning on another display Figure 8 shows all columns in the table displayed and variables related to the Combo Policy Plans displayed at the bottom of the screen These variables were entered on the General Inputs tab and are repeated here Changing a value here changes it throughout the entire software Figure 9 shows the variable values related to the Futures and Options markets 12 Figure 8 Screen capture of the Summary Results tab with the Check Box for the display of Combo Insurance variables selected and the Futures amp Options calculations displayed Check Box to the right of Futures amp Options heading is not checked _ Use Check Boxes to display input options Revenue Results are based on No of Bu Display Hide Combo Ins variables at time of purchase YP Protection RP in a Futures Options contract Display Hide Market variables at harvest sale offset Yield WiHarvest Revenue Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike
72. es and to gain understanding of the relative price protection levels offered by the futures and options markets with respect to cash markets find the prices the futures and options markets would have to offer to provide an equivalent net income per acre to cash marketing In our base case scenario the actual cash price received at harvest is 7 70 In order for the net income per acre for the futures and option alternatives to be equivalent to the cash market alternative the futures and options Net Predicted Cash Floor Ceiling Price per Bushel must equal 7 70 For the base case scenario a Hedge at 8 42 with a S 02 trading cost and a negative S 70 basis makes the Net Predicted Cash Floor Ceiling Price per Bushel equal to 7 70 The actual net income per acre is then 128 00 for both the Cash and the Hedge alternative Any combination of a strike price minus a premium and trading costs for a Put that equaled 7 70 would also make the net income per acre using a Put equal 128 00 36 Scenario 10 This scenario looks at the effectiveness of the futures and options markets with low prices and yields that fall below expectations Figure 26 shows the starting point for this scenario The RMA Harvest Price and Spot futures price are at 6 00 per bushel Actual cash price is 5 30 per bushel which maintains the basis at 70 With actual yield at 20 bushels per acre the Hedge preforms significantly better than the Cash market a
73. et Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest 0 70 Cost of Production Per Bushel 450 Actual Yield at Harvest so Scenario 17 This scenario explores what might happen with a large scale disaster U S wide or globally that would affect both yields and prices For this scenario increase the RMA Harvest Price and the Spot Futures at harvest time to 12 00 per bushel and the Cash Price to 11 30 per bushel which maintains the basis at 70 Decrease the yield to 5 bushels per acre Figure 34 shows the results of these values For this set of circumstances it is clear the RP Combo plan which provides protection if the RMA Harvest Price increases capped at 200 of the RMA Projected Harvest Price is superior to either the YP or RP HPE plans Now click the check box in the Hedge column to activate the Hedge alternative Figure 35 shows the results of implementing a Hedge at 8 40 when it looked like that might have been a good alternative but as prices rose to 12 00 losses on the Hedge outweigh the indemnities paid by the Combo plans and all active alternatives have a negative net income per acre Figure 34 Very low yields with a large jump in prices due to large scale disaster _ Save
74. first opened the program including changing back to the Introduction screen tab Click on the Summary Results tab and then on the Display Hide Market variables at harvest sale offset checkbox Set the actual yield to 20 bushels Go to the general inputs tab and set all three insurance premiums to zero Go back to the Summary Results tab Note that YP and RP HPE now pay the same indemnity but RP is higher as the RMA Harvest price is set at 8 40 Figure 21 The reason for this is that YP and RP HPE are both limited by the 7 15 RMA Projected Harvest Price RP allows the insurance coverage to increase as the RMA Harvest Price varies between 7 15 and 14 30 in this scenario Change the RMA Harvest Price to 7 15 Now all three combo plans pay the exact same indemnity Figure 21 Zero premium payments YP and RP HPE have the same indemnity RP higher _ Use Check Boxes to display input options Revenue a aT na fin a Fi 56 30s E S E thas aris YP Protection RP in a Futures Ootions contract Display Hide Market variables at harvest sale offset Cash Yield WiHarvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 0 00 0 00 0 00 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 7
75. hel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts 41 Scenario 15 Start with the same set of values shown in Figure 28 Click the check box for the Hedge to make it inactive and to prevent a doubling up of Hedge and Put alternatives Click the check box for the Put to make it active Figure 31 The Put option strike price is 6 50 with a premium paid of 27 per bushel Since this Strike price is much lower than the 8 40 Spot futures price the downside price protection provided by the Put is much less than the 8 40 futures price The Cash Market still shows a net income per acre of 74 00 and the YP column and the Put columns are both negative While the Put provided enough protection to keep the net income per acre for the RP HPE and RP alternatives positive they are much lower than with the Hedge alternative Figure 31 Effectiveness of Put option versus A Hedge _ Use Check Boxes to display input options ee Revenue Results are based on No of Bu Display Hide Combo Ins variables at time of purchase Peace RP a Faka i Display Hide Market variables at harvest sale offset Yield
76. his information is collected for the three time periods described earlier The first is sometime just prior to the sales closing date for a given commodity when the RMA Projected Harvest Price is known for that commodity The APH Yield and the Acres Insured will also be known The user can select a Yield Election percentage for each Combo Plan The price election percentage for the Yield Protection plan can also specified A premium for each type of Combo Insurance Plan must also be specified Premiums can be estimated for any crop and location using the RMA Cost Estimator This calculator is located at http ewebapp rma usda gov apps costestimator To evaluate Futures and Options contracts on their own or in conjunction with a particular Combo Policy Plan you can enter the Strike Prices and Premiums for Puts and Calls While Combo Policy plans must be purchased prior to specific sales closing dates which vary by crop and location initiating an additional level of price protection with Futures or Options can happen up to several months after a Combo Insurance Policy is purchased This time period is the second time period At the time a second level of price revenue protection is put in place futures options prices may differ substantially from the RMA Projected Harvest price which is also based on the Futures Options markets at the time it is specified Only at harvest time the third time period will the final results of a particular risk
77. ing amp Insurance Cost Preproduction 308 00 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale 12 00 12 00 12 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset NA NA NA Net Combo Indemnity Received Per Acre NA NA NA Cash Price at Sale Time 11 30 11 30 11 30 11 30 11 30 11 30 Actual Basis Harvest Per Bushel NA NA NA 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu 50 00 30 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 3 66 3 66 3 66 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 17 45 14 96 14 96 11 30 11 30 14 96 Net Revenue Per Acre Based on Actual Bushels Harvested 226 00 348 90 299 20 299 20 226 00 226 00 299 20 Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 4 50 4 50 Actual Net Income Per Acre Actual Yield Actual Net Price 168 90 119 20 119 20 46 00 46 00 119 20 Expected Net Income Per Acre Preproduction 128 00 98 50 94 40 96 20 127 20 40 40 198 80 46 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Actual Cash Price Received at H
78. ing this time period This variation can provide opportunities for implementation of risk management strategies utilizing Futures or Options contracts in addition to the purchased Combo Policy Plan Remember that the Revenue Protection Plan RP offered with the Combo Policy also allows participation in upward trending prices up to 200 of the Projected Harvest Price available prior to the sales closing date The second time period allows the flexibility to implement strategies for multiple layers of risk management protection if the markets provide this opportunity The third time period is around harvest time Typically the ending date for insurance coverage and the dates that futures contracts must be offset or options contracts are either exercised or expire worthless will differ by as much as a month and possibly longer In addition to the variation in the time periods for the Combo Policy Futures and Options alternatives producers can add another time period as they do not always sell the crop at harvest time however this software assumes the crop is sold at harvest time If you are using this software prior to knowing price levels set by the RMA Combo Policy or alternative price levels offered by the Futures and Options markets we strongly recommend the you set all prices at the same level After a risk management strategy is implemented and the production process and insurance period is over it is highly unlikely that all price levels wil
79. k boxes are defaulted to the On active position an orange color with a check mark inside the box The default to the On position for the Combo plans means the row in the table labeled Net Combo Indemnity Received Per Acre displays a number other than zero and that number is included in the net income per acre calculations at the bottom of the table This screen is initially displayed with the Futures and Options columns of the table hidden Figure 7 You can unhide these columns by clicking on the check box in the upper right corner of the table just to the right of the Futures amp Options heading 11 Figure 7 Screen capture of the Summary Results tab displaying the Base Case Scenario without Check Boxes selected and the Futures amp Options calculations hidden Check Box to the right of Futures amp Options heading is checked Bushel Buy Up Calc MouseOver for Help Off On Cash Use Check Boxes to display input options m Display Hide Combo Ins variables at time of purchase Display Hide Market variables at harvest sale offset z oe d a Protection Price Excl Protection Eon a Rell tal Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 eas Be krapi ta clicking the Check Box to Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 9 80 11 60 re ee amp Expected Basis Preproduction 0 70 NA NA o Ta ae a a ac Net Predicted
80. l The Hedge alternative shows a positive 127 20 return per acre and all of the Combo plans show a big jump in net income per acre This jump is due to the inclusion of the Hedge results in each of the Combo columns Any time a Hedge Put or Call alternative is checked these columns become active and the results from any active alternative are included in each of the Combo plans Note however that none of the Combo plans paid an indemnity with this combination of prices and yields The added revenue in the Combo columns comes entirely from profits on the Hedge 39 Figure 28 Addition of a Hedge to scenario 12 Use Check Boxes to display input options R Result based on No of Bu Display Hide Combo Ins variables at time of purchase lore Display Hide Market variables at harvest sale offset Locks Price Sets Floor Sets Ceiling 6 50 10 00 0 02 0 29 0 17 0 70 0 70 0 70 7 68 5 51 9 47 100 00 100 00 100 00 Futures Options Strike Prices Combo Coverage Prices Predicted Cash Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium Expected Basis Preproduction Net Predicted Cash Floor Ceiling Price Per Bushel Percent of Production Insured Price Protected amp Yield Insured Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 0 70 7 70 308 00 274 40 276 20
81. l be as predicted before the fact We caution you to make sure the set of variables entered have a relatively high probability of being achieved or the results will not be accurate Figure 1 Screen capture of the Introduction Tab for Combo Policy Futures and Options Risk Protection Analysis Software while running inside Internet Explorer IE version 8 a a a DAALLCurrent AllProjects SoftwareDevelopment FuturesOptionsGrainIns Diersen ComboFuturesOptionsRiskManagM v File Edit View Favorites Tools Help x Convert v P Select x E sngt Be x ly Favorites 53 Web Slice Gallery bookmaplet Easy online st Map that address Suggested Sites v E D ALLCurrent AllProjects SoftwareDevelopment D E Pager Safetyy Toos This program allows comparison of levels of price protection offered by futures contracts options contracts and All three products use similar information when calculating the net price offered level of price protection for each MONT AN A tool Adjustments are made for the differences in the way futures options and Combo Policy plans are implemented and the transactions cost incurred for each product M the new Combo Policy offered by RMA which has consolidated several previous insurance policies into one policy STATE UNIVERSITY EXTENSION To complete this analysis use the tabs across the top of the screen going from left to right and complete requested inf
82. l Basis at Harvest 0 70 Cost of Production Per Bushel Call Premium Paid Number of Futures Options Contracts Actual Yield at Harvest The relative performance of a Hedge and Put alternatives will depend on the strike price selected and the premium paid to obtain a particular strike price The lower the Put strike price relative to the hedge price the less price protection offered when using a Put option 35 Figure 25 RMA Harvest Price set to 6 00 to eliminate caution messages Bushel Buy Up Calc Off On MouseOver for Help Off On Use Check Boxes to display input options Display Hide Combo Ins variables at time of purcha Display Hide Market variables at harvest sale offset Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 8 40 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premiu 0 02 0 29 0 17 Expected Basis Preproduction 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost Preproductior 308 00 100 00 100 00 l 307 20 220 40 Spot Futures Price for Futures amp Options Markets at Sale RMA Ava Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per
83. lans on the General Inputs tab The net indemnity then becomes the total indemnity and the Summary Results tab shows the RP HPE and RP indemnities are identical With the actual yield set at 28 bushels YP does not pay an indemnity regardless of how low the RMA Harvest Price is set 27 Figure 19 Actual yield set to the yield coverage level selected and with RMA Harvest Price and the Spot futures at harvest set to 6 00 _ Save Load Delete Scenarios Use Check Boxes to display input options j E Revenue Results are based on No of Bu Display Hide Combo Ins variables at time of purchase k Protection in a Futures Options contract B Display Hide Market variables at harvest sale offset i W Harvest Hedge Puts Calls i i i Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium i 0 02 0 29 0 17 Expected Basis Preproduction 0 70 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 i 4 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 100 00 100 00 100 00 Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets
84. lls highlighted with a blue background Text windows that scroll use the typical scroll bar to move up or down to view text Toggle Buttons are activated by clicking on the button with your mouse pointer or moving your mouse pointer over the top of the button without clicking a mouse over A Toggle Button works as an On Off button The first click or mouse over will display a message or other information and the second click or moving the mouse pointer off the button will hide the information displayed A Toggle Button may or may not be labeled as a mouse over activation depending on the screen space that was available in the software to insert the button Some Buttons look similar to Toggle buttons but activate a link to resources located on the web that may be useful while operating this software These buttons are clearly labeled as Get From the Web or something similar When you click on one of these buttons a new browser window is opened and the link takes you to resources located on the web In order for these web linked buttons to work your computer must be connected to the web via cable modem high speed wireless connection LAN or if you have dial up internet service that service must be connected Cells highlighted with a blue background can be changed in two ways Move the mouse pointer over the top of a cell with a blue background then click and hold the left mouse button and drag the mouse pointer up to increase the cell value o
85. lternative With a Put option strike price of 6 50 the option still makes enough money to make it more attractive than the Cash alternative As you would expect with prices held constant at the levels indicated the relatively ranking for net income per acre does not change even if yield is reduced to zero Figure 26 Effectiveness of marketing tools with low prices and yields Bushel Buy Up Calc Off On MouseOver for Help Off On Futures Options Strike Prices Combo Coverage Prices Predicted Cash 8 40 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premiu 0 02 0 29 0 17 Expected Basis Preproduction 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 100 00 100 00 100 00 Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost Preproductior 308 00 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre Cash Price at Sale Time Actual Basis Harvest Per Bushel Gain Loss on Basis Harvest Sale Offset Per Bu _ Use Check Boxes to display input options Revenue Results are based on No of Bu Display Hide Combo Ins variables at time of purchase Y
86. management strategy become clear Insurance coverage for a Combo Policy Plan ends and any position s in the futures market are offset Indemnity payments for Combo plan alternatives are determined by the relationship between the RMA Projected Harvest Price and the RMA Harvest Price Indemnity payments may vary by the specific Combo Policy Plan selected This software allows you to explore the values of variables where Combo Policy Plans provide the same payment and factors that cause indemnity payments between plans to diverge In addition to any indemnity payments received from RMA if a second tier of price revenue protection was implemented using Futures and or Options contracts additional profits or losses may have been incurred This software allows analysis of possible combinations of Combo Plans with Futures and or Options contracts to provide a comprehensive analysis of risk management strategies The Futures Tab As previously indicated this software is distributed with an example of a perfect Hedge Data entered on the General Inputs tab is repeated on the Futures tab as well as other tabs in the software Figure 4 The graph shows estimates of Projected Cash Price at sale time over a range of possible basis values at sale time The graph is dynamic As values are changed on the left edge of the display the graph also changes This page of the software calculates before and after results using values set by the user On this page in th
87. nity payments for the YP RP HPE and RP plans The two price points are the RMA Projected Harvest Price and the RMA Harvest Price In addition to standardizing the beginning base price for yield and revenue protection plans basis is no longer factored into the projected price for Combo plans As such the RMA Projected Harvest Price and the RMA Harvest Price will likely be larger than the expected local cash price at harvest The premium for yield protection will also likely be higher than what would otherwise be expected because of the higher price level used for the guarantee calculation Comparative Risk Management Analysis Combo Plans Futures and Options The base case scenario built into this software is for a Montana dry land small grain operation This scenario is built around a perfect world example and includes a perfect hedge and production outcomes that exactly match expected production for winter wheat in Hill County Montana The base case is intended to make it easy to follow numbers and calculations throughout the software before more complicated scenarios are run Additional scenarios are presented below which deviated from the base case These scenarios help analyze the effectiveness of the Combo plans marketing tools and combinations of these risk management 22 tools to protect the bottom line Net Revenue after all marketing costs and cost of production for the crop Figure 17 is a screen capture of the base case scenario
88. nology Endorsement Qualifying Hybrids Prairie Pothole National Priority Area Maps 57 Appendix Figure 9 Completed initial screen for the RMA Actuarial Browser located at http webapp rma usda gov apps actuarialinformationbrowser USDA United States Department of Agriculture Actuarial Information Browser ggg isk Management Agency ENA a mee Rall A Browse by Application Information Browser Actuarial Information Browser Actuarial Information Please select a functional area from the navigation menu or begin an unfiltered search below Livestock Gross Margin Select Criteria Livestock Risk Protection Criteria Order Commodity _ Wheat 0011 i Sines Commodity 2000 ia o Vegetation Index Commodity Year Year a ai ka Insurance Plan ic b Agent Locator State County fna Plan Yield Protection 01 Ea gt Cost Estimator aa Montana 30 na b Price Discovery C a ry Hil 041 e b Prices Inquiry clear View Report SIEGEL Version 2 5 46 gt Livestock Reports Build 28133 Commodity Year as used throughout this application represents Crop Year Insurance Year do a as applicable for the commodity b Dates Inquiry RMA Home USDA gov Civil Rights Report Fraud Copyright Information Jobs Site Map A Z Index FOIA Accessibility Statement Privacy Policy Non Discrimination Statement Information Quality USA gov White House Appendix Figure 10
89. odity Year 2011 State Montana 30 County Hill 041 Type Winter 011 Practice Summerfallow 005 lt Show Item Details gt gt 85 80 75 70 65 60 55 50 Detail Worksheet f Producer Worksheet Final Planting Acreage Reporting Sales Closing 11 15 2010 11 15 2010 09 30 2010 EE OOOO Computed Resutts Total Per Acre Quantity Coverage 200 200 00 200 20 Production Guarantee Amount 200 200 00 200 20 Total Premium Amount Including A amp O 33 329 31 33 33 Premium Subsidy 21 797 31 21 80 Administrative and Operating Subsidy 5 203 31 5 20 Producer Premium No Administrative Fee Included 11 532 00 11 53 adiit alie Fee 0 03 Bacto and Codes Factor Code s Unit Structure 1 000 OU Sub County Code N A N A Additive Optional Rate Adjustment 0 00000000 Multiplicative Optional Rate Adjustment 1 00000000 Fixed Rate 0 040 N A THIS WORKSHEET IS INTENDED TO ASSIST IN ESTIMATING PRODUCER PREMIUM ONLY x 54 Appendix Figure 6 This screen shows summary results Producer Worksheet for a 70 yield election for RP with the Harvest Price Exclusion HPE or RP HPE USDA United States Department of Agriculture Cost Estimator Risk Management Agency Welcome Guest Producer and Detail Worksheets for Estimate 23264 Back mi Save erin Export Selected Initial Criteria Commodity Wheat 0011 Commodity Year 2011
90. of purchase YP Protection RP in a Futures Ootions contract Display Hide Market variables at harvest sale offset Cash Yield WiHarest Revenue Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium i 0 02 0 29 0 17 Expected Basis Preproduction 0 70 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 A i 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 100 00 100 00 100 00 Price Election on Combo Insurance 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale 14 30 14 30 14 30 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 14 30 14 30 NA NA NA Net Combo Indemnity Received Per Acre 9 80 11 60 NA B Cash Price at Sale Time 13 60 13 60 13 60 13 60 13 60 13 60 13 60 Actual Basis Harvest Per Bushel 7 NA NA NA 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu NA NA 50 50 00 50 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu Puts 0 00
91. ombo Insurance 100 100 100 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Spot Futures Price for Futures amp Options Markets at Sale NA NA NA 6 00 6 00 6 00 RMA Avg Futures Price for Insurance Products Harvest Sale Offset 6 00 6 00 6 00 NA NA NA Net Combo Indemnity Received Per Acre 156 95 160 40 158 60 a A a Cash Price at Sale Time 5 30 5 30 5 30 5 30 5 30 5 30 Actual Basis Harvest Per Bushel NA NA NA 0 70 0 70 0 70 Gain Loss on Basis Harvest Sale Offset Per Bu NA 50 00 50 00 50 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge 0 00 0 00 0 00 0 00 Profits Losses From Puts Prorated Over Actual Production Per Bu 0 00 0 00 0 00 0 00 Profits Losses From Calls Prorated Over Actual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 36 69 37 38 37 02 5 30 5 30 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 26 50 183 45 186 90 185 10 26 50 26 50 26 50 Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 4 50 4 50 Expected Net Income Per Acre Preproduction 98 50 94 40 96 20 127 20 40 40 198 80 126 00 Actual Net Income Per Acre Actual Yield Actual Net Price 3 45 6 90 5 10 153 50 153 50 153 50
92. on the Summary Results tab when one or both of these caution messages is triggered Figure 16 Sample data that trigger the caution pop up messages on the General Inputs tab RMA Projected Harvest Price Time of Purchase Upper Limit 200 of Projected Harvest Price APH Yield Acres Insured Price Revenue Protected Yield Price Bushels Protected No Contracts To Combo Plans Available Honma Election Premium by Ins Equal Ins Coverage Revenue Protection RP C70 100 11 60 28 000 5 60 RP With Harvest Price Excl i 70 100 28 000 5 60 Yield Protection 28 000 5 60 ee a a aries a A RMA Ava Futures Price at Harvest RMA Harvest Price Actual Yield at Harvest Spot Harvest Time Futures Preproduction NOT RMA Ava Expected Basis at Harvest Sale Offset cash futures Put Strike Price Selected ae a n Put Premium Paid Call Strike Price Selected Call Premium Paid Marketing Costs Brokeraqe Interest amp Other Misc Expense Acres Insured Price Revenue Protected Total Expected Production Using APH Yield Number of contracts to cover expected production Number of Futures Options Contracts Purchased Actual Cash Price Received at Harvest Sale Time Spot Futures Price at Harvest Sale Offset not RMA Harvest Price Actual Basis at Harvest Cost of Production Per Bushel 21 Risk Management Scenarios Risk management strategies for crop producers fall into three categories government insur
93. ork back through some of the scenarios presented using a number of contracts more or less than the eight contracts used to examine the effects of over or under hedging 48 Appendix Appendix Figures 1 through 7 are screen captures of the RMA Cost Estimator This online tool provides premium estimates for commodities by location The example shown here is an estimate for Winter Wheat in Montana grown in Hill County under summer fallow conditions Cropped acres is 1 000 with an ownership factor of 100 1 0 Approved Yield and Rate Yield are both 40 bushels A 100 price election and 70 yield election are shown The RMA Projected Harvest Price for this commodity determined prior to the September 30 2010 sales closing date was 7 15 per bushel Appendix Figures 8 through 10 are screen captures of the RMA Information Browser and the RMA Actuarial Browser The information browser is a general purpose information browser covering a wide array of topics The actuarial browser provides information about selected insurance products This browser is an excellent source of detailed information about individual insurance products 49 Appendix Figure 1 RMA Cost Estimator located at https ewebapp rma usda gov apps costestimator Cost Estimator Home Windows Internet Explorer E p i oi S J Poe i A http ewebapp rma usda gov apps costestimator f z A 4 x le Bing P na a a ile Edit le Favorites Tools
94. ormation on each page Please note that some information such as the current futures price at purchase time or initial position and the expected futures price at sale or time when the initial position is offset appear on several pages You do not have to enter one of these prices more than once Changing a value that appears on one page changes that value everywhere it appears This also allows you to change numbers in What If analysis to see how price protection levels vary and how different factors affect price yield revenue protection strategies ay I Sa Each individual page tab may have several data entry steps Make sure you complete all that are necessary for the comparison you wish to make The Summary Results tab allows changing key value previously entered to see South Dakota i ss 3 Data Entry Demo For any cell with a blue background you can move your mouse over the cell and left click State University and drag up or down to change the cell value If you computer is relatively slow this may not change the values very fast You can also double click and type in a new number but you must delete the existing Number _ Percent Results 1o00 100 1 000 Mouse Over to Activate Off On Click to Activate Off On l Check Box to Display Hide input results or other information Try it Risk Management Agency Washington State University Ext nsion Western Center for Authors ene Education Duane Griffith
95. overage Yield Protection 01 243 100 00 228 800 00 214 500 00 200 200 00 185 900 00 171 600 00 157 300 00 143 000 00 Worksheets Detailed Estimate CEPP SPOI AIB Revenue Protection 02 243 100 00 228 800 00 214 500 00 200 200 00 185 900 00 171 600 00 157 300 00 143 000 00 Worksheets Detailed Estimate CEPP SPOI AIB Revenue Prot with Harvest Price Exclusion 03 243 100 00 228 800 00 214 500 00 200 200 00 185 900 00 171 600 00 157 300 00 ja Worksheets Detailed Estimate CEPP SPOI AIB The Cost Estimator only provides a general premium estimate Refer to your crop insurance agent and policy for specific informgsaet_toaeting insurance coverage actuarial information conditions and exclusions Data valid as of 11 27 2010 ai From this screen you can click on the word Worksheets in the lower right corner to get detailed or summary results and the premium costs estimate for the crop location practice type yields ownership etc you have entered 53 Appendix Figure 5 This screen shows summary results Producer Worksheet for a 70 yield election for Revenue Protection RP USDA United States Department of Agriculture Cost Estimator Risk Management Agency Welcome Guest Producer and Detail Worksheets for Estimate 23264 Back ia Save Be rinw Export Selected Initial Criteria Commodity Wheat 0011 Comm
96. per acre cost Cost of Production estimates included in this software ignores fixed costs such as depreciation and land charges These costs do not vary with the level of production hence they are not relevant for decision making in the short run Figure 10 Screen capture of the Cost of Production screen tab This program contains two short worksheets to help estimate Operating Costs of Production These worksheets can be accessed by clicking on the tabs labeled Crop 1 or Crop 2 A menu bar is displayed in the upper right corner of this page which allows you to select portions of a worksheet to complete There are two cost of production worksheets bot both are identical Make sure you compete all sections The last section displays the results which can then be enter the General Inputs tab of this program With your cost of production estimate the program estimates your Net Income per acre for each alternative considered 15 Cost of production information is entered in this software in four parts To start the process click on the Crop 1 sub tab The screen clears Figure 11 and a menu is displayed in the upper right corner Click anywhere on this drop down menu bar to display the menu items There are six items total in the drop down menus for Crop 1 and Crop 2 but the first and last menu on each of these lists acts as a label for the menu and also clears the screen as shown in Figure 11 Click on the second menu item P
97. r down to decrease the cell value Each data input cell has built in limits for high and low values and the size in which the cell value is incremented Some cells can have both negative and positive values If you computer is an older model with a slow processor speed it may be relatively slow to change the values while dragging the mouse pointer up or down You can also double click on a cell with a blue background and type ina new number but you must delete the existing number first Check Boxes are also used to control what is being displayed on the screen Check boxes are used in several locations to select the type of information displayed or the calculations being performed Check boxes are always used to toggle display hide information as needed throughout the software The information displayed or hidden can be help messages required input data or calculated results Familiarize Yourself With This Software This software is intended to compare and contrast different marketing and risk protection strategies for farmers Available strategies include downside risk protection for yields prices and total revenue for a given crop Downside protection can be provided by using the futures and or options markets to protect price using price and or yield protection alternatives available with the new Combo policy insurance product for an insurable crop or using some combination of all of these alternatives to protect price yield and tot
98. ract grain for harvest time delivery but do not want to suffer the consequences of a significant yield loss when it is time to deliver To make good on their contracts producers may have to purchase grain at high prices to meet their required delivery amount Click on the check box in the Call options column and leave the Hedge check box active Figure 36 shows the results of using a Call option to protect against the risks of severe yield losses in conjunction with higher prices In this scenario the Call Strike price was 10 00 and the premium for that strike price was 15 As a reminder the future and options prices used here were actually available on the day that the 8 40 Spot futures price was available Using a Call option in combination with the RP Combo plan shows a positive net return per acre of 69 30 Figure 36 Add a Call option as a risk management strategy to protect against yield losses and high prices at harvest _ Use Check Boxes to display input options a Revenue Results are based on No of Bu l Display Hide Combo Ins variables at time of purchase Protection RP in a Futures Options contract Display Hide Market variables at harvest sale offset Revenue i Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium I 0 02 0 29 0 17 Expected Basis
99. rketing alternatives down to that row are based on contract bushels and are not completely comparable to the Combo policy alternatives For the Futures amp Options columns the row labeled Percent of Production Insured Price Protected amp Yield Insured indicates 100 coverage level for the marketing alternatives in our perfect world scenario 32 Figure 23 Starting Point for marketing scenarios Bushel Buy Up Calc Off On MouseOver for Help Off On _ Use Check Boxes to display input options Display Hide Combo Ins variables at time of purchase 7 Display Hide Market variables at harvest sale offset Sale Futures Options Strike Prices Combo Coverage Prices Predicted Cash Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premiu Expected Basis Preproduction Net Predicted Cash Floor Ceiling Price Per Bushel Percent of Production Insured Price Protected amp Yield Insured Price Election on Combo Insurance Expected Revenue Acre Net of Marketing amp Insurance Cost Preproductior 308 00 Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre Cash Price at Sale Time Actual Basis Harvest Per Bushel Gain Loss on Basis Harvest Sale Offset Per Bu Profits Losses From Hedge Prorated Over Actual Production Per Bu Profits Losses From Put
100. rking through all of the scenarios For the purpose of comparative analysis two rows serve as the bottom line The first is the Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset and the second is the Actual Net Income Per Acre Actual Yield Actual Net Price For comparative analysis purposes the net price per bushel row is based on harvested yield per acre unless the actual yield is set to zero If actual yield is zero the results displayed for the Net Cash Price Per Bushel shows the Net revenue received per acre for each plan In this instance the Net Combo Indemnity Received Per Acre and the Net Cash Price Per Bushel are the same number A pop up message also alerts you to this circumstance Using actual yield as a common denominator across alternatives allows an apples to apples comparison of protection levels even though by their design the Combo plans and futures and options markets provide different levels of protection 25 The cash result is the highest at 128 per acre because there were no production problems and no crop insurance expenses The three COMBO choices have a net income that reflects the different costs of insurance coverage for each plan The premium for each plan is prorated over the bushels harvested which reduces the net price received per bushel harvested and the net income per acre Thus the most expensive product Revenue Protection has the lowest net income in our base case scenario While the
101. rnatives with the Combo plans This is another reason to cover up the Combo Plan options if you wish to look at just the marketing alternatives One of the considerations necessary to get an apples to apples comparison of the marketing alternatives is the lumpy nature of commodities contracts Wheat contracts are 5 000 bushels per contract The transaction costs of trading commodity contracts are typically stated in cents per bushel traded Premium costs of Options contracts are also stated in cents per bushel traded This makes calculating estimated net price per bushel for the futures or options contract straight forward In our perfect world scenario with actual production equaling expected production which equals an even number of commodity contracts the per bushel calculation follows all the way through to the end However if actual yield is less than expected yield or the number of contracts used to protect price does not exactly equal production levels due to the lumpy 5 000 contract size adjustments are made before comparing the outcomes from market alternatives to those of the Combo policy plans Adjustment is made on the Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset row All costs of trading contracts gains or losses on the marketing alternatives premiums paid for insurance or commodities contracts and indemnities received from each Combo policy are prorated over the actual harvested bushels All of the information for the ma
102. roduction and Revenue Figure 12 is a screen capture of the information requested for the expected revenue for Crop 1 After completing these entries click on the drop down menu again and choose each menu item in sequence The third and fourth menu items allow entry of pre harvest operating inputs Figures 13 and 14 are screen captures when the third and fourth menu items are selected The last screen Figure 15 allows the user to enter harvest operating costs and estimates total operating costs per acre and the breakeven cost of production on a per bushel basis After entering appropriate data in each of these screens the user can then enter the estimated cost of production Figure 15 on the General Input tab The software uses this data to estimate Net returns per acre for the commodity and risk management strategy being analyzed This software does not require you estimate a cost of production You can enter your own estimate or set the cell for the cost of production value to a zero Figure 11 Screen capture of the first screen in Cost of Production for the Crop 1 sub tab _ Save Load Delete Scenarios Crop 1 Crop 2 Select Menu Item to Enter Cost of Production Crop 1 B Reset Click onthe menu bar for _ Crop 1 and select the second menu item Production and Revenue Figure 12 is displayed 16 Figure 12 Screen capture of the second screen after selecting the Production and Revenue item off of the
103. rvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts You can also use the Bushel Buy Up Calc Off On toggle button to display the bushel buy calculations This pop up shows Nee premium aii arated between plans and the number of bushel at a given cash harvest price it would take to increase your coverage from one plan to another This pop up also shows the difference in net indemnity paid does not change between the RP HPE and RP plans for this scenario Scenario 4 Figure 20 shows the results when the RMA Harvest Price and the Spot Futures price at harvest are at 200 of the RMA Projected Harvest Price of 7 15 14 30 in this scenario Set the Actual Cash Price at harvest to 13 60 to maintain a basis of 70 Set the actual yield to the coverage level of 28 bushels With these settings no Combo Plans pay an indemnity including the RP plan This is due to the actual yield being set at the coverage yield level This situation also illustrates the importance of the yield coverage level selected in determining when Combo Plans start to pay 28 Figure 20 RMA Harvest price at capped levels yield at coverage level selected a __ Use Check Boxes to display input options Revenue Results are based on No of Bu w Display Hide Combo Ins variables at time
104. s This also allows you to change numbers in What If analysis to see how price protection levels vary and how different factors affect price yield revenue protection strategies Each individual page tab may have several data entry steps Make sure you complete all that are necessary for the comparison you wish to make The Summary Results tab allows changing key value previously entered to see South Dakota 1 p Data Entry Demo For any cell with a blue background you can move your mouse over the cell and left click State University and drag up or down to change the cell value If you computer is relatively slow this may not change the values very fast You can also double click and type in a new number but you must delete the existing Number Percent Results Risk Management Agency 1 000 a Check Box to Display Hide input results or other information Try it fs Washington State University Ext nsion Western Center for Authors O a Duane Griffith Montana State University Matt Diersen South Dakota State University i griffith montana edu Diersen Matthew sdstate edu 406 994 2580 605 688 4864 USDA unnes states Department of Agricutture National Institute of Food and Agriculture This software requires a browser to run The screen capture in Figures 2 is shown without the browser just to maximize the image size in this document All of the remaining figures are also shown without a browser to maximize the im
105. s Prorated Over Actual Production Per Bu Profits Losses From Calls Prorated Over Actual Production Per Bu Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset Net Revenue Per Acre Based on Actual Bushels Harvested Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Revenue Results are based on No of Bu YP Protection RP in a Futures Options contract Yield W Harvest Revenue Protection Price Excl Protection Locks Price Tet Sets Ceiling 8 40 10 00 0 02 a 0 17 0 70 0 70 0 70 7 68 5 51 9 47 100 00 100 00 100 00 307 20 220 40 378 80 8 40 8 40 8 40 NA NA NA NA NA NA 7 70 7 70 7 70 7 70 0 00 0 00 0 00 Hedge Puts 0 29 Calls 0 00 soo 7 68 7 41 7 70 5308 0 00 e S286 0 __ 08 00 296 40 308 00 450 450 450 i y 127 20 40 40 198 80 128 00 BEEJ 127 20 116 40 128 00 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest 0 70 Cost of Production Per Bushel Actual Yield at Harvest
106. ses From Calls Prorated Over Actual Production Per Bu Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset Net Revenue Per Acre Based on Actual Bushels Harvested Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price NA A NA 50 Hedge 0 00 0 00 0 00 0 00 0 00 0 00 0 00 Calls 0 00 0 00 0 00 64 18 11 30 42 23 11 30 i 56 50 213 45 211 15 320 90 56 50 56 50 4 50 4 50 4 50 4 50 4 50 128 00 98 50 94 40 96 20 127 20 40 40 123 50 33 45 31 15 140 90 123 50 123 50 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Reset Print Figure 35 Adding a Hedge to the results shown in Figure 34 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest Cost of Production Per Bushel Actual Yield at Harvest 10 00 0 17 0 70 9 47 100 00 378 80 12 00 11 30 56 50 4 50 198 80 123 50 0 70 _ Bushel Buy Up Calc Off On MouseOver for Help Off On _ Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 7
107. t 100 e Premium costs for YP RP HPE and RP are constant for the coverage levels selected e The Put strike price and premium are constant at 6 50 and 27 respectively e The Call strike price and premium are constant at 10 00 and 15 respectively e Cost of production is constant at 4 50 per bushel Scenarios presented are divided into three categories The first include scenarios related only to the Combo Policy Plans The second are those related only to the Futures and Options marketing tools The third are those that combine Combo plans and marketing tools into an overall risk management strategy First Category of Scenarios Combo Policy Plans Scenario 1 Figure 17 is a screen capture of the Summary Results using the base case scenario values This scenario is our perfect world scenario with a text book hedge example and a perfect production year as previously shown in Figures 3 and 8 Figure 17 indicates that Hedging Puts and Calls are not active they are set to Off The actual yield also equals our expected and APH yield This scenario also assumes a level of production acres times yield per acre that matches an even number of Futures Options contracts in this case 8 contracts at 5 000 bushels each This eliminates over or under hedged positions with respect to expected total production There are several rows of estimated results on the Summary Results tab We encourage you to familiarize yourself with this table before wo
108. t strategy The net income per acre for the RP plan is 130 40 Figure 37 The net income per acre for the YP and Call option strategy is 168 90 Figure 38 In this particular scenario combining YP and a Call option provides more coverage than just the Combo RP plan This scenario looks attractive because of the RMA Harvest Price 12 00 is above the Call Strike 10 00 price However this strategy does not pay a higher indemnity if the RMA Harvest Price is below the Call Strike price but above the RMA Projected Harvest Price It leaves a gap in coverage where RP does pay indemnities Figure 37 Simulated the yield and price protection provided by RP using YP and a Call option Use Check Boxes to display input options Display Hide Combo Ins variables at time of purchase Revenue Results are based on No of Bu in a Futures Ootions contract YP Protection RP Display Hide Market variables at harvest sale offset Cash Yield WiHarest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86
109. tered to see how a value change impacts the relative yield price revenue protection levels for futures options and Combo Policy Plans or for various combinations of these alternatives The Cost of Production tab allows estimations for the cost of production for up to two different crop enterprises The cost of production per bushel calculation can be then be entered on the General Inputs tab The software uses this to estimate net returns per acre under different strategies Using the cost of production estimation part of the software is optional You can enter your own estimated cost of production if available or leave it blank Getting Started This software runs inside the Internet Explorer web browser Other possible browsers may also run this software but they have not been tested with this software The software will run from the web http www montana edu softwaredownloads financialmgtdownloads htm l where it is located or it can be downloaded to your computer and run for your local computer without being connected to the web Follow the instructions at the link above to download and run this software Figure 1 is a screen capture of the Introduction page tab of this software This tab includes text with a brief explanation of the software and the types of components you can interact with while using this software These components include Scrolling text windows Toggle Buttons URL Link Buttons Check Boxes and data input ce
110. this example the revenue guarantee would be 200 20 40 bu 70 7 15 the same as YP The difference between this plan and the Yield Protection plan is that any combination of actual yield and RMA Harvest Price that is below the revenue guarantee will result in an indemnity i e it is not just yield driven When RMA Harvest Price is below the RMA Projected Harvest Price Actual yield may be above or below the yield coverage level selected 70 28 bushels in our base case RP_HPE plan pays the same indemnity as the RP plan however the net indemnity will differ due to the premium difference between the plans 3 Combo Revenue Protection RP O This plan allows a producer to take advantage of increasing prices after the sales closing date The revenue guarantee established with this plan is the higher of the RMA Projected Harvest Price established before the sales closing date or the RMA Harvest Price at the end of the insurance period capped at 200 of the RMA Projected Harvest Price times the APH yield times the yield coverage level selected In the base case scenario the minimum revenue guarantee is 7 15 40 70 yield election 200 20 The maximum possible indemnity using the base case parameters is 400 40 per acre 7 15 200 40 70 This software displays the Net Combo Indemnity Received for each plan not the total indemnity The RP premium of 11 60 per acre in this example results in a net indemnity of
111. tual Net Price 46 00 95 70 93 40 130 40 46 00 46 00 46 00 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts aii a RMA Harvest Price Havest Sale Offset 6 50 Actual Cash Price Received at Harvest Sale 0 27 Spot Futures Price at Harvest Sale Offset gt 10 00 Actual Basis at Harvest 0 70 0 15 Cost of Production Per Bushel 4 50 8 _ Actual Yield at Harvest 47 Figure 38 Simulated results for price and yield coverage offered by RP with YP and Call options Use Check Boxes to display input options a TONE a a aa a Rees Display Hide Combo Ins variables at time of purchase Protection a a Display Hide Market variables at harvest sale offset Cash i Hedge Puts Calls Sale Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium i i 0 02 0 29 0 17 Expected Basis Preproduction 0 70 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 100 00 100 00 100 00 Price Election on Combo Insurance 100 Expected Revenue Acre Net of Market
112. tual Production Per Bu Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset 8 21 9 24 9 15 5 30 5 72 5 30 Net Revenue Per Acre Based on Actual Bushels Harvested 106 00 164 10 184 80 183 00 106 00 114 40 106 00 Cost of Production Per Bushel Based on APH Yield 4 50 4 50 4 50 4 50 4 50 4 50 Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 128 00 98 50 94 40 96 20 127 20 40 40 198 80 74 00 15 90 4 80 3 00 74 00 65 60 74 00 RMA Harvest Price Havest Sale Offset Actual Cash Price Received at Harvest Sale Spot Futures Price at Harvest Sale Offset Actual Basis at Harvest Cost of Production Per Bushel Actual Yield at Harvest Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Scenario 16 This scenario explores what might happen when an individual farm experiences very low yields Start with the variable values shown in Figure 31 Change the yield to 5 bushels per acre The results of these changes are shown in Figure 32 While the yield was very low for this farm the relevant prices were also low The net income per acre for the Combo policy plans are relatively the same ranging from 3 45 with YP to 6
113. ummary 8 Results tab is that these columns are not active by default on this tab while on the Futures and Options tabs the ending result is displayed as if a position in the commodities markets had been established When in the Off position trading costs and profits or losses from the market transactions are ignored and the Cash Price at harvest is used This creates a slightly different calculation for the beginning and ending net prices received for Futures Puts and Calls on the Summary Results page than is shown on the Futures and Options tabs To make the results shown on the individual tabs match exactly you must use the check boxes on the Summary Results page to activate those alternatives Once activated the ending net income figures will match those displayed on the Futures and Options tab but only when the actual yield equals the expected yield As trading costs and profits or losses from the futures and options are prorated over the actual yield to make the alternatives comparable an actual yield that is different than the expected yield will also make the final results for the futures and options columns different than what is displayed on the Futures and Options tabs The Options Tab Put Options The Options tab contains two sub tabs one for Puts and the other for Calls Calculations shown for Puts and Calls on the Options tab can also be used as a standalone application All of the information necessary to estimate out
114. urchase Protection Sc cae aaah Display Hide Market variables at harvest sale offset j WiHarvest i A i Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 15 7 15 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70 6 96 6 86 7 68 5 51 9 47 Percent of Production Insured Price Protected amp Yield Insured 70 70 100 00 100 00 100 00 Price Election on Combo Insurance 100 100 308 00 278 50 274 40 276 20 307 20 220 40 378 80 Expected Revenue Acre Net of Marketing amp Insurance Cost Preproduction Spot Futures Price for Futures amp Options Markets at Sale RMA Avg Futures Price for Insurance Products Harvest Sale Offset Net Combo Indemnity Received Per Acre Cash Price at Sale Time 5 30 9 30 9 30 Actual Basis Harvest Per Bushel Gain Loss on Basis Harvest Sale Offset Per Bu aE 50 con 5 30 5 30 0 70 oa 70 Risch 70 0 00 Profits Losses From Hedge Prorated Over Actual Production Per Bu Hedge a 00 00 00 Barer From Puts Prorated Over Actual Production Per Bu Puts 0 00 0 00 0 00 0 00 Calls 0 00 0 00 0 00 0 00 Net Cash Price Per Bushel Harvested Yield
115. ures Price Purchase Interest amp Broker Fee Expected Basis Sale Profit Loss on Call Option Brokeraae and Interest bu Net Cash Price Adi for Hedaed Predicted Ceiling Price with Call 9 47 Total Expected Production Acres Insured Price Revenue Protected 1 000 Number of Contracts Needed APH Yield 40 0 Number of Contracts Purchased Percent hedaed usina Calls This block does not affect the graph lt gt Buying Call Option Protection Against Rising Prices e 12 00 1 80 Increment Value for 10 00 Graph s X axis Cents Per Bushel 5 8 00 gt 0 20 0 O 6 00 i E e 4 00 2 Note Check Boxes 5 S that Display Hide a Oi eee Lines on the Graph i g 0 00 O00000 0000000000000000000000000000 0 40 z UVEODONTODONTODONTODONTODONTODONTOD Z WWMMUOWWOUOUOMRRMMMOADWODAODDAaAARAOITOCC Cnn nner HHH HH HM HHH HHH HHH HH HH HM Y YM MA nt nt A An AAAS th MMH MHwHw www H Us Futures Price Option Only Cash Opt Estimated Cash Summary Results The Summary Results tab brings all of the alternative risk management strategies together for a side by side comparison and also allows evaluation of potential combinations of these alternatives There are several check boxes on this screen These check boxes are used to toggle a particular display or make a column in the table active Some of these check boxes are defaulted to the Off not active position These check boxes are a medium gray color Other chec
116. vest Sale Offset Actual Basis at Harvest 1 00 Cost of Production Per Bushel Actual Yield at Harvest Net Cash Price Per Bushel Harvested Yield Harvest Sale Offset Net Revenue Per Acre Based on Actual Bushels Harvested Cost of Production Per Bushel Based on APH Yield Expected Net Income Per Acre Preproduction Actual Net Income Per Acre Actual Yield Actual Net Price 98 50 58 90 Spot Harvest Time Futures Preproduction NOT RMA Avg Expected Basis at Harvest Sale Offset Put Strike Price Selected Put Premium Paid Call Strike Price Selected Call Premium Paid Number of Futures Options Contracts Figure 30 Hedge alternative is not active all other parameter values as in Figure 29 _ Use Check Boxes to dis la input o tions Revenue Results are based on No of Bu ee N YP Protection RP in a Futures Ootions contract Display Hide Market variables at harvest sale offset Cash Yield WiHarvest Revenue Sale Protection Price Excl Protection Locks Price Sets Floor Sets Ceiling Futures Options Strike Prices Combo Coverage Prices Predicted Cash 7 70 7 15 7 15 7 15 8 40 6 50 10 00 Marketing Brokerage Margin Interest amp Other Misc OR Insurance Premium 7 50 9 80 11 60 0 02 0 29 0 17 Expected Basis Preproduction 0 70 NA NA NA 0 70 0 70 0 70 Net Predicted Cash Floor Ceiling Price Per Bushel 7 70

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