Safeguarding Farmer Profitability : Flex Lease Insurance

Flex Lease Insurance

Guest:

Guest Bio

• Who is Common Ground IO?
• What are their offerings?
• Who is Hudson Crop?
• History, Mission, Vision
• Hudson is a market-leading specialty insurer that offers a wide range of property and casualty insurance products to corporations, professional firms, and individuals through retailers, wholesalers and program administrators
• How did this partnership come about?
• Flex lease insurance
• How it works:
• If…
• Commodity prices rally after you have contracted grain, or
• Commodity prices fall after your Flex Lease Agreement is negotiated based on current market rates and you didn’t contract your grian hoping for a price increase later in the season
• And…
• Your Flex Lease Agreement has a bonus clause that you must pay more to your landlord in rent due to higher revenues
• Then…
• Flex Lease Insurance covers the difference from the agreed upon rental rates in your agreement and the new rental rate whether due to a bonus or a commodity price fluctuation
• How has progress come?
• What impact will this project have on ethanol production in the midwest
• Why is it such a focus now?
• How will this help farmers?
• Advantages of flex leases
• The actual rent paid adjusts automatically as yields or prices fluctuate
• The avoidance of committing to a fixed rent amount at a time when many production and market variables remain unknown
• Risks are shared between the owner and the tenant, as are profit opportunities
• Operator - some level of risk protection should costs rise or revenue disappoint
• Landowners are paid in cash - they do not have to be involved in decisions about crop inputs or grain marketing
• Landowner - an opportunity to benefit financially from higher yields and favorable commodity prices
• How are the producers getting paid?
• How are flex leases more beneficial/different than other leases?
• Disadvantages
• Landowner - a flex lease can increase their exposure to risk (compared to a fixed cash lease agreement)
• Operator - higher revenue from increased yields and/or prices is shared with owner
• Both parties - flex leasing greatly increases the contract’s complexity
• Other Questions
• How are you marketing this to producers to bring them in?
• Is there more risk doing a flex lease?
• What other means are suggested in adopting to reduce the risk?
• With a flexible lease, how is the payment for rent in advance determined? Does it change the final payment that depends on the actual prices and yields?
• Determining Price
• Expected revenue trigger = expected county yield * projected price * trigger election
• To establish a trigger, the producer may elect the following deductible options: 110%, 115%, 120%, and 125%
• Final revenue = Final county yield * harvest price
• What date is used when the crop may be sold later
• Are forward contract prices included?
• What are you most excited for in the future?
• Flex Lease
• What challenges may the flex lease face ahead?
• What can we and our listeners do to help?
• What did we miss?
• What does success look like to you?
• Summary and Challenge