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Spring Price Endorsement Wheat Strategies

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    Spring Price Endorsement Wheat Strategies

    Any thoughts around market strategies to lock in the current payout under the Alberta spring price endorsement program for wheat? Your crop insurance value for 2CWRS wheat is $177/t. Your trigger is $159/t (90 %). The price today used in the calculation is $135/t (converted MGE wheat futures minus $45/t). A note is the SPE will be based on the average value during October. Without going into the gory details, anyone who has the SPE on wheat is well in the money. MGE wheat futures will have to increase by 50 cents/bu before the program doesn't pay.

    Just a thought is to buy enough Decebmber calls to cover the volume of grain insured under the SPE. A Dec. 380/390 is about 4 1/2 cents/bu and 3 cents/bu respectively. Dec. futures closed at $3.57 3/4 /bu. Prices stay crummy - collect under SPE and curse Charlie for suggesting spending money on options. Prices rally - amount of money paid out under SPE is reduced (if rally is big enough, SPE doesn't pay)but you have potential to pocket some of improvement in option value.

    As a side note, a rally in MGE futures would be a good thing even if the SPE didn't work out - similar to the thinking that I don't get mad in years that I don't collect on car insurance.

    #2
    More notes on the SPE.

    Way in the money on wheat.

    Barley is borderline although after Fri. and today looks like will pay.

    Canola is way out of the money - won't pay.

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