Safeguarding Farmer Profitability : Flex Lease Insurance

Flex Lease Insurance

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Who is Common Ground IO?What are their offerings?Who is Hudson Crop?History, Mission, VisionHudson 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 administratorsHow did this partnership come about?Flex lease insurance How it works:If…Commodity prices rally after you have contracted grain, orCommodity 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 seasonAnd…Your Flex Lease Agreement has a bonus clause that you must pay more to your landlord in rent due to higher revenuesThen…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 fluctuationHow has progress come?What impact will this project have on ethanol production in the midwestWhy is it such a focus now?How will this help farmers?Advantages of flex leasesThe actual rent paid adjusts automatically as yields or prices fluctuateThe 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 opportunitiesOperator - some level of risk protection should costs rise or revenue disappointLandowners 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 pricesHow are the producers getting paid? How are flex leases more beneficial/different than other leases? DisadvantagesLandowner - 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 ownerBoth parties - flex leasing greatly increases the contract’s complexityOther QuestionsHow 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 PriceExpected 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 laterAre forward contract prices included? What are you most excited for in the future?Flex LeaseWhat 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