Safeguarding Farmer Profitability : Flex Lease Insurance

May 22, 2023

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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

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