Price Insurance Offered Where Futures Don’t Work

A relatively new company has emerged to help producers and retailers hedge the prices of agricultural products they sell or buy when there is no viable futures market.

Jim Sullivan, vice president of partnership for Stable, said the company uses large price datasets to generate insurance policies on the price of an input or product.  With offices in London, England; Chicago and Austin, Texas, Stable needs the reference point of a historic set of prices from a third party to generate the price insurance policies, which then are backed by major re-insurers.

In an interview, Sullivan stressed that Stable does not need a large cash market in the same way a futures market does.  The dataset allows the firm to assess the risk of guaranteeing the dataset price of a commodity will not go above or below the insured price.




What Shield’s policies can’t do is guarantee the price of the actual commodity for the person or company buying it, he said.  It can only ensure the price on the dataset won’t go above or below a certain agreed-upon price.

And, in many cases, existing futures markets may be a better hedge for a producer than an insurance policy, Sullivan said.  Futures contracts have the liquidity that allows for quick sales of purchases of contracts of known size and specifications.  Plus, insurance policies can’t be sold or offset like a futures contract.

Stable also isn’t set up to help the ultra-small producer, Sullivan said.  At this stage of company growth, some producers, or buyers, present too much of a risk to ensure.




Sullivan gave an example of a specialty cow/calf producer in California or Oregon.  This producer sells the calves each year from his herd of cows carrying specific genetic traits.  The calves may also be certified as non-hormone treated or some other certification.

The feeder cattle futures market may not correlate very well with this producer’s hedging needs, he said.  Yet there may be a USDA dataset from markets in the producer’s area that goes back many years.

Shield can use that dataset to create an insurance policy that protects against the price on the USDA dataset going below an agree-upon price, Sullivan said.

A retail buyer of beef strip steaks also may want to ensure the wholesale price of strips teaks stays below a certain point, he said.  Shield can use USDA, Urner Barry or other price-report data to generate an insurance policy for strip steak costs.

In the end, a price insurance policy may be the way to go when a futures market doesn’t exist.




The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $135.00 to $143.25 per cwt, compared with last week’s range of $135.28 to $137.27.  FOB dressed steers and heifers went for $212.43 to $218.25 per cwt, versus $211.86 to $215.04.

The USDA choice cutout Thursday was up $1.63 per cwt at $268.56, while select was up $1.03 at $260.64.  The choice/select spread widened to $7.92 from $7.32 with 138 loads of fabricated product and 17 loads of trimmings and grinds sold into the spot market.

The USDA reported Thursday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.45 to $1.65 a bushel over the Mar futures and for southwest Kansas were unchanged at $0.35 over Mar, which settled at $6.03 3/4 a bushel, up $0.01 1/2.

The CME Feeder Cattle Index for the seven days ended Wednesday was $162.28 per cwt up $0.15.  This compares with Thursday’s Jan contract settlement of $162.57 per cwt, up $0.45.