With the economy particularly turbulent and the farming industry facing a lot of uncertainty and scrutiny, at McClarrons, we are looking for new ways to help our farmers protect themselves and their businesses.
We believe that Price Volatility insurance is a product that our agricultural clients should consider. It can protect you against price fluctuations in the cost of running your business and in your profits, including through the potential impact of Brexit.
This cover is available for any UK farmers running farming businesses producing the below:
- Arable crops – feed barley, feed wheat, milling wheat or rapeseed
- Milk
- Livestock – deadweight cattle, lamb or pig
Or, farmers who purchase AN Fertilizer or Red Diesel as inputs.
Farming businesses can look to protect themselves against a fall in prices of the insured commodity or an increase in the cost of inputs through Price Volatility cover.
How does it work?
You will need to consider a number of things to ensure you are paying for cover that is relevant and most appropriate for your farm business. Your Account Executive will be able to advise you on what is appropriate and explain the implications of the various options available to you.
Choose your price
The policy is based entirely on the Index price (those produced monthly by the Agricultural and Horticultural Development Board (AHDB) and Defra) of the commodity being insured. It allows you to decide the price at which you want to protect your commodity based on what makes the most sense for your rural business. This ‘start’ price can be anything up to 90% of the current index price for that commodity.
Choose your volume
You then must decide on the volume of the commodity you wish to insure. Minimum amounts are set out below.
10 tonnes of crop
1000kg of livestock
10,000 litres of milk
10,000 litres of diesel
10 tonnes of fertilizer
Choose your time
The policy is flexible so you can choose to insure for a single month or multiple months and can choose to cancel at any time, with your remaining premium returned to you (for each remaining complete month).
How does the policy react?
The cover relates to any fall (for commodities) in price or an increase (for inputs) in price during the insured period – between the ‘start’ price you selected and the ‘stop’ price. The ‘stop’ price is always set at 50% of the current index and is the maximum loss of income covered.
So, should there be a fall in price, the policy will pay the difference between the ‘start’ price and the average index price for the period of the insurance policy.
When the relevant index price is published, the claim is generally paid automatically within 48 hours.
Example 1:
The current index price for wheat is £100/t.
A farmer chooses to insure 100 tonnes for a single month, choosing a start price of £85/t.
The month’s index price for wheat turns out to be £75/t.
Therefore, the difference between the start price and the month’s index price is £10.
This would mean that the farmer receives £10 for every tonne insured, i.e. a £1,000 claim payment.
Example 2:
The current index price of diesel is 62.02p/litre.
A farmer chooses to insure 10,000 litres for 12 months, choosing a start price of 71.48p/litre (115% of the current index price).
If at the end of the 12 month insurance period, the average index price is more than 71.48p/litre, the policy will pay the difference between the start price and the average index price for the insured period.
If you would be interested in discussing this cover in more detail, please contact your Account Executive directly or email farm@networkportfolio.co.uk/mcclarroninsurance.com. Alternatively, please click here and fill out the form, quoting ‘Price Volatility Insurance’ as the message.
