Insurance Product Geared to Ethanol Market

John Deere Risk Protection rolls out an ethanol policy that covers farmers when they can't meet contract delivery requirements.

Published on: Feb 29, 2008

Signing the ethanol delivery contract on the dotted line might be a little easier if a farmer considers a first-ever new insurance product from John Deere Risk Protection. The new Ethanol Policy is designed for corn producers who have delivery contracts for ethanol production. Details of the program were discussed during a media event at Commodity Classic in Nashville Friday.

The program, which requires the farmer to buy the multi-peril crop insurance policy with JDRP, insures yield shortfalls below contracted volumes in the event the price to replace the corn rises above the federal crop insurance coverage. In essence, the policy gives you another 75 cents in price.

Dennis Dagget from JDRP discussed the policy noting there were several benefits for farmers who contract a large portion of their production to an ethanol plant. "The program gives a farmer the confidence to contract more corn at a premium price," he says. "The policy assists in covering the added costs of replacing a crop shortfall."

An interesting facet of the policy is that the ethanol plant would have to acquire the replacement bushels as part of the program. That takes pressure off the grower if there is a shortfall. Also, when a farmer buys this insurance rider he provides the contract to the agent and pricing/delivery information is available at the time of policy purchase.

In an increasingly volatile market having protection to replace bushels with a little head room above the actual price might be valuable peace of mind. Daggett was reluctant to discuss the premium for the program because it is determined based on a wide range factors from the kind of multi-peril policy purchased. "I can give you a range, perhaps 2 to 3 cents per bushel," he says.

The policy will available in Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin. Daggett noted this is the first of this kind of policy but added that the company is looking at other types of opportunities in the contract guarantee market. Given the rise of farmers selling more of their production through contracts, these policies could be more popular.

"Because of the regulatory approval process we are focused on ethanol," Daggett notes. "Farmers who are really interested are those who are contracting more than 50% of their multi-peril guarantee."

The policy is available online at www.johndeereriskprotection.com.